[Federal Register Volume 68, Number 191 (Thursday, October 2, 2003)]
[Proposed Rules]
[Pages 56876-56891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24102]



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Part II





Department of Veterans Affairs





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38 CFR Part 17



Reasonable Charges for Medical Care or Services; 2003 Methodology 
Changes; Proposed Rule and Notice

  Federal Register / Vol. 68, No. 191 / Thursday, October 2, 2003 / 
Proposed Rules  

[[Page 56876]]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AL06


Reasonable Charges for Medical Care or Services; 2003 Methodology 
Changes

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: This document proposes to amend 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 methodologies 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 proposes to amend the regulations 
regarding VA's reasonable charges methodologies for the following 
purposes: to establish charges for medical care, procedures, services, 
durable medical equipment (DME), drugs, injectables, medical items, and 
supplies for which we currently do not have charges; to replace certain 
charges currently based on VA costs with charges based on community 
charges; to establish separate charges for medical care, procedures, 
services, DME, drugs, injectables, medical items, and supplies whose 
charges are presently combined with other charges; to bring our charge 
structures and associated billing practices closer to industry standard 
charge structures and billing practices; and to provide certain 
clarifications.

DATES: Comments must be received on or before November 3, 2003.

ADDRESSES: Mail or hand-deliver written comments to: Director, 
Regulations Management (00REG1), Department of Veterans Affairs, 810 
Vermont Avenue, NW, Room 1068, Washington, DC 20420; or fax comments to 
(202) 273-9026; or e-mail comments to [email protected]. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AL06.'' All written comments received will be available for public 
inspection in the Office of Regulations Policy and Management, Room 
1063B, between the hours of 8 a.m. and 4:30 p.m., Monday through Friday 
(except holidays). Please call (202) 273-9515 for an appointment.

FOR FURTHER INFORMATION CONTACT: David Cleaver, Chief Business Office 
(168), 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 proposes to amend VA's medical 
regulations that are set forth in 38 CFR part 17. More specifically, we 
are proposing to amend the regulations that establish methodologies 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.
    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 therefor 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.
    The methodologies for establishing reasonable charges are 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. An exception is that charges for prescription 
drugs are based on VA costs in accordance with the methodology set 
forth in Sec.  17.102.
    This document proposes to amend VA's reasonable charges regulations 
to make significant changes to our charge development methodologies and 
charge structures, to provide charges for 2003 Current Procedural 
Terminology (CPT) codes, and to provide certain clarifications. These 
proposed changes are described in more detail in the following 
paragraphs.

Data for Calculating Actual Charge Amounts

    As we have done in the past, we are publishing data for calculating 
actual charge amounts based on the methodologies set forth in this 
proposed rule in an accompanying notice in this same edition of the 
Federal Register. However, this document proposes that in the future 
this information will either be published in a notice in the Federal 
Register or will be posted on the Internet site of the Veterans Health 
Administration Chief Business Office at http://www.va.gov/revenue, 
under ``Charge Data.'' We are proposing this change because we believe 
posting this information on the Internet will make it more readily 
available to the public, while at the same time greatly reducing the 
volume of information and associated taxpayer expense of publishing it 
in the Federal Register.

Data Sources

    Presently, the regulations identify data sources used to calculate 
charges by name and edition (for example, 2001 Medicare MedPAR file). 
In addition, the regulations give specific information on where various 
databases can be obtained (for example, the Internet site where the 
Medicare Clinical Diagnostic Laboratory Fee Schedule can be found). 
This document proposes that data sources will hereafter be identified 
in these regulations only by name, and that the editions used and 
information on where these data sources may be obtained will be 
presented along with the data for calculating actual charge amounts, 
either in notices in the Federal Register or on the Internet site of 
the Veterans Health Administration Chief Business Office at http://www.va.gov/revenue,

[[Page 56877]]

under ``Charge Data.'' We are proposing this change so that a change in 
the edition of a data source or in the information on where a database 
may be obtained will not, by itself, require any change to the 
regulations.

Definitions--Additions, Changes, and Deletions

    This document proposes to add definitions for APC (Ambulatory 
Payment Classification), CMS (Centers for Medicare and Medicaid 
Services), DME, HCPCS (Healthcare Common Procedure Coding System) code, 
ICU (Intensive Care Unit), non-provider-based, provider-based, and 
RBRVS (Resource-Based Relative Value Scale). We are proposing to amend 
the definition of the term ``CPT procedure code'' to indicate that the 
same definition applies equally to the term ``CPT code.''
    Presently, geographic area is defined, for acute inpatient facility 
charges and skilled nursing facility/sub-acute inpatient facility 
charges, as Metropolitan Statistical Area (MSA) or the local market, if 
the VA facility is not located in an MSA; and is defined, for 
outpatient facility charges and physician charges, as three-digit ZIP 
Code locality. We are proposing to amend the definition of geographic 
area to mean simply a three-digit ZIP Code area. This change reflects 
the fact that we are proposing to use three-digit ZIP Code areas as the 
geographic areas for all of our charge types. We are proposing this 
change for acute inpatient facility charges and skilled nursing 
facility/sub-acute inpatient facility charges because, due to the 
variability of charges within MSA and non-MSA areas, changing to three-
digit ZIP Code areas will produce charges that are more accurate for 
the location in which the care was provided.
    We are proposing to delete the definition for CPI-W (Consumer Price 
Index--Urban Wage Earners and Clerical Workers) because we have not 
used CPI-W information anywhere in the regulations, and have no plans 
to do so. We are also proposing to delete the separate definition for 
CPI (Consumer Price Index), because that term appears in the 
regulations only as part of the defined term CPI-U (Consumer Price 
Index--All Urban Consumers).

Provider-Based and Non-Provider-Based Entities and Charges

    For a specific item of medical care or service provided on an 
outpatient basis, we may have a professional charge, or an outpatient 
facility charge, or both. Presently, for all outpatient services for 
which we have both a professional charge and an outpatient facility 
charge, these charges are developed so as to be mutually exclusive, 
with the expectation that both charges will be billed for the same 
occasion of service. In addition, most of our outpatient facility 
charges are expected to be billed by all VA facilities that perform the 
applicable service, regardless of the type of facility. In other words, 
these charges are equally available to be billed by the outpatient 
departments of VA medical centers (VAMCs), by VA community-based 
outpatient clinics (CBOCs) operating similar to private-sector 
ambulatory surgery centers, by VA CBOCs operating like private-sector 
doctors' offices, etc. Presently, the only outpatient facility charges 
not available to be billed by all VA facilities are those for office or 
other outpatient evaluation and management (E&M) services CPT codes 
99201 through 99215. Billing of the outpatient facility charges for the 
ten services covered by these codes is presently restricted to the 
outpatient departments of 169 VAMCs.
    This document proposes to amend the regulations to provide that 
each VA healthcare entity will be designated as either provider-based 
(entitled to bill outpatient facility charges) or non-provider-based 
(not entitled to bill outpatient facility charges), based on CMS 
criteria for provider-based and non-provider-based entities. Further, 
application of the proposed methodologies presented in this document 
will provide two sets of charges for outpatient care, one set for use 
by provider-based entities and one for use by non-provider-based 
entities. For those outpatient services that have both a professional 
charge and an outpatient facility charge, the professional charge for 
use by provider-based entities will be lower, based on Medicare's lower 
facility practice expense Relative Value Units (RVUs), in consideration 
of the fact that both the professional charge and the outpatient 
facility charge will be billed. For the same services, the professional 
charge for use by non-provider-based entities will be higher, based on 
Medicare's higher non-facility practice expense RVUs, in consideration 
of the fact that only the professional charge will be billed. We are 
proposing these changes because they will result in VA charge 
structures and billing practices that more closely approximate industry 
standard charge structures and billing practices.

Charges for Medical Care or Services Provided by Non-VA Providers at VA 
Expense

    Presently, the phrase in the regulations, ``medical care or 
services provided or furnished by VA,'' is understood to include 
medical care or services provided by non-VA providers at VA expense, 
and the charges billed for such care are those determined according to 
this section. This document proposes to amend the regulations by adding 
language to confirm this understanding.

Charges for Medical Care or Services for Which VA Does Not Have an 
Established Charge

    Presently, the regulations do not address the issue of charges for 
medical care or services for which VA does not have an established 
charge or does not specifically make other provision for charges. The 
result has been that VA has not been charging for such care or 
services. This document proposes to amend the regulations by adding 
language to provide for charges, under specified circumstances, when we 
do not have established charges.
    Under the proposed change, when VA provides or furnishes medical 
care or services and VA does not have an established charge for such 
care or services, then the charges billed for such care or services 
will be determined according to the provisions of the proposed new 
paragraph (a)(8) of the regulations, which sets forth four criteria for 
establishing a charge and provides that, if none apply, then no charge 
will be made. We believe that these proposed changes provide a fair and 
reasonable basis for such charges. We are proposing these changes to 
provide appropriate charges, under these specified circumstances, where 
presently we have no charges.

Unlisted and Unspecified Procedures, Services, and Supplies

    Both the American Medical Association and CMS, in compiling CPT and 
HCPCS Level II, respectively, recognize that there may be procedures, 
services, or supplies provided by physicians and other healthcare 
professionals which have not yet been defined. Accordingly, both CPT 
and HCPCS Level II provide specific codes for reporting unlisted and 
unspecified procedures, services, and supplies. Presently, the 
regulations do not provide charges for unlisted CPT codes or for any 
HCPCS Level II codes. This document proposes methodologies that will 
enable us to provide charges for unlisted and unspecified procedures,

[[Page 56878]]

services, and supplies. We are proposing this change so that we will be 
able to bill for these procedures, services, and supplies when we 
provide or furnish them to our patients, and so that our charge 
structures and billing practices will more closely approximate industry 
standard charge structures and billing practices.

Charge Types

    Presently, the reasonable charges regulations set forth 
methodologies for four basic types of charges, as follows:

--Acute inpatient facility charges;
--Skilled nursing facility/sub-acute inpatient facility charges;
--Outpatient facility charges; and
--Physician charges.

    Under the above organization of charge types, facility charges for 
observation care are included under outpatient facility charges, and 
charges for pathology/laboratory and anesthesia services are included 
under physician charges. This document proposes to amend the 
regulations to describe separate charge types for observation care, 
pathology/laboratory, and anesthesia.
    Presently, we do not have partial hospitalization facility charges. 
This document proposes to amend the regulations to establish partial 
hospitalization facility charges.
    Presently, we do not have separate charges for HCPCS Level II 
codes. This document proposes to amend the regulations to establish 
charges for HCPCS Level II codes.
    Presently, our charges for prosthetic devices and DME provided on 
an outpatient basis are VA's actual cost, and our charges for 
outpatient dental care are based on VA costs in accordance with the 
methodology set forth in Sec.  17.102. In place of these cost-related 
charges, this document proposes to amend the regulations to establish 
reasonable charges for prosthetic devices, DME, and outpatient dental 
care by establishing charges for the associated HCPCS Level II codes.
    Presently, we do not have charges for ambulance or other emergency 
transportation services. This document proposes to amend the 
regulations to establish reasonable charges for ambulance and other 
emergency transportation services by establishing charges for the 
associated HCPCS Level II codes.
    Associated with these changes, we are proposing to amend the 
regulations to organize reasonable charges into the following eleven 
charge types:

--Acute inpatient facility charges;
--Skilled nursing facility/sub-acute inpatient facility charges;
--Partial hospitalization facility charges;
--Outpatient facility charges;
--Physician and other professional charges except for anesthesia 
services and certain dental services;
--Professional charges for anesthesia services;
--Professional charges for dental services identified by HCPCS Level II 
codes;
--Pathology and laboratory charges;
--Observation care facility charges;
--Ambulance and other emergency transportation charges; and
--Charges for durable medical equipment, drugs, injectables, and other 
medical services, items, and supplies identified by HCPCS Level II 
codes.

    The reasons we are proposing these changes are (1) to enable us to 
bill for medical care, procedures, services, DME, drugs, injectables, 
medical items, and supplies for which we currently do not have charges; 
(2) to replace certain charges currently based on VA costs with charges 
based on community charges; (3) to enable us to bill separately for 
medical care, procedures, services, DME, drugs, injectables, medical 
items, and supplies whose charges are presently combined with other 
charges; and (4) to bring our charge structures and billing practices 
closer to industry standard charge structures and billing practices.
    Additional information regarding each of the above charge types is 
provided in the following paragraphs.

Acute Inpatient Facility Charges

    Presently, the regulations provide methodologies for calculating 
two per diem charges for each diagnosis related group (DRG), one for 
room and board and one for ancillary services. These same per diem 
charges are used for both ICU days and non-ICU days. This document 
proposes to amend the regulations by providing methodologies for 
calculating different room and board per diem charges for ICU days and 
non-ICU days. With these changes, each DRG will have three per diem 
charges: a room and board per diem charge for ICU days, a different 
room and board per diem charge for non-ICU days, and an ancillary 
services per diem charge that applies to both ICU and non-ICU days. We 
are proposing these changes because they will result in charges for 
each patient that will be more specific to the care and services the 
patient received, and will result in VA charge structures and billing 
practices that more closely approximate industry standard charge 
structures and billing practices.
    As noted earlier, we are proposing to change from MSAs to three-
digit ZIP Codes for geographic areas for acute inpatient facility 
charges. Presently, we calculate 80th percentile factors and geographic 
area adjustment factors for acute inpatient facility charges by MSA, 
based on charge data from the Medicare Standard Analytical File 5% 
Sample. Associated with the change to three-digit ZIP Codes, we are 
proposing to amend the regulations to base the calculation of these 
factors on the MedPAR file, which provides a complete record of all 
Medicare hospital admissions. This change from 5% to 100% of Medicare 
hospital admissions will produce more accurate 80th percentile factors 
and geographic area adjustment factors for the smaller three-digit ZIP 
Code areas.

Skilled Nursing Facility/Sub-Acute Inpatient Facility Charges

    Presently, we calculate skilled nursing facility/sub-acute 
inpatient facility all-inclusive per diem charges based on the 
nationwide average per diem charge presented in annual releases of the 
Milliman USA, Inc., Health Cost Guidelines. We are proposing to change 
the regulations to base these charges on the actual average per diem 
billed charge derived from the MedPAR skilled nursing facility file. 
This will more directly and accurately measure the nationwide baseline 
charge, and enable calculation of a more accurate nationwide 80th 
percentile charge. We are also proposing to change the trending 
methodology from one based on trends in Medicare reimbursement rates, 
as presented in the Annual Report of the Boards of Trustees of the 
Federal Supplementary Medical Insurance Trust Funds, to trends based on 
the inpatient hospital services component of the CPI-U. This change 
will result in trending that more accurately reflects changes in billed 
charge levels.
    Presently, we calculate 80th percentile adjustment factors and 
geographic area adjustment factors based on the Medicare Standard 
Analytical File 5% Sample and the Milliman USA, Inc., Health Cost 
Guidelines, respectively. We are proposing to amend the regulations to 
base calculation of these factors on the MedPAR skilled nursing 
facility file. These changes will produce more accurate 80th percentile 
adjustment factors and geographic area adjustment factors.

Partial Hospitalization Facility Charges

    Presently, we do not have a per diem facility charge that is 
specific to partial hospitalization, nor do we have charges for any of 
the HCPCS Level II codes,

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including those associated with partial hospitalization. We are 
proposing to amend the regulations to provide a methodology for 
establishing partial hospitalization facility charges. We are proposing 
this change so that we will be able to bill for these services when we 
provide or furnish them to our patients.

Outpatient Facility Charges

    Presently, we calculate outpatient facility charges utilizing a 
statistical method based on 1998 Medicare practice expense RVUs, which 
we adopted as a proxy weighting system for the calculation of 
outpatient facility charges. We are proposing to amend the methodology 
to base nationwide average outpatient facility charges on Medicare 
Ambulatory Payment Classification (APC) groups, using data from the 
Medicare Standard Analytical File 5% Sample. This will provide the 
basis for a more accurate calculation, because APC payment groups are 
based on actual outpatient facility charge data, whereas the 1998 
Medicare practice expense RVUs were based on physician charge data for 
overhead expenses.
    One consequence of adopting APC groups for this purpose is that the 
statistical methodology we presently use to bundle CPT codes into CPT 
code groups will no longer be needed, because APCs provide appropriate 
groupings of codes. We are also proposing to amend the regulations to 
adjust APC charges, which represent Medicare average reimbursement 
levels, to nationwide 80th percentile billed charge levels. This 
adjustment will result in charges that more accurately reflect market-
level charges.
    For outpatient facility services which do not have APC assignments, 
we propose to calculate outpatient facility charges using data from the 
MDR database, the MedStat claims database, and the Medicare Standard 
Analytical File 5% Sample.
    These changes to the regulations will result in VA charge 
structures and billing practices that more closely approximate industry 
standard charge structures and billing practices.

Physician and Other Professional Charges Except for Anesthesia Services 
and Certain Dental Services

    Presently, the regulations incorporate the methodologies for 
charges for pathology/laboratory and anesthesia services in the 
methodology for physician charges. We are proposing to restructure the 
regulations so that pathology/laboratory charges and professional 
charges for anesthesia services are identified as separate charge 
types. We are also proposing to specify in the regulations that charges 
for professional dental services identified by CPT code are determined 
in accordance with the same methodology as for physician charges, while 
professional dental services identified by HCPCS Level II code are 
treated as a separate charge type, with charges determined using a 
different methodology as discussed below. We are proposing these 
changes so that different charge types and different charge development 
methodologies will be separately identified and described in the 
regulations.
    Presently, our charges are not influenced by the presence or 
absence of CPT code modifiers. This document proposes to amend the 
regulations to add methodology for developing charge adjustment factors 
for specified CPT/HCPCS code modifiers, using data from the Medicare 
Standard Analytical File 5% Sample. Some charge adjustment factors will 
act to increase the charge (for example, modifier 22, Unusual 
Procedural Services). Other charge adjustment factors will act to 
decrease the charge (for example, modifier 52, Reduced Services). This 
change will result in VA charge structures and billing practices that 
more closely approximate industry standard charge structures and 
billing practices.
    Presently, language in the regulations is interpreted to mean that 
we do not have professional charges for categories of providers other 
than physicians unless the provider category is specifically named in 
the regulations. This document proposes to amend the regulations to set 
forth charge methodologies for physicians and other professionals that 
apply to all professional provider categories. This change will result 
in VA charge structures and billing practices that more closely 
approximate industry standard charge structures and billing practices.

Professional Charges for Anesthesia Services

    Presently, professional charges for anesthesia services are based 
in part on average time units compiled from a Health Care Financing 
Administration study. Applying this methodology, the professional 
charge for a given anesthesia procedure is the same, regardless of the 
length of time the patient received anesthesia. This document proposes 
to amend the methodology so that professional charges for anesthesia 
services will vary according to the length of time the patient received 
anesthesia. This change will result in VA charge structures and billing 
practices that more closely approximate industry standard charge 
structures and billing practices.

Professional Charges for Dental Services Identified by HCPCS Level II 
Codes

    Presently, charges for outpatient dental care are based on VA costs 
in accordance with the methodology set forth in Sec.  17.102. This 
document proposes to amend the methodology to establish reasonable 
charges for dental services identified by HCPCS Level II codes, using 
data from the Prevailing Healthcare Charges System, the National Dental 
Advisory Service nationwide pricing index, the Dental UCR (Usual, 
Customary, or Reasonable) Module of the Ingenix Comprehensive 
Healthcare Payment System, the Milliman USA, Inc., Dental Health Cost 
Guidelines, and the dental services component of the CPI-U. This change 
will result in VA charge structures and billing practices that more 
closely approximate industry standard charge structures and billing 
practices.

Pathology and Laboratory Charges

    Presently, the regulations provide that for each pathology and 
laboratory CPT code, the technical component RVUs are added to the 
professional component RVUs, if any, resulting in only one charge for 
each pathology and laboratory CPT code. This document proposes to amend 
the methodology so that those pathology and laboratory procedures which 
require a professional interpretation will have two separate charges: a 
professional component charge determined according to the methodology 
set forth in the Physician and Other Professional Charges paragraph in 
the regulations, and a technical component charge determined according 
to the methodology set forth in the Pathology and Laboratory Charges 
paragraph in the regulations. This change will result in VA charge 
structures and billing practices that more closely approximate industry 
standard charge structures and billing practices.

Observation Care Facility Charges

    Presently, our facility charges for observation care consist of 
outpatient facility charges for three observation care CPT codes, 
99218, 99219, and 99220. These charges are per occurrence, regardless 
of the number of hours the patient received observation care. This 
document proposes to amend the regulations to provide a methodology for 
establishing observation care facility charges that will vary according 
to the number of hours the patient receives observation

[[Page 56880]]

care. For this purpose, we propose to use data from the outpatient 
facility component of the Medicare Standard Analytical File 5% Sample, 
trend the charges forward using the outpatient hospital services 
component of the CPI-U, and use the geographic area adjustment factors 
computed for outpatient facility charges. This change will result in VA 
charge structures and billing practices that more closely approximate 
industry standard charge structures and billing practices.

Ambulance and Other Emergency Transportation Charges

    Ambulance and other emergency transportation services are 
identified by HCPCS Level II codes. Presently, we do not have charges 
for any HCPCS Level II codes. This document proposes to amend the 
regulations to provide a methodology for establishing charges for 
ambulance and other emergency transportation services by HCPCS Level II 
code. For this purpose, we propose to use data from the outpatient 
facility component of the Medicare Standard Analytical File 5% Sample, 
trend the charges forward using the outpatient hospital services 
component of the CPI-U, and use the geographic area adjustment factors 
computed for outpatient facility charges. We are proposing this change 
so that we will be able to bill and be reimbursed for these services 
when we provide or furnish them to our patients.

Charges for Durable Medical Equipment, Drugs, Injectables, and Other 
Medical Services, Items, and Supplies Identified By HCPCS Level II 
Codes

    Presently, we do not have charges for any HCPCS Level II codes. 
This document proposes to amend the regulations to provide a 
methodology for establishing charges for DME, drugs, injectables, and 
other medical services, items, and supplies identified by HCPCS Level 
II code. For this purpose, we propose to use the following data 
sources: Ingenix/St. Anthony's RBRVS; Medicare DME Fee Schedule; 
Medicare Parenteral and Enteral Nutrition Fee Schedule; Part B and DME 
components of the Medicare Standard Analytical File 5% Sample; MDR 
database; Milliman USA, Inc., Optimized HMO (Health Maintenance 
Organization) Data Sets; Milliman USA, Inc., Health Cost Guidelines; 
and a VA nationwide distribution of procedures, services, items, and 
supplies. We propose to trend these charges forward using the medical 
care commodities component of the CPI-U. We are proposing this change 
so that we will be able to bill and be reimbursed for these services, 
items, and supplies when we provide or furnish them to our patients.

Responses to Comments

    In response to our interim final rule published in the Federal 
Register on May 8, 2001 (66 FR 23326, RIN 2900-AK73), we received two 
comments, both from the same commenter, that we have not previously 
resolved.
    The commenter stated that we should add charges for codes G0193 
through G0201 (HCPCS Level II codes). In this document, we are 
proposing to add charges for nearly all HCPCS Level II codes, including 
codes G0193 through G0201.
    The same commenter also 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.
    With respect to our charge development methodology, our charge for 
a given service reflects the actual amounts billed by the providers of 
that service. Therefore, our charge for a service performed solely by 
audiologists will reflect the actual amounts billed by audiologists, 
not by physicians. However, we agree that including these and other 
services not performed by physicians under the general category of 
``physician charges'' may be confusing. Therefore, in this document, we 
are proposing to change from the term ``physician services'' to the 
term ``physician and other professional services'' so as to allow for 
the fact that many professional medical services are performed by 
audiologists and other healthcare professionals instead of, or in 
addition to, physicians.

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. This proposed rule would have 
no such effect on State, local, or tribal governments, or the private 
sector.

Paperwork Reduction Act

    This document contains provisions at 38 CFR 17.101(a)(4) 
constituting a collection of information under the Paperwork Reduction 
Act (44 U.S.C. 3501-3521). The Office of Management and Budget (OMB) 
has approved the information collection requirements for Sec.  
17.101(a)(4) under OMB control number 2900-0606.

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 proposed rule 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 proposed rule 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 proposed rule 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 recordkeeping requirements, Scholarships and fellowships, Travel 
and transportation expenses, Veterans.

Approved: August 8, 2003.
Anthony J. Principi,
Secretary of Veterans Affairs.
    For the reasons set out in the preamble, 38 CFR part 17 is proposed 
to be amended as set forth below:

PART 17--MEDICAL

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

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

    2. Section 17.101 is revised to read as follows:

[[Page 56881]]

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) Methodologies. Based on the methodologies set forth in this 
section, the charges billed will include the following types of 
charges, as appropriate: acute inpatient facility charges; skilled 
nursing facility/sub-acute inpatient facility charges; partial 
hospitalization facility charges; outpatient facility charges; 
physician and other professional charges, including professional 
charges for anesthesia services and dental services; pathology and 
laboratory charges; observation care facility charges; ambulance and 
other emergency transportation charges; and charges for durable medical 
equipment, drugs, injectables, and other medical services, items, and 
supplies identified by HCPCS Level II codes. In addition, 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 charge amounts based on the 
methodologies set forth in this section will either be published in a 
notice in the Federal Register or will be posted on the Internet site 
of the Veterans Health Administration Chief Business Office at http://www.va.gov/revenue, under ``Charge Data.'' For care for which VA has 
established a charge, VA will bill using its most recent published or 
posted charge. For care for which VA has not established a charge, VA 
will bill according to the methodology set forth in paragraph (a)(8) of 
this section.
    (3) Data sources. In this section, data sources are identified by 
name. The specific editions of these data sources used to calculate 
actual charge amounts, and information on where these data sources may 
be obtained, will be presented along with the data for calculating 
actual charge amounts, either in notices in the Federal Register or on 
the Internet site of the Veterans Health Administration Chief Business 
Office at http://www.va.gov/revenue, under ``Charge Data.''
    (4) 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).
    (5) Definitions. For purposes of this section:
    APC means Medicare Ambulatory Payment Classification.
    CMS means the Centers for Medicare and Medicaid Services.
    CPI-U means Consumer Price Index--All Urban Consumers.
    CPT code and CPT procedure code mean Current Procedural Terminology 
code, a five-digit identifier defined by the American Medical 
Association for a specified physician service or procedure.
    DME means Durable Medical Equipment.
    DRG means Diagnosis Related Group.
    Geographic area means a three-digit ZIP Code area.
    HCPCS code means a Healthcare Common Procedure Coding System Level 
II identifier, consisting of a letter followed by four digits, defined 
by CMS for a specified physician service, procedure, test, supply, or 
other medical service.
    ICU means Intensive Care Unit, including coronary care units.
    MDR means Medical Data Research, a medical charge database 
published by Ingenix, Inc.
    MedPAR means the Medicare Provider Analysis and Review file.
    Non-provider-based means a VA healthcare entity (such as a small VA 
community-based outpatient clinic) that functions as the equivalent of 
a doctor's office or for other reasons does not meet CMS provider-based 
criteria, and, therefore, is not entitled to bill outpatient facility 
charges.
    Provider-based means the outpatient department of a VA hospital or 
any other VA healthcare entity that meets CMS provider-based criteria. 
Provider-based entities are entitled to bill outpatient facility 
charges.
    RBRVS means Resource-Based Relative Value Scale.
    RVU means Relative Value Unit.
    Unlisted procedures mean procedures, services, items, and supplies 
that have not been defined or specified by the American Medical 
Association or CMS, and the CPT and HCPCS codes used to report such 
procedures, services, items, and supplies.
    (6) Provider-based and non-provider-based entities and charges. 
Each VA healthcare entity (medical center, hospital, community-based 
outpatient clinic, independent outpatient clinic, etc) is designated as 
either provider-based or non-provider-based. Provider-based entities 
are entitled to bill outpatient facility charges; non-provider-based 
entities are not. The charges for physician and other professional 
services provided at non-provider-based entities will be billed as 
professional charges only. Professional charges for both provider-based 
entities and non-provider-based entities are produced by the 
methodologies set forth in this section, with professional charges for 
provider-based entities based on facility practice expense RVUs, and 
professional charges for non-provider-based entities based on non-
facility practice expense RVUs.
    (7) Charges for medical care or services provided by non-VA 
providers at VA expense. When medical care or services are furnished at 
the expense of the VA by non-VA providers, the charges billed for such 
care or services will be the higher of the charges determined according 
to this section, or the amount VA paid to the non-VA provider.
    (8) Charges for medical care or services for which VA does not have 
an established charge. When medical care or services are provided or 
furnished at VA expense by either VA or non-VA providers, and VA does 
not have an established charge for such care or services, then the 
charges billed for such care or services will be according to the first 
of the following subparagraphs that applies:

[[Page 56882]]

    (i) In the event that a new identifier (DRG, CPT code, or HCPCS 
code) is assigned to a particular type or item of medical care or 
service, then until such time as VA establishes a charge for the new 
identifier, VA's charge for such care or service will be VA's most 
recent established charge for the identifier previously assigned to 
that type or item of medical care or service; otherwise,
    (ii) In the event that the medical care or service is provided or 
furnished at VA expense by a non-VA provider, then VA's charge for such 
care or service will be the amount VA paid to the non-VA provider; 
otherwise,
    (iii) VA's charges for prosthetic devices and durable medical 
equipment will be VA's actual cost; otherwise,
    (iv) If a Medicare allowed charge amount can be determined for the 
care or service, then VA's charge will be the Medicare participating 
provider allowed charge amount geographically adjusted using the 
applicable geographic area adjustment factors determined pursuant to 
this section; otherwise,
    (v) If a charge cannot be established under paragraphs (a)(8)(i) 
through (iv) of this section, then VA will not charge for the care or 
service under this section.
    (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 geographic area 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, the total acute inpatient 
facility charge is the sum of the applicable charges determined 
pursuant to paragraphs (b)(1)(i), (ii), and (iii) of this section. For 
purposes of this section, standard room and board days and ICU room and 
board days are mutually exclusive: VA will bill either a standard room 
and board per diem charge or an ICU room and board per diem charge, as 
applicable, for each day of a given acute inpatient stay.
    (i) Standard room and board charges. Multiply the nationwide 
standard room and board per diem charge determined pursuant to 
paragraph (b)(2) of this section by the appropriate geographic area 
adjustment factor determined pursuant to paragraph (b)(3) of this 
section. The result constitutes the area-specific standard room and 
board per diem charge. Multiply this amount by the number of days for 
which standard room and board charges apply to obtain the total acute 
inpatient facility standard room and board charge.
    (ii) ICU room and board charges. Multiply the nationwide ICU room 
and board per diem charge determined pursuant to paragraph (b)(2) of 
this section by the appropriate geographic area adjustment factor 
determined pursuant to paragraph (b)(3) of this section. The result 
constitutes the area-specific ICU room and board per diem charge. 
Multiply this amount by the number of days for which ICU room and board 
per diem charges apply to obtain the total acute inpatient facility ICU 
room and board charge.
    (iii) Ancillary charges. Multiply the nationwide ancillary per diem 
charge determined pursuant to paragraph (b)(2) of this section by the 
appropriate geographic area adjustment factor determined pursuant to 
paragraph (b)(3) of this section. The result constitutes the area-
specific ancillary per diem charge. Multiply this amount by the number 
of days of acute inpatient care to obtain the total acute inpatient 
facility ancillary 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 calculations of 
acute inpatient facility charges 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 amounts for each DRG are calculated, one from the 
MedPAR file and one from the MedStat claims database, a database of 
nationwide commercial insurance claims. Average per diem charges are 
calculated based on all available charges, except for care reported for 
emergency room, ambulance, professional, and observation care. These 
two data sources may report charges for two differing periods of time; 
when this occurs, the data source charges with the earlier center date 
are trended forward to the center date of the other data source, based 
on changes to the inpatient hospital services component of the CPI-U. 
Results obtained from these two data sources are then combined into a 
single weighted average per diem charge for each DRG. The resulting 
charge for each DRG is then separated into its two components, a room 
and board component and an ancillary component, with the per diem 
charge for each component calculated by multiplying the weighted 
average per diem charge by the corresponding percentage determined 
pursuant to paragraph (b)(2)(i) of this section. The room and board per 
diem charge is further differentiated into a standard room and board 
per diem charge and an ICU room and board per diem charge by 
multiplying the average room and board charge by the corresponding DRG-
specific ratios determined pursuant to paragraph (b)(2)(ii) of this 
section. The resulting per diem charges for standard room and board, 
ICU room and board, and ancillary services for each DRG are then each 
multiplied by the final ratio determined pursuant to paragraph 
(b)(2)(iii) of this section to reflect the nationwide 80th percentile 
charges. Finally, the resulting amounts are each trended forward from 
the center date of the trended data sources to the effective time 
period for the charges, as set forth in paragraph (b)(2)(iv) of this 
section. The results constitute the nationwide 80th percentile standard 
room and board, ICU room and board, and ancillary per diem charges.
    (i) Room and board charge and ancillary 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) Standard room and board per diem charge and ICU room and board 
per diem charge ratios. Using only those cases from the MedPAR file for 
which a distinction between room and board and ancillary charges can be 
determined, overall average per diem room and board charges are 
calculated by DRG. Then, using the same cases, an average standard room 
and board per diem charge is calculated by dividing total non-ICU room 
and board charges by total non-ICU room and board days. Similarly, an 
average ICU room and board per diem charge is calculated by dividing 
total ICU room and board charges by total ICU room and board days. 
Finally, ratios of standard room and board per diem charges to average 
overall room and board per diem charges are calculated by DRG, as are 
ratios of ICU room and board per diem charges to average overall room 
and board per diem charges.

[[Page 56883]]

    (iii) 80th percentile. Using cases from the MedPAR file with 
separately identifiable semi-private room rates, 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 geographic area. The geographic area-based ratios are averaged to 
obtain a final 80th percentile ratio.
    (iv) Trending forward. 80th percentile charges for each DRG, 
obtained as described in paragraph (b)(2) of this section, are trended 
forward based on changes to the inpatient hospital services component 
of the CPI-U. Actual CPI-U changes are used from the center date of the 
trended data sources through the latest available month as of the time 
the calculations are performed. The three-month average annual trend 
rate as of the latest available month is then held constant to the 
midpoint of the calendar year in which the charges are primarily 
expected to be used. The projected total CPI-U change so obtained is 
then applied to the 80th percentile charges.
    (3) Geographic area adjustment factors. For each geographic area, 
the average per diem room and board charges and ancillary charges from 
the MedPAR file 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, weighted by nationwide 
VA discharges and by average lengths of stay from the combined MedPAR 
file and 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 MedPAR file, weighted by 
nationwide VA discharges and by average lengths of stay from the 
combined MedPAR file and 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 
geographic area. The facility charges cover care, including room and 
board, nursing care, pharmaceuticals, supplies, and skilled 
rehabilitation services (e.g., physical therapy, inhalation 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. These 
charges are calculated as follows:
    (1) Formula. For each stay, multiply the nationwide per diem charge 
determined pursuant to paragraph (c)(2) of this section by the 
appropriate geographic area adjustment factor determined pursuant to 
paragraph (c)(3) of this section. The result constitutes the area-
specific per diem charge. Finally, multiply the area-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 is calculated based on charges reported in the 
MedPAR skilled nursing facility file. For this purpose, the following 
MedPAR charge categories are included: room and board (private, semi-
private, and ward), physical therapy, occupational therapy, inhalation 
therapy, speech-language pathology, pharmacy, medical/surgical 
supplies, and ``other'' services. The following MedPAR charge 
categories are excluded from the calculation of the per diem charge and 
will be billed separately, using the charges determined as set forth in 
other applicable paragraphs of this section, when these services are 
provided to skilled nursing patients or sub-acute inpatients: ICU and 
CCU room and board, laboratory, radiology, cardiology, dialysis, 
operating room, blood and blood administration, ambulance, MRI, 
anesthesia, durable medical equipment, emergency room, clinic, 
outpatient, professional, lithotripsy, and organ acquisition services. 
The resulting average per diem billed charge is then multiplied by the 
80th percentile adjustment factor determined pursuant to paragraph 
(c)(2)(i) of this section to obtain a nationwide 80th percentile charge 
level. Finally, the resulting amount 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 adjustment factor. Using the MedPAR skilled 
nursing facility file, the ratio of the day-weighted 80th percentile 
room and board per diem charge to the day-weighted average room and 
board per diem charge is obtained for each geographic area. The 
geographic area-based ratios are averaged to obtain the 80th percentile 
adjustment factor.
    (ii) Trending forward. The 80th percentile charge is trended 
forward based on changes to the inpatient hospital services component 
of the CPI-U. Actual CPI-U changes are used from the time period of the 
source data through the latest available month as of the time the 
calculations are performed. The three-month average annual trend rate 
as of the latest available month is then held constant to the midpoint 
of the calendar year in which the charges are primarily expected to be 
used. The projected total CPI-U change so obtained is then applied to 
the 80th percentile charge.
    (3) Geographic area adjustment factors. The average billed per diem 
charge for each geographic area is calculated from the MedPAR skilled 
nursing facility file. This amount is divided by the nationwide average 
billed charge calculated in paragraph (c)(2) of this section. The 
geographic area adjustment factor for charges for each VA facility is 
the ratio for the geographic area in which the facility is located.
    (d) Partial hospitalization facility charges. When VA provides or 
furnishes partial hospitalization services that are within the scope of 
care referred to in paragraph (a)(1) of this section, the facility 
charges billed for such services will be determined in accordance with 
the provisions of this paragraph. Partial hospitalization facility 
charges are per diem charges that vary by geographic area. These 
charges are calculated as follows:
    (1) Formula. For each partial hospitalization stay, multiply the 
nationwide per diem charge determined pursuant to paragraph (d)(2) of 
this section by the appropriate geographic area adjustment factor 
determined pursuant to paragraph (d)(3) of this section. The result 
constitutes the area-specific per diem charge. Finally, multiply the 
area-specific per diem charge by the number of days of care to obtain 
the total partial hospitalization facility charge.
    (2) Per diem charge. To establish a baseline, a nationwide median 
per diem billed charge is calculated based on

[[Page 56884]]

charges associated with partial hospitalization from the outpatient 
facility component of the Medicare Standard Analytical File 5% Sample. 
That median per diem billed charge is then multiplied by the 80th 
percentile adjustment factor determined pursuant to paragraph (d)(2)(i) 
of this section to obtain a nationwide 80th percentile charge level. 
Finally, the resulting amount is trended forward to the effective time 
period for the charges, as set forth in paragraph (d)(2)(ii) of this 
section.
    (i) 80th percentile adjustment factor. The 80th percentile 
adjustment factor for partial hospitalization facility charges is the 
same as that computed for skilled nursing facility/sub-acute inpatient 
facility charges under paragraph (c)(2)(i) of this section.
    (ii) Trending forward. The 80th percentile charge is trended 
forward based on changes to the outpatient hospital services component 
of the CPI-U. Actual CPI-U changes are used from the time period of the 
source data through the latest available month as of the time the 
calculations are performed. The three-month average annual trend rate 
as of the latest available month is then held constant to the midpoint 
of the calendar year in which the charges are primarily expected to be 
used. The projected total CPI-U change so obtained is then applied to 
the 80th percentile charges, as described in paragraph (d)(2) of this 
section.
    (3) Geographic area adjustment factors. The geographic area 
adjustment factors for partial hospitalization facility charges are the 
same as those computed for outpatient facility charges under paragraph 
(e)(4) of this section.
    (e) 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, the charges billed for such 
services will be determined in accordance with the provisions of this 
paragraph. Charges for outpatient facility services vary by geographic 
area and by CPT/HCPCS code. These charges apply in the situations set 
forth in paragraph (e)(1) of this section and are calculated as set 
forth in paragraph (e)(2) of this section.
    (1) Settings and circumstances in which outpatient facility charges 
apply. Outpatient facility charges consist of facility charges for 
procedures, diagnostic tests, evaluation and management services, and 
other medical services, items, and supplies provided in the following 
settings and circumstances:
    (i) Outpatient departments and clinics at VA medical centers;
    (ii) Other VA provider-based entities; and
    (iii) VA non-provider-based entities, for procedures and tests for 
which no corresponding professional charge is established under the 
provisions of paragraph (f) of this section.
    (2) Formula. For each outpatient facility charge CPT/HCPCS code, 
multiply the nationwide 80th percentile charge determined pursuant to 
paragraph (e)(3) of this section by the appropriate geographic area 
adjustment factor determined pursuant to paragraph (e)(4) of this 
section. The result constitutes the area-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 (e)(5) of this section.
    (3) Nationwide 80th percentile charges by CPT/HCPCS code. For each 
CPT/HCPCS code for which outpatient facility charges apply, the 
nationwide 80th percentile charge is calculated as set forth in either 
paragraph (e)(3)(i) or (e)(3)(ii) of this section. The resulting amount 
is trended forward to the effective time period for the charges, as set 
forth in paragraph (e)(3)(iii) of this section. The results constitute 
the nationwide 80th percentile outpatient facility charges by CPT/HCPCS 
code.
    (i) Nationwide 80th percentile charges for CPT/HCPCS codes which 
have APC assignments. Using the outpatient facility charges reported in 
the outpatient facility component of the Medicare Standard Analytical 
File 5% Sample, claim records are selected for which all charges can be 
assigned to an APC. Using this subset of the 5% Sample data, nationwide 
median charge to Medicare APC payment amount ratios, by APC, and 
nationwide 80th percentile to median charge ratios, by APC, are 
computed according to the methodology set forth in paragraphs 
(e)(3)(i)(A) and (e)(3)(i)(B) of this section, respectively. The 
product of these two ratios by APC is then computed, resulting in a 
composite nationwide 80th percentile charge to Medicare APC payment 
amount ratio. This ratio is then compared to the alternate nationwide 
80th percentile charge to Medicare APC payment amount ratio computed in 
paragraph (e)(3)(i)(C) of this section, and the lesser amount is 
selected and multiplied by the current Medicare APC payment amount. The 
resulting product is the APC-specific nationwide 80th percentile charge 
amount for each applicable CPT/HCPCS code.
    (A) Nationwide median charge to Medicare APC payment amount ratios. 
For each CPT/HCPCS code, the ratio of median billed charge to Medicare 
APC payment amount is determined. The weighted average of these ratios 
for each APC is then obtained, using the reported 5% Sample frequencies 
as weights. In addition, corresponding ratios are calculated for each 
of the APC categories set forth in paragraph (e)(3)(i)(D) of this 
section, again using the reported 5% Sample frequencies as weights. For 
APCs where the 5% Sample frequencies provide a statistically credible 
result, the APC-specific weighted average nationwide median charge to 
Medicare APC payment amount ratio so obtained is accepted without 
further adjustment. However, if the 5% Sample data do not produce 
statistically credible results for any specific APC, then the APC 
category-specific ratio is applied for that APC.
    (B) Nationwide 80th percentile to median charge ratios. For each 
CPT/HCPCS code, a geographically normalized nationwide 80th percentile 
billed charge amount is divided by a similarly normalized nationwide 
median billed charge amount. The weighted average of these ratios for 
each APC is then obtained, using the reported 5% Sample frequencies as 
weights. In addition, corresponding ratios are calculated for each of 
the APC categories set forth in paragraph (e)(3)(i)(D) of this section, 
again using the reported 5% Sample frequencies as weights. For APCs 
where the 5% Sample frequencies provide a statistically credible 
result, the APC-specific weighted average nationwide 80th percentile to 
median charge ratio so obtained is accepted without further adjustment. 
However, if the 5% Sample data do not produce statistically credible 
results for any specific APC, then the APC category-specific ratio is 
applied for that APC.
    (C) Alternate nationwide 80th percentile charge to Medicare APC 
payment amount ratios. A minimum 80th percentile charge to Medicare APC 
payment amount ratio is set at 2.0 for APCs with Medicare APC payment 
amounts of $25 or less. A maximum 80th percentile charge to Medicare 
APC payment amount ratio is set at 6.5 for APCs with Medicare APC 
payment amounts of $10,000 or more. Using linear interpolation with 
these endpoints, the alternate APC-specific nationwide 80th percentile 
charge to Medicare APC payment amount ratio is then computed, based on 
the Medicare APC payment amount.

[[Page 56885]]

    (D) APC categories for the purpose of establishing 80th percentile 
to median factors. For the purpose of the statistical methodology set 
forth in paragraph (e)(3)(i) of this section, APCs are assigned to the 
following APC categories:
    (1) Radiology.
    (2) Drugs.
    (3) Office, Home, and Urgent Care Visits.
    (4) Cardiovascular.
    (5) Emergency Room Visits.
    (6) Outpatient Psychiatry, Alcohol and Drug Abuse.
    (7) Pathology.
    (8) Surgery.
    (9) Allergy Immunotherapy, Allergy Testing, Immunizations, and 
Therapeutic Injections.
    (10) All APCs not assigned to any of the above groups.
    (ii) Nationwide 80th percentile charges for CPT/HCPCS codes which 
do not have APC assignments. Nationwide 80th percentile billed charge 
levels by CPT/HCPCS code are computed from the outpatient facility 
component of the MDR database, from the MedStat claims database, and 
from the outpatient facility component of the Medicare Standard 
Analytical File 5% Sample. If the MDR database contains sufficient data 
to provide a statistically credible 80th percentile charge, then that 
result is retained for this purpose. If the MDR database does not 
provide a statistically credible 80th percentile charge, then the 
result from the MedStat database is retained for this purpose, provided 
it is statistically credible. If neither the MDR nor the MedStat 
databases provide statistically credible results, then the nationwide 
80th percentile billed charge computed from the 5% Sample data is 
retained for this purpose. The nationwide 80th percentile charges 
retained from each of these data sources are trended forward to the 
effective time period for the charges, as set forth in paragraph 
(e)(3)(iii) of this section.
    (iii) Trending forward. The charges for each CPT/HCPCS code, 
obtained as described in paragraph (e)(3) of this section, are trended 
forward based on changes to the outpatient hospital services component 
of the CPI-U. Actual CPI-U changes are used from the time period of the 
source data through the latest available month as of the time the 
calculations are performed. The three-month average annual trend rate 
as of the latest available month is then held constant to the midpoint 
of the calendar year in which the charges are primarily expected to be 
used. The projected total CPI-U change so obtained is then applied to 
the 80th percentile charges, as described in paragraph (e)(3) of this 
section.
    (4) Geographic area adjustment factors. For each geographic area, a 
single adjustment factor is calculated as the arithmetic average of the 
outpatient geographic area adjustment factor published in the Milliman 
USA, Inc., Health Cost Guidelines (this factor constitutes the ratio of 
the level of charges for each geographic area to the nationwide level 
of charges), and a geographic area adjustment factor developed from the 
MDR database. See paragraph (a)(3) of this section for data sources. 
The MDR-based geographic area adjustment factors are calculated as the 
ratio of the CPT/HCPCS code weighted average charge level for each 
geographic area to the nationwide CPT/HCPCS code 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/HCPCS procedure 
codes, then the CPT/HCPCS procedure code with the highest facility 
charge will be billed at 100% of the charges established under this 
section; the CPT/HCPCS procedure code with the second highest facility 
charge will be billed at 25% of the charges established under this 
section; the CPT/HCPCS 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.
    (f) Physician and other professional charges except for anesthesia 
services and certain dental services. When VA provides or furnishes 
physician and other professional services, other than professional 
anesthesia services and certain professional dental services, within 
the scope of care referred to in paragraph (a)(1) of this section, 
physician and other professional charges billed for such services will 
be determined in accordance with the provisions of this paragraph. 
Charges for professional dental services identified by CPT code are 
determined in accordance with the provisions of this paragraph; charges 
for professional dental services identified by HCPCS Level II code are 
determined in accordance with the provisions of paragraph (h) of this 
section. Physician and other professional charges consist of charges 
for professional services that vary by geographic area, by CPT/HCPCS 
code, by site of service, and by modifier, where applicable. These 
charges are calculated as follows:
    (1) Formula. For each CPT/HCPCS code or, where applicable, each 
CPT/HCPCS code and modifier combination, multiply the total 
geographically-adjusted RVUs determined pursuant to paragraph (f)(2) of 
this section by the applicable geographically-adjusted conversion 
factor (a monetary amount) determined pursuant to paragraph (f)(3) of 
this section to obtain the physician charge for each CPT/HCPCS code in 
a particular geographic area. Then, multiply this charge by the 
appropriate factors for any charge-significant modifiers, determined 
pursuant to paragraph (f)(4) of this section.
    (2)(i) Total geographically-adjusted RVUs for physician services 
that have Medicare RVUs. The work expense and practice expense RVUs for 
CPT/HCPCS codes, other than the codes described in paragraphs 
(f)(2)(ii) and (f)(2)(iii) of this section, are compiled using Medicare 
Physician Fee Schedule RVUs. The sum of the geographically-adjusted 
work expense RVUs determined pursuant to paragraph (f)(2)(i)(A) of this 
section and the geographically-adjusted practice expense RVUs 
determined pursuant to paragraph (f)(2)(i)(B) of this section equals 
the total geographically-adjusted RVUs.
    (A) Geographically-adjusted work expense RVUs. For each CPT/HCPCS 
code for each geographic area, the Medicare Physician Fee Schedule work 
expense RVUs are multiplied by the work expense Medicare Geographic 
Practice Cost Index. The result constitutes the geographically-adjusted 
work expense RVUs.
    (B) Geographically-adjusted practice expense RVUs. For each CPT/
HCPCS code for each geographic area, the Medicare Physician Fee 
Schedule practice expense RVUs are multiplied by the practice expense 
Medicare Geographic Practice Cost Index. The result constitutes the 
geographically-adjusted practice expense RVUs. In these calculations, 
facility practice expense RVUs are used to obtain geographically-
adjusted practice expense RVUs for use by provider-based entities, and 
non-facility practice expense RVUs are used to obtain geographically-
adjusted practice expense RVUs for use by non-provider-based entities.
    (ii) RVUs for CPT/HCPCS codes that do not have Medicare RVUs and 
are not designated as unlisted procedures. For CPT/HCPCS codes that are 
not assigned RVUs in paragraphs (f)(2)(i) or (f)(2)(iii) of this 
section, total RVUs are developed based on various charge data sources. 
For these CPT/HCPCS codes, the nationwide 80th percentile billed 
charges are obtained, where statistically

[[Page 56886]]

credible, from the MDR database. For any remaining CPT/HCPCS codes, the 
nationwide 80th percentile billed charges are obtained, where 
statistically credible, from the Part B component of the Medicare 
Standard Analytical File 5% Sample. For any remaining CPT/HCPCS codes, 
the nationwide 80th percentile billed charges are obtained, where 
statistically credible, from the Prevailing Healthcare Charges System 
nationwide commercial insurance database. For each of these CPT/HCPCS 
codes, nationwide total RVUs are obtained by taking the nationwide 80th 
percentile billed charges obtained using the preceding three databases 
and dividing by the untrended nationwide conversion factor for the 
corresponding CPT/HCPCS code group determined pursuant to paragraphs 
(f)(3) and (f)(3)(i) of this section. For any remaining CPT/HCPCS codes 
that have not been assigned RVUs using the preceding data sources, the 
nationwide total RVUs are calculated by summing the work expense and 
non-facility practice expense RVUs found in Ingenix/St. Anthony's 
RBRVS. The resulting nationwide total RVUs obtained using these four 
data sources are multiplied by the geographic area adjustment factors 
determined pursuant to paragraph (f)(2)(iv) of this section to obtain 
the area-specific total RVUs.
    (iii) RVUs for CPT/HCPCS codes designated as unlisted procedures. 
For CPT/HCPCS codes designated as unlisted procedures, total RVUs are 
developed based on the weighted median of the total RVUs of CPT/HCPCS 
codes within the series in which the unlisted procedure code occurs. A 
nationwide VA distribution of procedures and services is used for the 
purpose of computing the weighted median. The resulting nationwide 
total RVUs are multiplied by the geographic area adjustment factors 
determined pursuant to paragraph (f)(2)(iv) of this section to obtain 
the area-specific total RVUs.
    (iv) RVU geographic area adjustment factors for CPT/HCPCS codes 
that do not have Medicare RVUs, including codes that are designated as 
unlisted procedures. The adjustment factor for each geographic area 
consists of the weighted average of the work expense and practice 
expense Medicare Geographic Practice Cost Indices for each geographic 
area using charge data for representative CPT/HCPCS codes statistically 
selected and weighted for work expense and practice expense.
    (3) Geographically-adjusted 80th percentile conversion factors. 
CPT/HCPCS codes are separated into the following 23 CPT/HCPCS code 
groups: allergy immunotherapy, allergy testing, 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 23 CPT/HCPCS code 
groups, representative CPT/HCPCS codes are statistically selected and 
weighted so as to give a weighted average RVU comparable to the 
weighted average RVU of the entire CPT/HCPCS code group (the selected 
CPT/HCPCS codes are set forth in the Milliman USA, Inc., Health Cost 
Guidelines fee survey; see paragraph (a)(3) of this section for data 
sources). The 80th percentile charge for each selected CPT/HCPCS code 
is obtained from the MDR database. A nationwide conversion factor (a 
monetary amount) is calculated for each CPT/HCPCS code group as set 
forth in paragraph (f)(3)(i) of this section. The nationwide conversion 
factors for each of the 23 CPT/HCPCS code groups are trended forward to 
the effective time period for the charges, as set forth in paragraph 
(f)(3)(ii) of this section. The resulting amounts for each of the 23 
groups are multiplied by geographic area adjustment factors determined 
pursuant to paragraph (f)(3)(iii) of this section, resulting in 
geographically-adjusted 80th percentile conversion factors for each 
geographic area for the 23 CPT/HCPCS code groups for the effective 
charge period.
    (i) Nationwide conversion factors. Using the nationwide 80th 
percentile charges for the selected CPT/HCPCS codes from paragraph 
(f)(3) of this section, a nationwide conversion factor is calculated 
for each of the 23 CPT/HCPCS code groups by dividing the weighted 
average charge by the weighted average RVU.
    (ii) Trending forward. The nationwide conversion factors for each 
of the 23 CPT/HCPCS code groups, obtained as described in paragraph 
(f)(3)(i) of this section, are trended forward based on changes to the 
physicians' services component of the CPI-U. Actual CPI-U changes are 
used from the time period of the source data through the latest 
available month as of the time the calculations are performed. The 
three-month average annual trend rate as of the latest available month 
is then held constant to the midpoint of the calendar year in which the 
charges are primarily expected to be used. The projected total CPI-U 
change so obtained is then applied to the 23 conversion factors.
    (iii) Geographic area adjustment factors. Using the 80th percentile 
charges for the selected CPT/HCPCS codes from paragraph (f)(3) of this 
section for each geographic area, a geographic area-specific conversion 
factor is calculated for each of the 23 CPT/HCPCS code groups by 
dividing the weighted average charge by the weighted average 
geographically-adjusted RVU. The resulting conversion factor for each 
geographic area for each of the 23 CPT/HCPCS code groups is divided by 
the corresponding nationwide conversion factor determined pursuant to 
paragraph (f)(3)(i) of this section. The resulting ratios are the 
geographic area adjustment factors for the conversion factors for each 
of the 23 CPT/HCPCS code groups for each geographic area.
    (4) Charge adjustment factors for specified CPT/HCPCS code 
modifiers. Surcharges or charge discounts are calculated in the 
following manner: from the Part B component of the Medicare Standard 
Analytical File 5% Sample, the ratio of weighted average billed charges 
for CPT/HCPCS codes with the specified modifier to the weighted average 
billed charge for CPT/HCPCS codes with no charge modifier is 
calculated, using the frequency of procedure codes with the modifier as 
weights in both weighted average calculations. The resulting ratios 
constitute the surcharge or discount factors for specified charge-
significant CPT/HCPCS code modifiers.
    (5) Certain charges for providers other than physicians. When 
services for which charges are established according to the preceding 
provisions of this paragraph (f) are performed by providers other than 
physicians, the charges for those services will be as determined by the 
preceding provisions of this paragraph, except as follows:
    (i) Outpatient facility charges. When the services of providers 
other than physicians are furnished in outpatient facility settings or 
in other facilities designated as provider-based, and outpatient 
facility charges for those services have been established under 
paragraph (e) of this section, then the outpatient facility charges 
established under paragraph (e) will apply instead of the charges 
established under this paragraph (f).
    (ii) Discounted charges. Charges for the professional services of 
the following providers will be the indicated percentages of the amount 
that would be charged if the care had been provided by a physician:

[[Page 56887]]

    (A) Nurse practitioner: 85%.
    (B) Clinical nurse specialist: 85%.
    (C) Physician assistant: 85%.
    (D) Clinical psychologist: 80%.
    (E) Clinical social worker: 75%.
    (F) Dietitian: 75%.
    (G) Clinical pharmacist: 80%.
    (g) Professional charges for anesthesia services. When VA provides 
or furnishes professional anesthesia services within the scope of care 
referred to in paragraph (a)(1) of this section, professional 
anesthesia charges billed for such services will be determined in 
accordance with the provisions of this paragraph. Charges for 
professional anesthesia services provided by physicians or by certified 
registered nurse anesthetists when not medically directed by an 
anesthesiologist will be 100% of the charges determined as set forth in 
this paragraph. Charges for professional anesthesia services provided 
by a certified registered nurse anesthetist when medically directed by 
an anesthesiologist will be 50% of the charges otherwise determined as 
set forth in this paragraph, and shall be in addition to the charges 
for the anesthesiologist. Professional anesthesia charges consist of 
charges for professional services that vary by geographic area, by CPT/
HCPCS code base units, and by number of time units. These charges are 
calculated as follows:
    (1) Formula. For each anesthesia CPT/HCPCS code, multiply the total 
anesthesia RVUs determined pursuant to paragraph (g)(2) of this section 
by the applicable geographically-adjusted conversion factor (a monetary 
amount) determined pursuant to paragraph (g)(3) of this section to 
obtain the professional anesthesia charge for each CPT/HCPCS code in a 
particular geographic area.
    (2) Total RVUs for professional anesthesia services. The total 
anesthesia RVUs for each anesthesia CPT/HCPCS code are the sum of the 
base units (as compiled by CMS) for that CPT/HCPCS code and the number 
of time units reported for the anesthesia service, where one time unit 
equals 15 minutes. For anesthesia CPT/HCPCS codes designated as 
unlisted procedures, base units are developed based on the weighted 
median base units for anesthesia CPT/HCPCS codes within the series in 
which the unlisted procedure code occurs. A nationwide VA distribution 
of procedures and services is used for the purpose of computing the 
weighted median base units.
    (3) Geographically-adjusted 80th percentile conversion factors. A 
nationwide 80th percentile conversion factor is calculated according to 
the methodology set forth in paragraph (g)(3)(i) of this section. The 
nationwide conversion factor is then trended forward to the effective 
time period for the charges, as set forth in paragraph (g)(3)(ii) of 
this section. The resulting amount is multiplied by geographic area 
adjustment factors determined pursuant to paragraph (g)(3)(iii) of this 
section, resulting in geographically-adjusted 80th percentile 
conversion factors for each geographic area for the effective charge 
period.
    (i) Nationwide conversion factor. Preliminary 80th percentile 
conversion factors for each area are compiled from the MDR database. 
Then, a preliminary nationwide weighted-average 80th percentile 
conversion factor is calculated, using as weights the population 
(census) frequencies for each geographic area as presented in the 
Milliman USA, Inc., Health Cost Guidelines (see paragraph (a)(3) of 
this section for data sources). A nationwide 80th percentile fee by 
CPT/HCPCS code is then computed by multiplying this conversion factor 
by the MDR base units for each CPT/HCPCS code. An adjusted 80th 
percentile conversion factor by CPT/HCPCS code is then calculated by 
dividing the nationwide 80th percentile fee for each procedure code by 
the anesthesia base units (as compiled by CMS) for that CPT/HCPCS code. 
Finally, a nationwide weighted average 80th percentile conversion 
factor is calculated using combined frequencies for billed base units 
and time units from the Part B component of the Medicare Standard 
Analytical File 5% Sample as weights.
    (ii) Trending forward. The nationwide conversion factor, obtained 
as described in paragraph (g)(3)(i) of this section, is trended forward 
based on changes to the physicians' services component of the CPI-U. 
Actual CPI-U changes are used from the time period of the source data 
through the latest available month as of the time the calculations are 
performed. The three-month average annual trend rate as of the latest 
available month is then held constant to the midpoint of the calendar 
year in which the charges are primarily expected to be used. The 
projected total CPI-U change so obtained is then applied to the 
conversion factor.
    (iii) Geographic area adjustment factors. The preliminary 80th 
percentile conversion factors for each geographic area described in 
paragraph (g)(3)(i) of this section are divided by the corresponding 
preliminary nationwide 80th percentile conversion factor also described 
in paragraph (g)(3)(i). The resulting ratios are the adjustment factors 
for each geographic area.
    (h) Professional charges for dental services identified by HCPCS 
Level II codes. When VA provides or furnishes outpatient dental 
professional services within the scope of care referred to in paragraph 
(a)(1) of this section, and such services are identified by HCPCS code 
rather than CPT code, the charges billed for such services will be 
determined in accordance with the provisions of this paragraph. The 
charges for dental services vary by geographic area and by HCPCS code. 
These charges are calculated as follows:
    (1) Formula. For each HCPCS dental code, multiply the nationwide 
80th percentile charge determined pursuant to paragraph (h)(2) of this 
section by the appropriate geographic area adjustment factor determined 
pursuant to paragraph (h)(3) of this section. The result constitutes 
the area-specific dental charge.
    (2) Nationwide 80th percentile charges by HCPCS code. For each 
HCPCS dental code, 80th percentile charges are extracted from three 
independent data sources: Prevailing Healthcare Charges System 
database; National Dental Advisory Service nationwide pricing index; 
and the Dental UCR Module of the Comprehensive Healthcare Payment 
System, a release from Ingenix from a nationwide database of dental 
charges (see paragraph (a)(3) of this section for data sources). 
Charges for each database are then trended forward to a common date, 
based on actual changes to the dental services component of the CPI-U. 
Charges for each HCPCS dental code from each data source are combined 
into an average 80th percentile charge by means of the methodology set 
forth in paragraph (h)(2)(i) of this section. HCPCS dental codes 
designated as unlisted are assigned 80th percentile charges by means of 
the methodology set forth in paragraph (h)(2)(ii) of this section. 
Finally, the resulting amounts are each trended forward to the 
effective time period for the charges, as set forth in paragraph 
(h)(2)(iii) of this section. The results constitute the nationwide 80th 
percentile charge for each HCPCS dental code.
    (i) Averaging methodology. The average charge for any particular 
HCPCS dental code is calculated by first computing a preliminary mean 
average of the three charges for each code. Statistical outliers are 
identified and removed by testing whether any charge differs from the 
preliminary mean charge by more than 50% of the preliminary mean 
charge. In such cases, the charge most distant from the preliminary 
mean is removed as an outlier, and the average charge is

[[Page 56888]]

calculated as a mean of the two remaining charges. In cases where none 
of the charges differ from the preliminary mean charge by more than 50% 
of the preliminary mean charge, the average charge is calculated as a 
mean of all three reported charges.
    (ii) Nationwide 80th percentile charges for HCPCS dental codes 
designated as unlisted procedures. For HCPCS dental codes designated as 
unlisted procedures, 80th percentile charges are developed based on the 
weighted median 80th percentile charge of HCPCS dental codes within the 
series in which the unlisted procedure code occurs. The distribution of 
procedures and services from the Prevailing Healthcare Charges System 
nationwide commercial insurance database is used for the purpose of 
computing the weighted median.
    (iii) Trending forward. 80th percentile charges for each dental 
procedure code, obtained as described in paragraph (h)(2) of this 
section, are trended forward based on the dental services component of 
the CPI-U. Actual CPI-U changes are used from the time period of the 
source data through the latest available month as of the time the 
calculations are performed. The three-month average annual trend rate 
as of the latest available month is then held constant to the midpoint 
of the calendar year in which the charges are primarily expected to be 
used. The projected total CPI-U change so obtained is then applied to 
the 80th percentile charges.
    (3) Geographic area adjustment factors. A geographic adjustment 
factor (consisting of the ratio of the level of charges in a given 
geographic area to the nationwide level of charges) for each geographic 
area and dental class of service is obtained from Milliman USA, Inc., 
Dental Health Cost Guidelines, a database of nationwide commercial 
insurance charges and relative costs; and a normalized geographic 
adjustment factor computed from the Dental UCR Module of the 
Comprehensive Healthcare Payment System compiled by Ingenix, as 
follows: Using local and nationwide average charges reported in the 
Ingenix data, a local weighted average charge for each dental class of 
procedure codes is calculated using utilization frequencies from the 
Milliman USA, Inc., Dental Health Cost Guidelines as weights (see 
paragraph (a)(3) of this section for data sources). Similarly, using 
nationwide average charge levels, a nationwide average charge by dental 
class of procedure codes is calculated. The normalized geographic 
adjustment factor for each dental class of procedure codes and for each 
geographic area is the ratio of the local average charge divided by the 
corresponding nationwide average charge. Finally, the geographic area 
adjustment factor is the arithmetic average of the corresponding 
factors from the data sources mentioned in the first sentence of this 
paragraph (h)(3).
    (i) Pathology and laboratory charges. When VA provides or furnishes 
pathology and laboratory services within the scope of care referred to 
in paragraph (a)(1) of this section, charges billed for such services 
will be determined in accordance with the provisions of this paragraph. 
Pathology and laboratory charges consist of charges for services that 
vary by geographic area and by CPT/HCPCS code. These charges are 
calculated as follows:
    (1) Formula. For each CPT/HCPCS code, multiply the total 
geographically-adjusted RVUs determined pursuant to paragraph (i)(2) of 
this section by the applicable geographically-adjusted conversion 
factor (a monetary amount) determined pursuant to paragraph (i)(3) of 
this section to obtain the pathology/laboratory charge for each CPT/
HCPCS code in a particular geographic area.
    (2)(i) Total geographically-adjusted RVUs for pathology and 
laboratory services that have Medicare-based RVUs. Total RVUs are 
developed based on the Medicare Clinical Diagnostic Laboratory Fee 
Schedule (CLAB). The CLAB payment amounts are upwardly adjusted such 
that the adjusted payment amounts are, on average, equivalent to 
Medicare Physician Fee Schedule payment levels, using statistical 
comparisons to the 80th percentile derived from the MDR database. These 
adjusted payment amounts are then divided by the corresponding Medicare 
conversion factor to derive RVUs for each CPT/HCPCS code. The resulting 
nationwide total RVUs are multiplied by the geographic adjustment 
factors determined pursuant to paragraph (i)(2)(iv) of this section to 
obtain the area-specific total RVUs.
    (ii) RVUs for CPT/HCPCS codes that do not have Medicare-based RVUs 
and are not designated as unlisted procedures. For CPT/HCPCS codes that 
are not assigned RVUs in paragraphs (i)(2)(i) or (i)(2)(iii) of this 
section, total RVUs are developed based on various charge data sources. 
For these CPT/HCPCS codes, the nationwide 80th percentile billed 
charges are obtained, where statistically credible, from the MDR 
database. For any remaining CPT/HCPCS codes, the nationwide 80th 
percentile billed charges are obtained, where statistically credible, 
from the Part B component of the Medicare Standard Analytical File 5% 
Sample. For any remaining CPT/HCPCS codes, the nationwide 80th 
percentile billed charges are obtained, where statistically credible, 
from the Prevailing Healthcare Charges System nationwide commercial 
insurance database. For each of these CPT/HCPCS codes, nationwide total 
RVUs are obtained by taking the nationwide 80th percentile billed 
charges obtained using the preceding three databases and dividing by 
the untrended nationwide conversion factor determined pursuant to 
paragraphs (i)(3) and (i)(3)(i) of this section. For any remaining CPT/
HCPCS codes that have not been assigned RVUs using the preceding data 
sources, the nationwide total RVUs are calculated by summing the work 
expense and non-facility practice expense RVUs found in Ingenix/St. 
Anthony's RBRVS. The resulting nationwide total RVUs obtained using 
these four data sources are multiplied by the geographic area 
adjustment factors determined pursuant to paragraph (i)(2)(iv) of this 
section to obtain the area-specific total RVUs.
    (iii) RVUs for CPT/HCPCS codes designated as unlisted procedures. 
For CPT/HCPCS codes designated as unlisted procedures, total RVUs are 
developed based on the weighted median of the total RVUs of CPT/HCPCS 
codes within the series in which the unlisted procedure code occurs. A 
nationwide VA distribution of procedures and services is used for the 
purpose of computing the weighted median. The resulting nationwide 
total RVUs are multiplied by the geographic area adjustment factors 
determined pursuant to paragraph (i)(2)(iv) of this section to obtain 
the area-specific total RVUs.
    (iv) RVU geographic area adjustment factors for CPT/HCPCS codes 
that do not have Medicare RVUs, including codes that are designated as 
unlisted procedures. The adjustment factor for each geographic area 
consists of the weighted average of the work expense and practice 
expense Medicare Geographic Practice Cost Indices for each geographic 
area using charge data for representative CPT/HCPCS codes statistically 
selected and weighted for work expense and practice expense.
    (3) Geographically-adjusted 80th percentile conversion factors. 
Representative CPT/HCPCS codes are statistically selected and weighted 
so as to give a weighted average RVU comparable to the weighted average 
RVU of the entire pathology/laboratory CPT/HCPCS code group (the 
selected CPT/HCPCS codes are set forth in the Milliman USA, Inc., 
Health Cost Guidelines fee survey). The 80th percentile charge for each 
selected CPT/

[[Page 56889]]

HCPCS code is obtained from the MDR database. A nationwide conversion 
factor (a monetary amount) is calculated as set forth in paragraph 
(i)(3)(i) of this section. The nationwide conversion factor is trended 
forward to the effective time period for the charges, as set forth in 
paragraph (i)(3)(ii) of this section. The resulting amount is 
multiplied by a geographic area adjustment factor determined pursuant 
to paragraph (i)(3)(iv) of this section, resulting in the 
geographically-adjusted 80th percentile conversion factor for the 
effective charge period.
    (i) Nationwide conversion factors. Using the nationwide 80th 
percentile charges for the selected CPT/HCPCS codes from paragraph 
(i)(3) of this section, a nationwide conversion factor is calculated by 
dividing the weighted average charge by the weighted average RVU.
    (ii) Trending forward. The nationwide conversion factor, obtained 
as described in paragraph (i)(3) of this section, is trended forward 
based on changes to the physicians' services component of the CPI-U. 
Actual CPI-U changes are used from the time period of the source data 
through the latest available month as of the time the calculations are 
performed. The three-month average annual trend rate as of the latest 
available month is then held constant to the midpoint of the calendar 
year in which the charges are primarily expected to be used. The 
projected total CPI-U change so obtained is then applied to the 
pathology/laboratory conversion factor.
    (iii) Geographic area adjustment factor. Using the 80th percentile 
charges for the selected CPT/HCPCS codes from paragraph (i)(3) of this 
section for each geographic area, a geographic area-specific conversion 
factor is calculated by dividing the weighted average charge by the 
weighted average geographically-adjusted RVU. The resulting geographic 
area conversion factor is divided by the corresponding nationwide 
conversion factor determined pursuant to paragraph (i)(3)(i) of this 
section. The resulting ratios are the geographic area adjustment 
factors for pathology and laboratory services for each geographic area.
    (j) Observation care facility charges. When VA provides observation 
care within the scope of care referred to in paragraph (a)(1) of this 
section, the facility charges billed for such care will be determined 
in accordance with the provisions of this paragraph. The charges for 
this care vary by geographic area and number of hours of care. These 
charges are calculated as follows:
    (1) Formula. For each occurrence of observation care, add the 
nationwide base charge determined pursuant to paragraph (j)(2) of this 
section to the product of the number of hours in observation care and 
the hourly charge also determined pursuant to paragraph (j)(2) of this 
section. Then multiply this amount by the appropriate geographic area 
adjustment factor determined pursuant to paragraph (j)(3) of this 
section. The result constitutes the area-specific observation care 
facility charge.
    (2)(i) Nationwide 80th percentile observation care facility 
charges. To calculate nationwide base and hourly facility charges, all 
claims with observation care line items are selected from the 
outpatient facility component of the Medicare Standard Analytical File 
5% Sample. Then, using the 80th percentile observation line item 
charges for each unique hourly length of stay, a standard linear 
regression technique is used to calculate the nationwide 80th 
percentile base charge and 80th percentile hourly charge. Finally, the 
resulting amounts are each trended forward to the effective time period 
for the charges, as set forth in paragraph (j)(2)(ii) of this section. 
The results constitute the nationwide 80th percentile base and hourly 
facility charges for observation care.
    (ii) Trending forward. The nationwide 80th percentile base and 
hourly facility charges for observation care, obtained as described in 
paragraph (j)(2)(i) of this section, are trended forward based on 
changes to the outpatient hospital services component of the CPI-U. 
Actual CPI-U changes are used from the time period of the source data 
through the latest available month as of the time the calculations are 
performed. The three-month average annual trend rate as of the latest 
available month is then held constant to the midpoint of the calendar 
year in which the charges are primarily expected to be used. The 
projected total CPI-U change so obtained is then applied to the 80th 
percentile charges.
    (3) Geographic area adjustment factors. The geographic area 
adjustment factors for observation care facility charges are the same 
as those computed for outpatient facility charges under paragraph 
(e)(4) of this section.
    (k) Ambulance and other emergency transportation charges. When VA 
provides ambulance and other emergency transportation services that are 
within the scope of care referred to in paragraph (a)(1) of this 
section, the charges billed for such services will be determined in 
accordance with the provisions of this paragraph. The charges for these 
services vary by HCPCS code, length of trip, and geographic area. These 
charges are calculated as follows:
    (1) Formula. For each occasion of ambulance or other emergency 
transportation service, add the nationwide base charge for the 
appropriate HCPCS code determined pursuant to paragraph (k)(2)(i) of 
this section to the product of the number of miles traveled and the 
appropriate HCPCS code mileage charge determined pursuant to paragraph 
(k)(2)(ii) of this section. Then multiply this amount by the 
appropriate geographic area adjustment factor determined pursuant to 
paragraph (k)(3) of this section. The result constitutes the area-
specific ambulance or other emergency transportation service charge.
    (2)(i) Nationwide 80th percentile all-inclusive base charge. To 
calculate a nationwide all-inclusive base charge, all ambulance and 
other emergency transportation claims are selected from the outpatient 
facility component of the Medicare Standard Analytical File 5% Sample. 
Excluding professional and mileage charges, as well as all-inclusive 
charges which are reported on such claims, the total charge per claim, 
including incidental supplies, is computed. Then, the 80th percentile 
amount for each HCPCS code is computed. Finally, the resulting amounts 
are each trended forward to the effective time period for the charges, 
as set forth in paragraph (k)(2)(iii) of this section. The results 
constitute the nationwide 80th percentile all-inclusive base charge for 
each HCPCS base charge code.
    (ii) Nationwide 80th percentile mileage charge. To calculate a 
nationwide mileage charge, all ambulance and other emergency 
transportation claims are selected from the outpatient facility 
component of the Medicare Standard Analytical File 5% Sample. Excluding 
professional, incidental, and base charges, as well as claims with all-
inclusive charges, the total mileage charge per claim is computed. This 
amount is divided by the number of miles reported on the claim. Then, 
the 80th percentile amount for each HCPCS code, using miles as weights, 
is computed. Finally, the resulting amounts are each trended forward to 
the effective time period for the charges, as set forth in paragraph 
(k)(2)(iii) of this section. The results constitute the nationwide 80th 
percentile mileage charge for each HCPCS mileage code.
    (iii) Trending forward. The nationwide 80th percentile charge for 
each HCPCS code, obtained as described in paragraphs (k)(2)(i) and 
(k)(2)(ii) of this section, is trended forward based on

[[Page 56890]]

changes to the outpatient hospital services component of the CPI-U. 
Actual CPI-U changes are used from the time period of the source data 
through the latest available month as of the time the calculations are 
performed. The three-month average annual trend rate as of the latest 
available month is then held constant to the midpoint of the calendar 
year in which the charges are primarily expected to be used. The 
projected total CPI-U change so obtained is then applied to the 80th 
percentile charges.
    (3) Geographic area adjustment factors. The geographic area 
adjustment factors for ambulance and other emergency transportation 
charges are the same as those computed for outpatient facility charges 
under paragraph (e)(4) of this section.
    (l) Charges for durable medical equipment, drugs, injectables, and 
other medical services, items, and supplies identified by HCPCS Level 
II codes. When VA provides DME, drugs, injectables, or other medical 
services, items, or supplies that are identified by HCPCS Level II 
codes and that are within the scope of care referred to in paragraph 
(a)(1) of this section, the charges billed for such services, items, 
and supplies will be determined in accordance with the provisions of 
this paragraph. The charges for these services, items, and supplies 
vary by geographic area, by HCPCS code, and by modifier, when 
applicable. These charges are calculated as follows:
    (1) Formula. For each HCPCS code, multiply the nationwide charge 
determined pursuant to paragraphs (l)(2), (l)(3), and (l)(4) of this 
section by the appropriate geographic area adjustment factor determined 
pursuant to paragraph (l)(5) of this section. The result constitutes 
the area-specific charge.
    (2) Nationwide 80th percentile charges for HCPCS codes with RVUs. 
For each applicable HCPCS code, RVUs are compiled from the data sources 
set forth in paragraph (l)(2)(i) of this section. The RVUs are 
multiplied by the charge amount for each incremental RVU determined 
pursuant to paragraph (l)(2)(ii) of this section, and this amount is 
added to the fixed charge amount also determined pursuant to paragraph 
(l)(2)(ii) of this section. Then, for each HCPCS code, this charge is 
multiplied by the appropriate 80th percentile to median charge ratio 
determined pursuant to paragraph (l)(2)(iii) of this section. Finally, 
the resulting amount is trended forward to the effective time period 
for the charges, as set forth in paragraph (l)(2)(iv) of this section 
to obtain the nationwide 80th percentile charge.
    (i) RVUs for DME, drugs, injectables, and other medical services, 
items, and supplies. For the purpose of the statistical methodology set 
forth in paragraph (l)(2)(ii) of this section, HCPCS codes are assigned 
to the following HCPCS code groups. For the HCPCS codes in each group, 
the RVUs or amounts indicated constitute the RVUs:
    (A) Chemotherapy Drugs: Ingenix/St. Anthony's RBRVS Practice 
Expense RVUs.
    (B) Other Drugs: Ingenix/St. Anthony's RBRVS Practice Expense RVUs.
    (C) DME--Hospital Beds: Medicare DME Fee Schedule amounts.
    (D) DME--Medical/Surgical Supplies: Medicare DME Fee Schedule 
amounts.
    (E) DME--Orthotic Devices: Medicare DME Fee Schedule amounts.
    (F) DME--Oxygen and Supplies: Medicare DME Fee Schedule amounts.
    (G) DME--Wheelchairs: Medicare DME Fee Schedule amounts.
    (H) Other DME: Medicare DME Fee Schedule amounts.
    (I) Enteral/Parenteral Supplies: Medicare Parenteral and Enteral 
Nutrition Fee Schedule amounts.
    (J) Surgical Dressings and Supplies: Medicare DME Fee Schedule 
amounts.
    (K) Vision Items--Other Than Lenses: Medicare DME Fee Schedule 
amounts.
    (L) Vision Items--Lenses: Medicare DME Fee Schedule amounts.
    (M) Hearing Items: Ingenix/St. Anthony's RBRVS Practice Expense 
RVUs.
    (ii) Charge amounts. Using combined Part B and DME components of 
the Medicare Standard Analytical File 5% Sample, the median billed 
charge is calculated for each HCPCS code. A mathematical approximation 
methodology based on least squares techniques is applied to the RVUs 
specified for each of the groups set forth in paragraph (l)(2)(i) of 
this section, yielding two charge amounts for each HCPCS code group: a 
charge amount per incremental RVU, and a fixed charge amount.
    (iii) 80th Percentile to median charge ratios. Two ratios are 
obtained for each HCPCS code group set forth in paragraph (l)(2)(i) of 
this section by dividing the weighted average 80th percentile charge by 
the weighted average median charge derived from two data sources: 
Medicare data, as represented by the combined Part B and DME components 
of the Medicare Standard Analytical File 5% Sample; and the MDR 
database. Charge frequencies from the Medicare data are used as weights 
when calculating all weighted averages. For each HCPCS code group, the 
smaller of the two ratios is selected as the adjustment from median to 
80th percentile charges.
    (iv) Trending forward. The charges for each HCPCS code, obtained as 
described in paragraph (l)(2)(iii) of this section, are trended forward 
based on changes to the medical care commodities component of the CPI-
U. Actual CPI-U changes are used from the time period of the source 
data through the latest available month as of the time the calculations 
are performed. The three-month average annual trend rate as of the 
latest available month is then held constant to the midpoint of the 
calendar year in which the charges are primarily expected to be used. 
The projected total CPI-U change so obtained is then applied to the 
80th percentile charges, as described in paragraph (l)(2)(iii) of this 
section.
    (3) Nationwide 80th percentile charges for HCPCS codes without 
RVUs. For each applicable HCPCS code, 80th percentile charges are 
extracted from three independent data sources: the MDR database; 
Medicare, as represented by the combined Part B and DME components of 
the Medicare Standard Analytical File 5% Sample; and Milliman USA, 
Inc., Optimized HMO (Health Maintenance Organization) Data Sets (see 
paragraph (a)(3) of this section for data sources). Charges from each 
database are then trended forward to the effective time period for the 
charges, as set forth in paragraph (l)(3)(i) of this section. Charges 
for each HCPCS code from each data source are combined into an average 
80th percentile charge by means of the methodology set forth in 
paragraph (l)(3)(ii) of this section. The results constitute the 
nationwide 80th percentile charge for each applicable HCPCS code.
    (i) Trending forward. The charges from each database for each HCPCS 
code, obtained as described in paragraph (l)(3) of this section, are 
trended forward based on changes to the medical care commodities 
component of the CPI-U. Actual CPI-U changes are used from the time 
period of each source database through the latest available month as of 
the time the calculations are performed. The three-month average annual 
trend rate as of the latest available month is then held constant to 
the midpoint of the calendar year in which the charges are primarily 
expected to be used. The projected total CPI-U change so obtained is 
then applied to the 80th percentile charges, as described in paragraph 
(l)(3) of this section.

[[Page 56891]]

    (ii) Averaging methodology. The average 80th percentile trended 
charge for any particular HCPCS code is calculated by first computing a 
preliminary mean average of the three charges for each HCPCS code. 
Statistical outliers are identified and removed by testing whether any 
charge differs from the preliminary mean charge by more than 5 times 
the preliminary mean charge, or by less than 0.2 times the preliminary 
mean charge. In such cases, the charge most distant from the 
preliminary mean is removed as an outlier, and the average charge is 
calculated as a mean of the two remaining charges. In cases where none 
of the charges differ from the preliminary mean charge by more than 5 
times the preliminary mean charge, or less than 0.2 times the 
preliminary mean charge, the average charge is calculated as a mean of 
all three reported charges.
    (4) Nationwide 80th percentile charges for HCPCS codes designated 
as unlisted or unspecified. For HCPCS codes designated as unlisted or 
unspecified procedures, services, items, or supplies, 80th percentile 
charges are developed based on the weighted median 80th percentile 
charges of HCPCS codes within the series in which the unlisted or 
unspecified code occurs. A nationwide VA distribution of procedures, 
services, items, and supplies is used for the purpose of computing the 
weighted median.
    (5) Geographic area adjustment factors. For the purpose of 
geographic adjustment, HCPCS codes are combined into two groups: drugs 
and DME/supplies, as set forth in paragraph (l)(5)(i) of this section. 
The geographic area adjustment factor for each of these groups is 
calculated as the ratio of the area-specific weighted average charge 
determined pursuant to paragraph (l)(5)(ii) of this section divided by 
the nationwide weighted average charge determined pursuant to paragraph 
(l)(5)(iii) of this section.
    (i) Combined HCPCS code groups for geographic area adjustment 
factors for DME, drugs, injectables, and other medical services, items, 
and supplies. For the purpose of the statistical methodology set forth 
in paragraph (l)(5) of this section, each of the HCPCS code groups set 
forth in paragraph (l)(2)(i) of this section is assigned to one of two 
combined HCPCS code groups, as follows:
    (A) Chemotherapy Drugs: Drugs.
    (B) Other Drugs: Drugs.
    (C) DME--Hospital Beds: DME/supplies.
    (D) DME--Medical/Surgical Supplies: DME/supplies.
    (E) DME--Orthotic Devices: DME/supplies.
    (F) DME--Oxygen and Supplies: DME/supplies.
    (G) DME--Wheelchairs: DME/supplies.
    (H) Other DME: DME/supplies.
    (I) Enteral/Parenteral Supplies: DME/supplies.
    (J) Surgical Dressings and Supplies: DME/supplies.
    (K) Vision Items--Other Than Lenses: DME/supplies.
    (L) Vision Items--Lenses: DME/supplies.
    (M) Hearing Items: DME/supplies.
    (ii) Area-specific weighted average charges. Using the median 
charges by HCPCS code from the MDR database for each geographic area 
and utilization frequencies by HCPCS code from the combined Part B and 
DME components of the Medicare Standard Analytical File 5% Sample, an 
area-specific weighted average charge is calculated for each combined 
HCPCS code group.
    (iii) Nationwide weighted average charges. Using the area-specific 
weighted average charges determined pursuant to paragraph (l)(5)(ii) of 
this section, a nationwide weighted average charge is calculated for 
each combined HCPCS code group, using as weights the population 
(census) frequencies for each geographic area as presented in the 
Milliman USA, Inc., Health Cost Guidelines (see paragraph (a)(3) of 
this section for data sources).
    (m) Charges for prescription drugs not administered during 
treatment. Notwithstanding other provisions of this section, when VA 
provides or furnishes 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 prescription drugs 
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. 03-24102 Filed 10-1-03; 8:45 am]
BILLING CODE 8320-01-P