[Federal Register Volume 68, Number 82 (Tuesday, April 29, 2003)]
[Rules and Regulations]
[Pages 22966-22973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10121]



  Federal Register / Vol. 68, No. 82 / Tuesday, April 29, 2003 / Rules 
and Regulations  

[[Page 22966]]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AL57


Reasonable Charges for Medical Care or Services; 2003 Update

AGENCY: Department of Veterans Affairs.

ACTION: Interim final rule.

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SUMMARY: This document amends the Department of Veterans Affairs (VA) 
medical regulations concerning ``reasonable charges'' for medical care 
or services provided or furnished by VA to a veteran:

--For a nonservice-connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health 
plan contract;
--For a nonservice-connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services; or
--For a nonservice-connected disability incurred as a result of a motor 
vehicle accident in a State that requires automobile accident 
reparations insurance.

    The regulations contain a methodology designed to establish VA 
charges that replicate, insofar as possible, the 80th percentile of 
community charges, adjusted to the market areas in which VA facilities 
are located, and trended forward to the time period during which the 
charges will be used. This document amends the regulations to update 
databases and other provisions for the purpose of providing more 
current and more precise charges.

DATES: Effective Date: These amendments are effective April 29, 2003. 
Comments must be submitted by June 30, 2003.

ADDRESSES: Mail or hand-deliver written comments to: Director, Office 
of Regulations Management (02D), Department of Veterans Affairs, 810 
Vermont Avenue, NW., Room 1154, Washington, DC 20420; or fax comments 
to (202) 273-9289; or e-mail comments to [email protected]. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AL57.'' All comments received will be available for public 
inspection in the Office of Regulations Management, Room 1158, between 
the hours of 8 a.m. and 4:30 p.m., Monday through Friday (except 
holidays).

FOR FURTHER INFORMATION CONTACT: David Cleaver, Chief Business Office 
(161), Veterans Health Administration, Department of Veterans Affairs, 
810 Vermont Avenue, NW., Washington, DC 20420, (202) 254-0361. (This is 
not a toll free number.)

SUPPLEMENTARY INFORMATION: This document amends VA's medical 
regulations that are set forth in 38 CFR part 17. More specifically, we 
are amending the regulations that establish a methodology for 
determining ``reasonable charges'' for medical care or services 
provided or furnished by VA to a veteran:
    (i) For a nonservice-connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health 
plan contract;
    (ii) For a nonservice-connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services; or
    (iii) For a nonservice-connected disability incurred as a result of 
a motor vehicle accident in a State that requires automobile accident 
reparations insurance.
    The methodology for establishing ``reasonable charges'' covers 
inpatient facility charges, skilled nursing facility/sub-acute 
inpatient facility charges, outpatient facility charges, physician 
charges, and other provider charges. The methodology for these charges 
is designed to replicate, insofar as possible, the 80th percentile of 
community charges, adjusted to the market areas in which VA facilities 
are located, and trended forward to the time period during which the 
charges will be used. Charges for outpatient dental care and 
prescription drugs are based on a reasonable cost methodology, while 
charges for prosthetic devices and durable medical equipment are based 
on VA's actual cost.
    Under the provisions of 38 U.S.C. 1729, VA has the right to recover 
or collect reasonable charges for such medical care and services from a 
third party to the extent that the veteran or a provider of the care or 
services would be eligible to receive payment therefore from that third 
party if the care or services had been furnished by a provider other 
than a department or agency of the United States. However, consistent 
with that statutory authority, a third-party payer liable for such 
medical care and services under a health plan contract has the option 
of paying, to the extent of its coverage, either the billed charges or 
the amount the third-party payer demonstrates it would pay for care or 
services furnished by providers other than entities of the United 
States for the same care or services in the same geographic area.
    This document amends VA's reasonable charges regulations to provide 
charges for 2002 Current Procedural Terminology (CPT) codes, to provide 
charges for 2002 and 2003 Diagnosis Related Groups (DRGs), to update 
source databases to more recent versions, and to provide certain 
clarifications. These changes will not have a significant impact on any 
affected party, but will make VA's charge system more current and more 
precise.

Acute Inpatient Facility Charges

    Previously, the regulations provided for ``inpatient facility 
charges.'' We are changing the term ``inpatient facility charges'' to 
``acute inpatient facility charges.'' This change reflects that acute 
inpatient facility charges do not include sub-acute inpatient facility 
charges. Sub-acute inpatient facility charges are included in the 
charges for skilled nursing facility/sub-acute inpatient facility care.

Definitions--Additions and Clarifications

    This document adds definitions for MDR (Medical Data Research) and 
MedPAR (Medicare Provider Analysis and Review file). We are amending 
the definition of CPT procedure code to identify the American Medical 
Association as the entity that defines CPT procedure codes, and we are 
amending the definition of geographic area to specify acute inpatient 
facility charges.

Updated Databases and Associated Changes

    Our previous charges were implemented with an interim final rule 
and notice published in the Federal Register on May 8, 2001 (66 FR 
23326). The acute inpatient facility charges in that update were based 
on the Medicare DRG grouper in effect in 2001. This document updates 
our charges to be based on the current Medicare DRG grouper. With this 
change, our acute inpatient facility charges will be based on current 
industry-standard DRGs.
    In the formulas for acute inpatient facility charges, we have 
updated the Medicare MedPAR database from the 1999 release to the 2001 
release, which allows us to readily calculate acute inpatient facility 
charges for the newest DRG grouper. We have also updated the MedStat 
claims database from 1997 data

[[Page 22967]]

to 1999 data, and 1997 VA discharge data to 2001 data. We did not 
update databases related to geographic area adjustment factors and 80th 
percentile factors; in both cases, our experience indicates that 
updating these databases would not produce a material difference in 
charge levels.
    The regulations regarding ``reasonable charges'' identify various 
charge databases utilized for the calculation of skilled nursing 
facility/sub-acute inpatient facility charges. This document updates 
the data source for per diem charges to the 2003 Milliman USA, Inc., 
Health Cost Guidelines. With this change, the regulations will have the 
latest available estimate of average billed charges for skilled nursing 
facility/sub-acute inpatient facility services. We do not update the 
data source for geographic area adjustment factors, as the Milliman 
USA, Inc., Health Cost Guidelines do not provide for a 2003 release of 
this particular data source. Also, we do not update databases related 
to 80th percentile factors; as with acute inpatient facility charges, 
our experience indicates that updating these databases would not 
produce a material difference in charge levels.
    The regulations identify various charge databases utilized for the 
calculation of outpatient facility charges. At this time, we are 
preparing a more thorough update of these charges, to be based on 
Medicare Ambulatory Payment Classifications. Therefore, this interim 
final rule provides a trended update to charges published in 2001, 
without updating the basic underlying data sources.
    The regulations identify various charge databases utilized for the 
calculation of professional charges. This document utilizes the latest 
appropriate versions of the various databases available to us at the 
time of calculation. In particular, we have relied on 2002 Medicare 
Physician Fee Schedule Relative Value Units (RVU) and geographic 
practice cost indices, 2002 Medicare Clinical Diagnostic Laboratory Fee 
Schedule, 2001 Medicare conversion factor, 2002 St. Anthony's Resource 
Based RelativeValue Scale RVUs, 2001 MDR database, 2000 Medicare 
Standard Analytical File 5% Sample database, 2001 Prevailing Healthcare 
Charges System database, and 2001 Milliman USA, Inc., Health Cost 
Guidelines fee survey. Note that due to corporate changes, the MDR 
database previously owned by MediCode is now owned by Ingenix; we 
previously referred to it as the MediCode database, but due to its 
change of ownership, we refer to it in this document by its more 
specific designation of MDR database. Also note that the database 
previously compiled by the Health Insurance Association of America 
(HIAA) was sold by HIAA to Ingenix, who renamed it the Prevailing 
Healthcare Charges System database; it is a continuation of the same 
database under a new owner and new name.
    In accordance with the methodology in the regulations, acute 
inpatient facility charges, outpatient facility charges, and physician 
charges are updated based on changes to the consumer price index. Under 
this methodology, charges are trended to the midpoint of the calendar 
year in which the charges will be effective.
    All of the above changes made by this document are for the purpose 
of providing more current and more precise charges.
    In addition to the above changes, dates have been added to various 
data sources for purposes of clarification.

Previous Interim Final Rules and Responses to Comments

    This document supersedes two previous interim final rules, one 
published in the Federal Register on November 2, 2000 (65 FR 65906, RIN 
2900-AK39), and the other published in the Federal Register on May 8, 
2001 (66 FR 23326, RIN 2900-AK73). We received no comments in response 
to the November 2, 2000, document. We received two comments in response 
to the May 8, 2001, document. These comments are discussed below.
    One commenter stated that the terms ``speech therapy'' and ``speech 
therapists'' should be changed to ``speech-language pathology'' and 
``speech-language pathologists,'' respectively. We agree, and we have 
made these changes in this interim final rule.
    The same commenter also stated that we should add charges for codes 
G0193 through G0201 (these are HCPCS Level II codes). In addition, the 
commenter stated that we have identified audiology services furnished 
in conjunction with a hearing aid, CPT codes 92590 through 92595, as 
physician services, when in fact these services are performed solely by 
audiologists and should not be designated as physician services. We are 
developing a proposed rule to address these issues.
    The second commenter submitted information regarding the work of 
certified registered nurse anesthetists (CRNAs) and recommended changes 
to the wording regarding VA's charges for the services of CRNAs. 
Section 17.101(f) states the amounts that will be charged for certain 
providers as percentages of the amounts that will be charged if the 
services had been provided by physicians. Previously, the wording for 
CRNAs was as follows:

Certified registered nurse anesthetist:
    50% when physician supervised;
    100% when not physician supervised.

    For clarity, we are amending the wording to the following:

Certified registered nurse anesthetist:
    50% when medically directed by an anesthesiologist;
    100% when not medically directed by an anesthesiologist.

Other Changes and Clarifications

    The regulations make two references to charges for prescription 
drugs, but the previous language in these paragraphs was different: 
Sec.  17.101(a)(2) stated that these charges ``will be a single 
nationwide average,'' while Sec.  17.101(g) stated that these charges 
``will be based on VA costs in accordance with the methodology set 
forth in Sec.  17.102 of this part.'' For consistency, the language in 
paragraph (a)(2) is being amended to read the same as in paragraph (g).
    The methodology at Sec.  17.101(e)(2) for the calculation of 
Relative Value Units (RVUs) for physician charges establishes a 
priority of data sources for RVUs. Except as noted earlier regarding 
updated data sources, we are not amending this methodology, but rather 
than listing information regarding specific CPT procedure codes in the 
regulations, we are including this information in the applicable 
Federal Register notice when the results of these calculations are 
released.

Administrative Procedure Act

    This document amends the reasonable charges regulations to update 
databases and other provisions for the purpose of providing more 
precise charges. Although some charges will be slightly different, 
overall these changes would at most result in a very minor change in VA 
charges. Under these circumstances, we have concluded under 5 U.S.C. 
553 that there is good cause for dispensing with prior notice and 
comment and a delayed effective date based on the conclusion that such 
procedure is impracticable, unnecessary, and contrary to the public 
interest.

Unfunded Mandates

    The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that 
agencies prepare an assessment of anticipated costs and benefits before 
developing any rule that may result in an expenditure by State, local, 
or tribal governments, in the aggregate, or by the private sector of 
$100 million or more in any given year.

[[Page 22968]]

This rule would have no consequential effect on State, local, or tribal 
governments.

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

Executive Order 12866

    This document has been reviewed by the Office of Management and 
Budget under Executive Order 12866.

Regulatory Flexibility Act

    The Secretary hereby certifies that this regulatory amendment will 
not have a significant economic impact on a substantial number of small 
entities as they are defined in the Regulatory Flexibility Act, 5 
U.S.C. 601-612. This amendment would affect mainly large insurance 
companies, and where small entities are involved, they would not be 
impacted significantly since most of their business is not with VA. 
Accordingly, pursuant to 5 U.S.C. 605(b), this amendment is exempt from 
the initial and final regulatory flexibility analysis requirements of 
Sections 603 and 604.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance numbers for the programs 
affected by this rule are 64.005, 64.007, 64.008, 64.009, 64.010, 
64.011, 64.012, 64.013, 64.014, 64.015, 64.016, 64.018, 64.019, 64.022, 
and 64.025.

List of Subjects in 38 CFR Part 17

    Administrative practice and procedure, Alcohol abuse, Alcoholism, 
Claims, Day care, Dental health, Drug abuse, Foreign relations, 
Government contracts, Grant programs-health, Grant programs-veterans, 
Health care, Health facilities, Health professions, Health records, 
Homeless, Medical and dental schools, Medical devices, Medical 
research, Mental health programs, Nursing homes, Philippines, Reporting 
and record-keeping requirements, Scholarships and fellowships, Travel 
and transportation expenses, Veterans.

    Approved: March 20, 2003.
Anthony J. Principi,
Secretary of Veterans Affairs.

0
For the reasons set out in the preamble, 38 CFR part 17 is amended as 
set forth below:

PART 17--MEDICAL

0
1. The authority citation for part 17 continues to read as follows:

    Authority: 38 U.S.C. 501, 1721, unless otherwise noted.

0
2. Section 17.101 is revised to read as follows:


Sec.  17.101  Collection or recovery by VA for medical care or services 
provided or furnished to a veteran for a nonservice-connected 
disability.

    (a)(1) General. This section covers collection or recovery by VA, 
under 38 U.S.C. 1729, for medical care or services provided or 
furnished to a veteran:
    (i) For a nonservice-connected disability for which the veteran is 
entitled to care (or the payment of expenses of care) under a health 
plan contract;
    (ii) For a nonservice-connected disability incurred incident to the 
veteran's employment and covered under a worker's compensation law or 
plan that provides reimbursement or indemnification for such care and 
services; or
    (iii) For a nonservice-connected disability incurred as a result of 
a motor vehicle accident in a State that requires automobile accident 
reparations insurance.
    (2) Methodology. Based on the methodology set forth in this 
section, the charges billed will include, as appropriate, acute 
inpatient facility charges, skilled nursing facility/sub-acute 
inpatient facility charges, outpatient facility charges, physician 
charges, and non-physician provider charges. In addition, the charges 
billed for prosthetic devices and durable medical equipment provided on 
an outpatient basis will be VA's actual cost, and the charges billed 
for prescription drugs not administered during treatment will be based 
on VA costs in accordance with the methodology set forth in Sec.  
17.102. Data for calculating actual amounts for acute inpatient 
facility charges, skilled nursing facility/sub-acute inpatient facility 
charges, outpatient facility charges, and physician charges will be 
published annually in the ``Notices'' section of the Federal Register. 
In those cases in which the effective period for published charges has 
expired and new charges have not yet become effective, VA will continue 
to bill using the most recently published charges until new charges are 
published and become effective (for example, if the most recently 
published charges state that they are effective through December and 
new charges are not published and effective until February 1, then the 
charges set forth for the period through December will continue to be 
used through January 31).
    (3) Amount of recovery or collection--third party liability. A 
third-party payer liable under a health plan contract has the option of 
paying either the billed charges described in this section or the 
amount the health plan demonstrates is the amount it would pay for care 
or services furnished by providers other than entities of the United 
States for the same care or services in the same geographic area. If 
the amount submitted by the health plan for payment is less than the 
amount billed, VA will accept the submission as payment, subject to 
verification at VA's discretion in accordance with this section. A VA 
employee having responsibility for collection of such charges may 
request that the third party health plan submit evidence or information 
to substantiate the appropriateness of the payment amount (e.g., health 
plan or insurance policies, provider agreements, medical evidence, 
proof of payment to other providers in the same geographic area for the 
same care and services VA provided).
    (4) Definitions. For purposes of this section:
    Consolidated MSA means a consolidated Metropolitan Statistical 
Area.
    CPI means Consumer Price Index.
    CPI-U means Consumer Price Index--All Urban Consumers.
    CPI-W means Consumer Price Index--Urban Wage Earners and Clerical 
Workers.
    CPT procedure code means Current Procedural Terminology code, a 
five-digit identifier defined by the American Medical Association for a 
specified physician service or procedure.
    DRG means Diagnosis Related Group.
    Geographic area, for purposes of acute inpatient facility and 
skilled nursing facility/sub-acute inpatient facility charges, means 
Metropolitan Statistical Area (MSA) or the local market, if the VA 
facility is not located in an MSA; and for outpatient facility charges 
and physician charges, means a three-digit ZIP Code locality.
    MDR means Medical Data Research, a medical charge database 
published by Ingenix Publishing Group.
    MedPAR means the Medicare Provider Analysis and Review file.
    RVU means Relative Value Unit.
    (b) Acute inpatient facility charges. When VA provides or furnishes 
acute inpatient services within the scope of care referred to in 
paragraph (a)(1) of this section, acute inpatient facility charges 
billed for such services will be determined in accordance with the 
provisions of this paragraph. Acute inpatient facility charges consist 
of per diem charges for room and board and for ancillary services that 
vary by VA

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facility and by DRG. These charges are calculated as follows:
    (1) Formula. For each acute inpatient stay, or portion thereof, for 
which a particular DRG assignment applies, multiply the nationwide room 
and board per diem charge as set forth in paragraph (b)(2) of this 
section by the appropriate geographic area adjustment factor as set 
forth in paragraph (b)(3) of this section. The result constitutes the 
facility-specific room and board per diem charge. Also, for each 
inpatient stay, multiply the nationwide ancillary per diem charge as 
set forth in paragraph (b)(2) of this section by the appropriate 
geographic area adjustment factor as set forth in paragraph (b)(3) of 
this section. The result constitutes the facility-specific ancillary 
per diem charge. Then add the facility-specific room and board per diem 
charge to the facility-specific ancillary per diem charge. This 
constitutes the facility-specific combined per diem facility charge. 
Finally, multiply the facility-specific combined per diem facility 
charge by the number of days of inpatient care to obtain the total 
acute inpatient facility charge.

    Note to paragraph (b)(1): If there is a change in a patient's 
condition and/or treatment during a single acute inpatient stay such 
that the DRG assignment changes (for example, a psychiatric patient 
who develops a medical or surgical problem), then the calculations 
will be made separately for each DRG, according to the number of 
days of care applicable for each DRG, and the total acute inpatient 
facility charge will be the sum of the total acute inpatient 
facility charges for the different DRGs.

    (2) Per diem charges. To establish a baseline, two nationwide 
average per diem charges for each DRG are calculated, one from the 2001 
Medicare MedPAR file and one from the 1999 MedStat claims database, a 
database of nationwide commercial insurance claims (available from the 
MedStat Group, 777 E. Eisenhower Parkway, Ann Arbor, MI 48108). Because 
these two data sources report charges for two differing periods of 
time, the MedStat claims database was trended forward to the center 
date of the MedPAR data based on changes to the Inpatient Hospital 
component of the CPI-U. Results obtained from these two databases are 
then combined into a single weighted average per diem charge for each 
DRG. The resulting weighted average per diem charge for each DRG is 
then separated into its two components, a room and board component and 
an ancillary component, with the amount for each component calculated 
to reflect the corresponding percentage set forth in paragraph 
(b)(2)(i) of this section. The resulting amounts for room and board and 
ancillary services for each DRG are then each multiplied by the final 
ratio set forth in paragraph (b)(2)(ii) of this section to reflect the 
80th percentile charges. Finally, the resulting charges are each 
trended forward to the effective time period for the charges, as set 
forth in paragraph (b)(2)(iii) of this section. The results constitute 
the room and board per diem charge and the ancillary per diem charge.
    (i) Charge component percentages. Using only those cases from the 
MedPAR file for which a distinction between room and board charges and 
ancillary charges can be determined, the percentage of the total 
charges for room and board compared to the combined total charges for 
room and board and ancillary services, and the percentage of the total 
charges for ancillary services compared to the combined total charges 
for room and board and ancillary services, are calculated by DRG.
    (ii) 80th percentile. Using the medical and surgical admissions in 
the 1995 Medicare Standard Analytical File 5% Sample, the ratio of the 
day-weighted 80th percentile semi-private room and board per diem 
charge to the average semi-private room and board per diem charge is 
obtained for each consolidated MSA. The consolidated MSA ratios are 
averaged to obtain a final 80th percentile ratio.
    (iii) Trending forward. 80th percentile charges for each DRG, 
representing charge levels described in paragraph (b)(2) of this 
section, are trended forward based on changes to the hospital inpatient 
component of the CPI-U. Actual CPI-U changes are used through the 
latest available month for room/board and ancillary charges. Trends 
from the latest available month to the midpoint of the calendar year in 
which charges become effective are based on the latest three-month 
average annual trend rate from the Inpatient Hospital component of the 
CPI-U. The projected total CPI trend is then applied to the 80th 
percentile charges.
    (3) Geographic area adjustment factors. For each VA facility 
location, the average per diem room and board charges and ancillary 
charges from the 1995 Medicare Standard Analytical File 5% Sample are 
calculated for each DRG. The DRGs are separated into two groups, 
surgical and non-surgical. For each of these groups of DRGs, for each 
geographic area, average room and board per diem charges and ancillary 
per diem charges are calculated for 1995, weighted by FY 2001 
nationwide VA discharges and by average lengths of stay from the 
combined Medicare Standard Analytical File 5% Sample and the MedStat 
claims database. This results in four average per diem charges for each 
geographic area: room and board for surgical DRGs, ancillary for 
surgical DRGs, room and board for non-surgical DRGs, and ancillary for 
non-surgical DRGs. Four corresponding national average per diem charges 
are obtained from the 1995 Medicare Standard Analytical File 5% Sample, 
weighted by FY 2001 nationwide VA discharges and by average lengths of 
stay from the combined Medicare Standard Analytical File 5% Sample and 
the MedStat claims database. Four geographic area adjustment factors 
are then calculated for each geographic area by dividing each 
geographic area average per diem charge by the corresponding national 
average per diem charge.
    (c) Skilled nursing facility/sub-acute inpatient facility charges. 
When VA provides or furnishes skilled nursing/sub-acute inpatient 
services within the scope of care referred to in paragraph (a)(1) of 
this section, skilled nursing facility/sub-acute inpatient facility 
charges billed for such services will be determined in accordance with 
the provisions of this paragraph. The skilled nursing facility/sub-
acute inpatient facility charges are per diem charges that vary by VA 
facility. The facility charges cover care, including skilled 
rehabilitation services (e.g., physical therapy, occupational therapy, 
and speech-language pathology), that is provided in a nursing home or 
hospital inpatient setting, is provided under a physician's orders, and 
is performed by or under the general supervision of professional 
personnel such as registered nurses, licensed practical nurses, 
physical therapists, occupational therapists, speech-language 
pathologists, and audiologists. The skilled nursing facility/sub-acute 
inpatient facility charges also incorporate charges for ancillary 
services associated with care provided in these settings. The charges 
are calculated as follows:
    (1) Formula. For each stay, multiply the nationwide per diem charge 
as set forth in paragraph (c)(2) of this section by the appropriate 
geographic area adjustment factor as set forth in paragraph (c)(3) of 
this section. The result constitutes the facility-specific per diem 
charge. Finally, multiply the facility-specific per diem charge by the 
number of days of care to obtain the total skilled nursing facility/
sub-acute inpatient facility charge.
    (2) Per diem charge. To establish a baseline, a nationwide average 
per diem billed charge for July 1, 2003, was

[[Page 22970]]

obtained from the 2003 Milliman USA, Inc., Health Cost Guidelines, a 
publication that includes nationwide skilled nursing facility charges 
(Milliman USA, Inc., 1301 5th Avenue, Suite 3800, Seattle, WA 98101-
2605). That average per diem billed charge is then multiplied by the 
80th percentile adjustment factor set forth in paragraph (c)(2)(i) of 
this section to obtain a nationwide 80th percentile charge level. 
Finally, the resulting charge is trended forward to the effective time 
period for the charges, as set forth in paragraph (c)(2)(ii) of this 
section.
    (i) 80th percentile. Using the 1995 Medicare Standard Analytical 
File 5% Sample, the median per diem accommodation charge is calculated 
for each provider. For each State, the ratio of the 80th percentile of 
provider median charges to the average statewide charges for 
accommodations is calculated. The State ratios are averaged to produce 
a nationwide 80th percentile adjustment factor.
    (ii) Trending forward. The 80th percentile charge is trended 
forward to the midpoint of the calendar year in which the charges will 
be effective, based on the projected change in Medicare reimbursement 
from the Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds (this report can be found on the Internet site of the Centers for 
Medicare & Medicaid Services (CMS) at http://www.cms.gov/publications/trusteesreport).
    (3) Geographic area adjustment factors. A ratio of the average per 
diem charge for each State to the nationwide average per diem charge is 
obtained (these ratios are set forth in the 2002 Milliman USA, Inc., 
Health Cost Guidelines, a database of nationwide commercial insurance 
charges and relative costs) (Milliman USA, Inc., 1301 5th Avenue, Suite 
3800, Seattle, WA 98101-2605). The geographic area adjustment factor 
for charges for each VA facility is the ratio for the State in which 
the facility is located.
    (d) Outpatient facility charges. When VA provides or furnishes 
outpatient facility services that are within the scope of care referred 
to in paragraph (a)(1) of this section and are not customarily 
performed in an independent clinician's office, the outpatient facility 
charges billed for such services will be determined in accordance with 
the provisions of this paragraph. This consists of outpatient facility 
charges for procedures, tests, and evaluation and management services, 
including the subset of evaluation and management codes which are 
designated as ``Office or Other Outpatient Services'' when those 
evaluation and management services are provided in the outpatient 
department of a hospital. Except for prosthetic devices and durable 
medical equipment, whose charges will be made separately at actual cost 
to VA, charges for outpatient facility services will vary by VA 
facility and by CPT procedure code. These charges will be calculated as 
follows:
    (1) Formula. For each outpatient facility charge CPT procedure 
code, multiply the nationwide charge as set forth in paragraph (d)(2) 
of this section by the appropriate geographic area adjustment factor as 
set forth in paragraph (d)(4) of this section. The result constitutes 
the facility-specific outpatient facility charge. When multiple 
surgical procedures are performed during the same outpatient encounter 
by a provider or provider team, the outpatient facility charges for 
such procedures will be reduced as set forth in paragraph (d)(5) of 
this section.
    (2) Nationwide 80th percentile charges by CPT procedure code. For 
each CPT procedure code for which outpatient facility charges apply, 
the 1998 practice expense RVUs (these RVUs can be found in the 1998 St. 
Anthony's Complete RBRVS, available from Ingenix Publishing Group, 5225 
Wiley Post Way, Salt Lake City, UT 84116) are used as the outpatient 
facility RVUs. For each CPT procedure code, the outpatient facility RVU 
is multiplied by the charge amount for each incremental RVU as set 
forth in paragraph (d)(3) of this section. The resulting charge is 
adjusted by a fixed charge amount as also set forth in paragraph (d)(3) 
of this section to obtain the nationwide 80th percentile charge.
    (3) Charge factors. Using the 1997 MedStat claims database of 
nationwide commercial insurance (available from the MedStat Group, 777 
E. Eisenhower Parkway, Ann Arbor, MI 48108), the median billed facility 
charge is calculated for each applicable CPT procedure code. All 
outpatient facility CPT procedure codes are then separated into one of 
the 45 outpatient facility CPT procedure code groups as set forth in 
paragraph (d)(3)(i) of this section. Then, for each CPT procedure code 
in each such group, the median charge is adjusted to the 80th 
percentile as set forth in paragraph (d)(3)(ii) of this section. The 
resulting 80th percentile charge for each CPT procedure code is trended 
forward to the effective time period for the charges as set forth in 
paragraph (d)(3)(iii) of this section. Using the resulting charges and 
the RVUs, mathematical approximation methodology based on least squares 
techniques are applied to the data for each CPT procedure code group to 
derive outpatient facility charges. For each CPT procedure code, the 
charge amount is calculated as an amount per incremental RVU and a 
fixed charge amount adjustment.
    (i) Outpatient facility CPT procedure code groups.
    (A)--Surgery--Integumentary System--Skin, Subcutaneous and 
Accessory Structures--Incision and Drainage, Excision-Debridement, 
Paring or Cutting, Biopsy, Removal of Skin Tags, Shaving of Epidermal 
or Dermal Lesions, and Surgery--Integumentary System--Nails;
    (B) Surgery--Integumentary System--Skin, Subcutaneous & Accessory 
Structures--Excision-Benign Lesions, Excision-Malignant Lesions; and 
Surgery--Integumentary System--Nails--Introduction;
    (C) Surgery--Integumentary System--Repair--Simple, Intermediate, 
Complex, Adjacent Tissue Transfer or Rearrangement;
    (D) Surgery--Integumentary System--Repair--Free Skin Grafts, Flaps, 
Other Flaps and Grafts, Other Procedures, Pressure Ulcers;
    (E) Surgery--Integumentary System--Repair--Burns, Local Treatment;
    (F) Surgery--Integumentary System--Destruction;
    (G) Surgery--Integumentary System--Breast;
    (H) Surgery--Musculoskeletal System--All Body Regions--Incision, 
Excision, Introduction or Removal;
    (I) Surgery--Musculoskeletal System--All Body Regions--Repair, 
Revision and/or Reconstruction, Arthrodesis, Manipulation, Amputation, 
Wound Exploration, Replantation, Grafts, Spinal Instrumentation;
    (J) Surgery--Musculoskeletal System--All Body Regions--Fracture 
and/or Dislocation--Closed Treatments (Except for Head, Neck [Soft 
Tissues] and Thorax);
    (K) Surgery--Musculoskeletal System--All Body Regions--Fracture 
and/or Dislocation--Open Treatments, and Surgery--Musculoskeletal 
System--Head, Neck (Soft Tissues) and Thorax--Fracture and/or 
Dislocation--Closed Treatments;
    (L) Surgery--Musculoskeletal System--Application of Casts and 
Strapping;
    (M) Surgery--Musculoskeletal System--Endoscopy/Arthroscopy;
    (N) Surgery--Respiratory System;
    (O) Surgery--Cardiovascular System;
    (P) Surgery--Digestive System--All Body Regions--All procedures 
except Endoscopy;

[[Page 22971]]

    (Q) Surgery--Digestive System--All Body Regions--Endoscopy;
    (R) Surgery--Urinary System;
    (S) Surgery--Male Genital System;
    (T) Surgery--Female Genital System;
    (U) Surgery--Maternity Care and Delivery--Antepartum Services;
    (V) Surgery--Maternity Care and Delivery--Excision, Introduction, 
Repair, Vaginal Delivery, Antepartum and Postpartum Care, Cesarean 
Delivery, Delivery After Previous Cesarean Delivery, Abortion, Other 
Procedures;
    (W) Surgery--Endocrine System, Nervous System;
    (X) Surgery--Eye and Ocular Adnexa;
    (Y) Surgery--Auditory System;
    (Z) Radiology--Diagnostic--Head and Neck, Chest, Spine and Pelvis--
All Except CAT Scans and Magnetic Resonance Imaging (MRI);
    (AA) Radiology--Diagnostic--Upper Extremities, Lower Extremities, 
Abdomen, Gastrointestinal Tract, Urinary Tract, Gynecological and 
Obstetrical, Heart--All Except CAT Scans and Magnetic Resonance Imaging 
(MRI);
    (BB) Radiology--Diagnostic--Aorta and Arteries, Veins and 
Lymphatics--All Except CAT Scans and Magnetic Resonance Imaging (MRI);
    (CC) Radiology--Diagnostic Ultrasound;
    (DD) Radiology--Radiation Oncology, Nuclear Medicine, Therapeutic;
    (EE) Radiology--Diagnostic--CAT Scans in All Categories;
    (FF) Radiology--Diagnostic--Magnetic Resonance Imaging (MRI) in All 
Categories;
    (GG) Medicine--Vaccines, Toxoids;
    (HH) Medicine--Therapeutic or Diagnostic Infusions (Excluding 
Chemotherapy), Therapeutic, Prophylactic, or Diagnostic Injections;
    (II) Medicine--Psychiatry, Biofeedback;
    (JJ) Medicine--Dialysis;
    (KK) Medicine--Gastroenterology;
    (LL) Medicine--Ophthalmology--Special Ophthalmological Services, 
and Medicine--Special Otorhinolaryngologic Services;
    (MM) Medicine--Cardiovascular--Other Vascular Studies;
    (NN) Medicine--Cardiovascular--Therapeutic Services, 
Echocardiography, Cardiac Catheterization, Intracardiac 
Electrophysiological Procedures, and Medicine--Non-Invasive Vascular 
Diagnostic Studies;
    (OO) Medicine--Pulmonary;
    (PP) Medicine--Neurology and Neuromuscular Procedures, Central 
Nervous System Assessments and Tests;
    (QQ) Medicine--Chemotherapy Administration;
    (RR) Medicine--Special Dermatological Procedures;
    (SS) Medicine--Physical Medicine and Rehabilitation--Evaluation, 
Modalities; and Medicine--Photodynamic Therapy;
    (TT) Medicine--Physical Medicine and Rehabilitation--Therapeutic 
Procedures, Tests and Measurements, Other Procedures, Medicine--
Osteopathic Manipulative Treatment, Medicine--Chiropractic Manipulative 
Treatment, Medicine--Special Services, Procedures, and Reports, and 
Medicine--Other Services and Procedures;
    (UU) Medicine--Evaluation & Management--Consultations;
    (VV) Medicine--Evaluation & Management--Hospital Observation 
Services;
    (WW) Medicine--Evaluation & Management--Emergency Department 
Services, Critical Care Services; and
    (XX) Medicine--Evaluation & Management--Office or Other Outpatient 
Services, Prolonged Services, and Medicine--Ophthalmology--General 
Ophthalmological Services.
    (ii) 80th percentile. For each of the 45 outpatient facility CPT 
procedure code groups set forth in paragraph (d)(3)((i) of this 
section, the median charge is increased by the ratio of the 80th 
percentile charge to median charge obtained from the 1997 MedStat 
claims database. To mitigate the impact of the variation in the 
intensity of services by CPT procedure code, the percent increase from 
the median to the 80th percentile in outpatient charges is compared to 
the percent increase from the median to the 80th percentile in 
inpatient semi-private room and board charges. Any percent increase in 
outpatient charges in excess of the inpatient semi-private room and 
board percent increase is multiplied by a factor of 0.50. The 80th 
percentile outpatient facility charge is reduced accordingly.
    (iii) Trending forward. The charges for each CPT procedure code, 
representing charge levels described in paragraph (d)(3) of this 
section, are trended forward to the midpoint of the calendar year in 
which the charges will be effective. The trend factors are based on 
changes to the Outpatient Hospital component of the CPI-U. Actual CPI-U 
changes are used through the latest available month. The three-month 
average annual trend rate as of the latest available month is held 
constant to the midpoint of the effective charge period. The projected 
total CPI-U change from the source data period to the effective period 
is then applied to the 80th percentile charges, as described in 
paragraph (d)(3) of this section.
    (4) Geographic area adjustment factors. For each VA outpatient 
facility location, a single geographic area adjustment factor is 
calculated as the arithmetic average of the outpatient geographic area 
adjustment factor (this factor constitutes the ratio of the level of 
charges for each geographic area to the nationwide level of charges) 
published in the 2001 Milliman USA, Inc., Health Cost Guidelines 
(Milliman USA, Inc., 1301 5th Avenue, Suite 3800, Seattle, WA 98101-
2605), and a geographic area adjustment factor developed from the 2000 
MediCode data. The MediCode-based geographic area adjustment factors 
are calculated as the ratio of the CPT-weighted average charge level 
for each VA outpatient facility location to the nationwide CPT-weighted 
average charge level.
    (5) Multiple surgical procedures. When multiple surgical procedures 
are performed during the same outpatient encounter by a provider or 
provider team as indicated by multiple surgical CPT procedure codes, 
then the CPT procedure code with the highest facility charge will be 
billed at 100% of the charges established under this section; the CPT 
procedure code with the second highest facility charge will be billed 
at 25% of the charges established under this section; the CPT procedure 
code with the third highest facility charge will be billed at 15% of 
the charges established under this section; and no outpatient facility 
charges will be billed for any additional surgical procedures.
    (e) Physician charges. When VA provides or furnishes physician 
services within the scope of care referred to in paragraph (a)(1) of 
this section, physician charges billed for such services will be 
determined in accordance with the provisions of this paragraph. 
Physician charges consist of charges for professional services that 
vary by VA facility and by CPT procedure code. These charges are 
calculated as follows:
    (1) Formula. For each CPT procedure code except those for 
anesthesia, multiply the total facility-adjusted RVU as set forth in 
paragraph (e)(2) of this section by the applicable facility-adjusted 
conversion factor (facility-adjusted conversion factors are expressed 
in monetary amounts) set forth in paragraph (e)(3) of this section to 
obtain the physician charge for each CPT procedure code at a particular 
VA facility. For each anesthesia CPT procedure code, multiply the 
nationwide physician charge as set forth in paragraph (e)(4) of this 
section by the geographic area adjustment factor as set

[[Page 22972]]

forth in paragraph (e)(3)(iii) of this section to obtain the physician 
charge for each anesthesia CPT procedure code at a particular VA 
facility.
    (2)(i) Total facility-adjusted RVUs for physician services other 
than anesthesia and specified CPT procedure codes. The work expense and 
practice expense components of the RVUs for CPT procedure codes (other 
than anesthesia and those CPT procedure codes set forth in paragraphs 
(e)(2)(ii) through (e)(2)(iv) of this section) are compiled using 2002 
Medicare RVUs. For radiology CPT procedure codes, these compilations do 
not include separately identified technical component RVUs. For CPT 
procedure codes that generate an outpatient facility charge, the 
facility practice expense RVUs are substituted for the non-facility 
practice expense RVUs. For medicine and surgery CPT procedure codes 
with separate professional and technical components that also generate 
an outpatient facility charge, only the professional component is 
compiled. The sum of the facility-adjusted work expense RVU as set 
forth in paragraph (e)(2)(i)(A) of this section and the facility-
adjusted practice expense RVU as set forth in paragraph (e)(2)(i)(B) of 
this section equals the total facility-adjusted RVUs.
    (A) Facility-adjusted work expense RVUs. For each CPT procedure 
code for each geographic area, the 2002 work expense RVU is multiplied 
by the work expense 2002 Medicare Geographic Practice Cost Index. The 
result constitutes the facility-adjusted work expense RVU.
    (B) Facility-adjusted practice expense RVUs. For each CPT procedure 
code for each geographic area, the 2002 practice expense RVU is 
multiplied by the practice expense 2002 Medicare Geographic Practice 
Cost Index. The result constitutes the facility-adjusted practice 
expense RVU.
    (ii) RVUs for laboratory and pathology CPT procedure codes based on 
Medicare's Clinical Diagnostic Laboratory Fee Schedule. For CPT 
procedure codes without modifiers that are not assigned separately 
identified work and practice expense RVUs in paragraph (e)(2)(i) of 
this section, laboratory fee RVUs are developed based on the 2002 
edition of the Medicare Clinical Diagnostic Laboratory Fee Schedule 
(found in the files-for-download section of the Centers for Medicare & 
Medicaid Services (CMS) Internet site at http://www.cms.gov/providers/pufdownload/). The Medicare Clinical Diagnostic Laboratory Fee Schedule 
payment amounts are upwardly adjusted so that the payment levels are, 
on average, equivalent to Medicare Physician Fee Schedule payment 
levels, using statistical comparisons to the 80th percentile derived 
from the 2001 MDR charge database. These adjusted payment amounts are 
then divided by the 2001 Medicare conversion factor to derive a 
laboratory fee RVU corresponding to each CPT code. These RVUs are added 
to the 2002 work and practice expense RVUs for the corresponding 
professional component (if any) of a given CPT procedure code to derive 
nationwide total RVUs. The resulting nationwide total RVUs are 
multiplied by the geographic adjustment factors as set forth in 
paragraph (e)(2)(v) of this section to obtain the facility-specific 
total RVUs.
    (iii) RVUs for specified CPT procedure codes. For CPT procedure 
codes without modifiers that are not assigned RVUs in (e)(2)(i) or 
(e)(2)(ii) of this section, total RVUs are developed based on various 
charge databases. For these CPT procedure codes, the nationwide 80th 
percentile billed charges are obtained, where statistically credible, 
from the 2001 MDR charge database (available from Ingenix Publishing 
Group, 5225 Wiley Post Way, Salt Lake City, UT 84116). Then for 
remaining CPT procedure codes, the nationwide 80th percentile billed 
charges are obtained, where statistically credible, from the 2000 Part 
B Medicare Standard Analytical File 5% Sample. For any remaining CPT 
procedure codes, the nationwide 80th percentile billed charges are 
obtained, where statistically credible, from the 2001 Prevailing 
Healthcare Charges System, a nationwide commercial insurance database 
compiled by Ingenix (Ingenix Publishing Group, 5225 Wiley Post Way, 
Salt Lake City, UT 84116). The nationwide 80th percentile billed 
charges so obtained are divided by the untrended nationwide conversion 
factor for the corresponding physician CPT procedure code group as set 
forth in paragraphs (e)(3) and (e)(3)(i) of this section. The resulting 
nationwide total RVUs are multiplied by the geographic adjustment 
factors as set forth in paragraph (e)(2)(v) of this section to obtain 
the facility-specific total RVUs.
    (iv) RVUs for specified CPT procedure codes. For CPT procedure 
codes without modifiers that are not assigned RVUs in paragraphs 
(e)(2)(i), (e)(2)(ii), or (e)(2)(iii) of this section, the nationwide 
total RVUs are calculated by summing the work expense and practice 
expense RVUs found in the 2002 St. Anthony's RBRVS (available from 
Ingenix Publishing Group, 5225 Wiley Post Way, Salt Lake City, UT 
84116). The resulting nationwide total RVUs are multiplied by the 
geographic adjustment factors as set forth in paragraph (e)(2)(v) of 
this section to obtain the facility-specific total RVUs.
    (v) RVU geographic area adjustment factors for specified CPT 
procedure codes. The geographic area adjustment factor for each 
facility location consists of the weighted average of the 2002 work 
expense and practice expense Medicare Geographic Practice Cost Indices 
for each facility location using charge data for representative CPT 
procedure codes statistically selected and weighted for work expense 
and practice expense.
    (3) Facility-adjusted 80th percentile conversion factors. CPT 
procedure codes are separated into the following 24 physician CPT 
procedure code groups: allergy immunotherapy, allergy testing, 
anesthesia, cardiovascular, chiropractor, consults, emergency room 
visits and observation care, hearing/speech exams, immunizations, 
inpatient visits, maternity/cesarean deliveries, maternity/non-
deliveries, maternity/normal deliveries, miscellaneous medical, office/
home urgent care visits, outpatient psychiatry/alcohol and drug abuse, 
pathology, physical exams, physical medicine, radiology, surgery, 
therapeutic injections, vision exams, and well baby exams. For each of 
the 24 physician CPT procedure code groups, representative CPT 
procedure codes were statistically selected and weighted so as to give 
a weighted average RVU comparable to the weighted average RVU of the 
entire physician CPT procedure code group (the selected CPT procedure 
codes are set forth in the 2001 Milliman USA, Inc., Health Cost 
Guidelines fee survey, available from Milliman USA, Inc., 1301 5th 
Avenue, Suite 3800, Seattle, WA 98101-2605). The 80th percentile charge 
for each selected CPT procedure code is obtained from the 2001 MDR 
charge database (available from Ingenix Publishing Group, 5225 Wiley 
Post Way, Suite 500, Salt Lake City, Utah 84116). A nationwide 
conversion factor (a monetary amount) is calculated for each physician 
CPT procedure code group as set forth in paragraph (e)(3)(i) of this 
section. The nationwide conversion factors for each of the 24 physician 
CPT procedure code groups are trended forward as set forth in paragraph 
(e)(3)(ii) of this section. The resulting amounts for each of the 24 
groups are multiplied by geographic area adjustment factors as set 
forth in paragraph (e)(3)(iii) of this section, resulting in facility-
adjusted 80th percentile conversion factors for each VA facility 
geographic area for the 24

[[Page 22973]]

physician CPT procedure code groups for the effective charge period.
    (i) Nationwide conversion factors. Using the nationwide 80th 
percentile charges for the selected CPT procedure codes from paragraph 
(e)(3) of this section, a nationwide conversion factor is calculated 
for each of the 24 physician CPT procedure code groups by dividing the 
weighted average charge by the weighted average RVU. To correspond with 
the charge data, for medicine and surgery CPT procedure codes, the 
total RVUs are used even when separate professional and technical 
components are specified.
    (ii) Trending forward. The nationwide conversion factor for each of 
the 24 physician CPT procedure code groups, representing charge levels 
described in paragraph (e)(3) of this section, are trended forward 
based on changes to the Physician component of the CPI-U. Actual CPI-U 
changes are used through the latest available month. The three-month 
average annual trend rate as of the latest available month is held 
constant to the midpoint of the calendar year in which charges will be 
effective. The projected total CPI-U change from the midpoint of the 
source data collection period to the midpoint of the effective charge 
period is then applied to the 24 conversion factors.
    (iii) Geographic area adjustment factors. Using the 80th percentile 
charges for the selected CPT procedure codes from paragraph (e)(3) of 
this section for each VA facility geographic area, a geographic area-
specific conversion factor is calculated for each of the 24 physician 
CPT procedure code groups by dividing the weighted average charge by 
the weighted average facility-adjusted RVU. The resulting geographic 
area conversion factor for each facility geographic area for each 
physician CPT procedure code group is divided by the corresponding 
nationwide conversion factor as set forth in paragraph (e)(3)(i). The 
resulting ratios are the geographic area adjustment factors for each of 
the 24 physician CPT procedure code groups for each facility geographic 
area.
    (4) Nationwide 80th percentile charges for anesthesia CPT procedure 
codes. The nationwide charges are calculated by multiplying the RVUs as 
set forth in paragraph (e)(4)(i) of this section by the appropriate 
nationwide trended 80th percentile conversion factors as set forth in 
paragraph (e)(3) of this section.
    (i) RVUs for anesthesia. The 2002 base unit value for each 
anesthesia CPT procedure code is compiled (the base unit values can be 
found in the 2002 St. Anthony's RBRVS, available from Ingenix 
Publishing Group, 5225 Wiley Post Way, Salt Lake City, UT 84116). The 
average time unit value for each anesthesia CPT procedure code is 
compiled from a Health Care Financing Administration study concerning 
average time unit values for anesthesia CPT procedure codes (these 
values can be obtained from the Chief Business Office (161), Veterans 
Health Administration, Department of Veterans Affairs, 810 Vermont 
Avenue, NW, Washington, DC 20420). For each anesthesia CPT procedure 
code introduced since the Health Care Financing Administration study, 
the time unit value is calculated as the average time unit value for 
all other anesthesia CPT procedure codes with the same base unit value. 
The sum of the anesthesia base unit value and the anesthesia average 
time unit value equals the total anesthesia RVUs.
    (ii) [Reserved]
    (f) Other provider charges. When the following providers provide or 
furnish VA care within the scope of care referred to in paragraph 
(a)(1) of this section, charges for that care covered by a CPT 
procedure code will be determined based on the following indicated 
percentages of the amount that would be charged if the care had been 
provided by a physician under paragraph (e) of this section:
    (1) Nurse practitioner: 85%.
    (2) Clinical nurse specialist: 85%.
    (3) Physician Assistant: 85%.
    (4) Certified registered nurse anesthetist: 50% when medically 
directed by an anesthesiologist; 100% when not medically directed by an 
anesthesiologist.
    (5) Clinical psychologist: 80%.
    (6) Clinical social worker: 75%.
    (7) Podiatrist: 100%.
    (8) Chiropractor: 100%.
    (9) Dietitian: 75%.
    (10) Clinical pharmacist: 80%.
    (11) Optometrist: 100%.
    (g) Outpatient dental care and prescription drugs not administered 
during treatment. Notwithstanding other provisions of this section, 
when VA provides or furnishes outpatient dental care or prescription 
drugs not administered during treatment, within the scope of care 
referred to in paragraph (a)(1) of this section, charges billed 
separately for such care will be based on VA costs in accordance with 
the methodology set forth in Sec.  17.102 of this part.


(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0606.)

(Authority: 38 U.S.C. 101, 501, 1701, 1705, 1710, 1721, 1722, 1729)

[FR Doc. 03-10121 Filed 4-28-03; 8:45 am]
BILLING CODE 8320-01-P