[Federal Register Volume 73, Number 63 (Tuesday, April 1, 2008)]
[Proposed Rules]
[Pages 17271-17289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6514]



[[Page 17271]]

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DEPARTMENT OF DEFENSE

Office of the Secretary

[DOD-2007-HA-0048; RIN 0720-AB19]

32 CFR Part 199


TRICARE; Outpatient Hospital Prospective Payment System (OPPS)

AGENCY: Office of the Secretary, DoD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements a prospective payment system for 
hospital outpatient services similar to that furnished to Medicare 
beneficiaries, as set forth in section 1833(t) of the Social Security 
Act. The rule also recognizes applicable statutory requirements and 
changes arising from Medicare's continuing experience with this system 
including certain related provisions of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003. The Department is 
publishing this rule to implement an existing statutory requirement for 
adoption of Medicare payment methods for institutional care which will 
ultimately provide incentives for hospitals to furnish outpatient 
services in an efficient and effective manner.

DATES: Written comments received at the address indicated below by June 
2, 2008 will be accepted.

ADDRESSES: You may submit comments, identified by docket number and or 
Regulatory Information Number (RIN) number and title, by either of the 
following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Federal Docket Management System Office, 1160 
Defense Pentagon, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at http://regulations.gov as they are received without change, 
including any personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: David E. Bennett, TRICARE Management 
Activity, Medical Benefits, and Reimbursement Systems, telephone (303) 
676-3494.

SUPPLEMENTARY INFORMATION: 

I. Introduction and Background

    The OPPS evolved out of Congressional mandates for replacement of 
Medicare's cost-based payment methodology with a prospective payment 
system (PPS). Medicare implemented OPPS for services furnished on or 
after August 1, 2000, with temporary transitional provisions to buffer 
the financial impact of the new prospective payment system (e.g., 
incorporating transitional pass-through adjustments and proportional 
reductions in beneficiary cost-sharing to lessen potential payment 
reductions experienced under the new OPPS).
    Congress likewise established enabling legislation under section 
707 of the National Defense Authorization Act of Fiscal Year 2002 
(NDAA-02), Public Law 107-107 (December 28, 2001) changing the 
statutory authorization [in 10 U.S.C. 1079(j)(2)] that TRICARE payment 
methods for institutional care shall be determined, to the extent 
practicable, in accordance with the same reimbursement rules used by 
Medicare. Similarly, under 10 U.S.C. 1079(h), the amount to be paid to 
health care professional and other non-institutional health care 
providers ``shall be equal to an amount determined to be appropriate, 
to the extent practicable, in accordance with the same reimbursement 
rules used by Medicare''. Based on these statutory mandates, TRICARE is 
adopting Medicare's prospective payment system for reimbursement of 
hospital outpatient services currently in effect for the Medicare 
program as required under the Balanced Budget Act of 1997 (BBA 1997), 
(Pub. L. 105-33) which added section 1833(t) of the Social Security Act 
providing comprehensive provisions for establishment of a Medicare 
hospital OPPS. The Act required development of a classification system 
for covered outpatient services that consisted of groups arranged so 
that the services within each group were comparable clinically and with 
respect to the use of resources. The Act also described the method for 
determining the Medicare payment amount and beneficiary coinsurance 
amount for services covered under the outpatient PPS. This included the 
formula for calculating the conversion factor and data requirements for 
establishing relative payment weights.
    Centers for Medicare & Medicaid Services (CMS) published a proposed 
rule in the Federal Register on September 8, 1998 (63 FR 47552) setting 
forth the proposed PPS for hospital outpatient services. On June 30, 
1999, a correction notice was published (64 FR 35258) to correct a 
number of technical and typographical errors contained in the September 
8, 1998 proposed rule.
    Subsequent to publication of the proposed rule, the Medicare, 
Medicaid, and State Child Health Insurance Program (SCHIP) Balanced 
Budget Refinement Act of 1999 (BBRA 1999) (Pub. L. 106-133) enacted on 
November 29, 1999, made major changes that affected the proposed 
Medicare OPPS. The following BBRA 1999 provisions were implemented in a 
final rule (65 FR 18434) published on April 7, 2000.
     Made adjustments for covered services whose costs exceed a 
given threshold (i.e., an outlier payment).
     Established transitional pass-through payments for certain 
medical devices, drugs, and biologicals.
     Placed limitations on judicial review for determining 
outlier payments and the determination of additional payments for 
certain medical devices, drugs, and biologicals.
     Included as covered outpatient services implantable 
prosthetics and durable medical equipment and diagnostic x-ray, 
laboratory, and other tests associated with those implantable items.
     Limited the variation of costs of services within each 
payment classification group.
     Required at least annual review of the groups, relative 
payment weights, and the wage and other adjustments to take into 
account changes in medical practice, the addition of new services, new 
cost data, and other relevant information or factors.
     Established transitional corridors that would limit 
payment reductions under the hospital outpatient PPS.
     Established hold harmless provisions for rural and cancer 
hospitals.
     Provided that the coinsurance amount for a procedure 
performed in a year could not exceed the hospital inpatient deductible 
for the year.
    Section 1833(t) of the Social Security Act was subsequently amended 
by the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act (BIPA) of 2000 (Pub. L. 106-554) and the Medicare 
Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 
(Pub. L. 108-173) making additional changes in the OPPS.
    As a prelude to implementation of the OPPS, Congress enacted the 
Omnibus Budget Reconciliation Act of 1986 (OBRA) (Pub. L. 99-509) which 
paved the way for development of a PPS for hospital outpatient services 
by prohibiting payment for non-physician services furnished to hospital 
patients (inpatients and outpatients), unless the services were 
furnished either directly or under arrangement with the hospital, 
except for services of physician

[[Page 17272]]

assistants, nurse practitioners and clinical nurse specialists. 
Exceptions were also made for clinical diagnostic procedures, the 
payment of which may only be made to the person or entity that 
performed, or supervised the performance of, the test; and for 
exceptionally intensive hospital outpatient services provided to 
Skilled Nursing Facility (SNF) residents that lie well beyond the scope 
of the care that SNFs would ordinarily furnish, and thus beyond the 
ordinary scope of the SNF care plan. Consolidated billing facilitated 
the payment of services included within the scope of each ambulatory 
payment classification (APC). The OBRA also mandated hospitals to 
report claims for services under the Healthcare Common Procedure Coding 
System (HCPCS) which enabled the identification of specific procedures 
and services used in the development of outpatient PPS rates.
    Ongoing changes and refinement to the OPPS have been accomplished 
through annual proposed and final rulemaking, along with interim 
transmittals and program memoranda taking into consideration changes in 
medical practice, addition of new services, new cost data, and other 
relevant information and factors. TRICARE will recognize to the extent 
practicable all applicable statutory requirements and changes arising 
from Medicare's continuing experience with this prospective payment 
system, including changes to the amounts and factors used to determine 
the payment rates for hospital outpatient services paid under the 
prospective payment system [e.g., annual recalibration (updating) of 
group weights and conversion factors and adjustments for area wage 
differences (wage index updates)]. The agency will adopt all of 
Medicare's CY 2008 OPPS changes published in the Federal Register on 
November 27, 2007, (72 FR 66580); e.g., extending the current packaging 
to include guidance services, image processing services, intraoperative 
services, imaging supervision and interpretation services, diagnostic 
radiopharmaceuticals, contrast agents, and observation services; and 
reduction of payments in cases where a hospital receives a substantial 
partial credit from the manufacturer toward the cost of a replacement 
device implanted in a procedure.
    While TRICARE intends to remain as true as possible to Medicare's 
basic OPPS methodology (i.e., adoption and updating of the Medicare 
data elements used to calculate the prospective payment amounts), there 
will be some deviations required to accommodate the uniqueness of the 
TRICARE program. These deviations have been designed to accommodate 
existing TRICARE benefit structure and claims processing procedures/
systems implemented under the TRICARE Next Generation Contracts (T-
NEX), while at the same time eliminating any undue financial burden to 
TRICARE Prime, Extra, and Standard beneficiary populations. Following 
is a brief discussion of each of these deviations:
    [cir] Outpatient Code Editor (OCE)--The Medicare Outpatient Code 
Editor with APC program edits data to help identify possible errors in 
coding and assigns Ambulatory Payment Classification numbers based on 
HCPCS codes for payment under the OPPS. The OPPS APC is an outpatient 
equivalent of the inpatient Diagnosis Related Group (DRG)-based PPS. 
Like the inpatient system based on DRGs, each APC has a pre-established 
prospective payment amount associated with it. However, unlike the 
inpatient system that assigns a patient to a single DRG, multiple APCs 
can be assigned to one outpatient claim. If a patient has multiple 
outpatient services during a single visit, the total payment for the 
visit is computed as the sum of the individual payments for each 
service. Medicare provides updated versions of the OCE, along with 
installation and user manuals, to its fiscal intermediaries on a 
quarterly basis. The updated OCE reflects all new coding and editing 
changes during that quarter.
    It was found upon initial testing of the OCE that it could not be 
used in its present form given the fact that the extensive editing 
embedded in its software program was specific to Medicare's benefit 
structure and internal claims processing requirements. As a result, the 
Agency has developed a TRICARE-specific OCE which will better 
accommodate the benefit structure and claims processing systems 
currently in place under the T-NEX contracts. This modified software 
package will edit claims data for errors and indicate actions to be 
taken and reasons why the actions are necessary. This expanded 
functionality will facilitate the linkage between the action being 
taken, the reasons for the action, and the information on the claim 
that caused the action. The edits will be specific for TRICARE, 
ensuring compliance with current claims processing criteria. The OCE 
will also assign an APC number for each service covered under the OPPS 
and return information to be used as input to the TRICARE PRICER 
program.
    Like Medicare's OCE, the TRICARE-specific OCE will be updated on a 
quarterly basis incorporating, to the extent practicable, all Medicare 
changes/updates (i.e., those changes initiated through rulemaking and 
transmittals/program memoranda). Periodic updating of the TRICARE-
specific OCE will ensure consistency and accuracy of claims processing 
and payment under the OPPS.
    [cir] Deductible and Cost-Sharing--Medicare's OPPS coinsurance was 
initially frozen at 20 percent of the national median charge for the 
services within each APC (wage adjusted for the provider's geographic 
area) or 20 percent of the APC payment rate, whichever was greater 
(i.e., the coinsurance for an APC could not fall below 20 percent of 
the APC payment rate). This was designed so that, as the total payment 
to the provider increased each year based on market basket updates, the 
present or frozen coinsurance amount would become a smaller portion of 
the total payment until the coinsurance represented 20 percent of the 
total. Once the coinsurance became 20 percent of the payment amount, 
annual updates would be applied to the coinsurance so that it would 
continue to account for 20 percent of the total charge. Wage adjusted 
coinsurance amounts were further limited by the Medicare inpatient 
deductible. Subsequent legislation has accelerated the reduction of 
beneficiary copayment amounts by imposing prescribed percentage 
limitations off of the APC payment rate. For example, for all services 
paid under the OPPS in CY 2005, the national unadjusted copayment 
amount cannot exceed 45 percent of the APC rate. Accelerated reductions 
were imposed specifically for those APC groups for which coinsurance 
represented a relatively high proportion of the total payment.
    A program payment percentage is calculated for each APC by 
subtracting the unadjusted national coinsurance amount for the APC from 
the unadjusted payment rate and dividing the result by the unadjusted 
payment rate. The payment rate for each APC group is the basis for 
determining the total payment (subject to wage-index adjustment) that a 
hospital will receive from the beneficiary and the Medicare program.
    Since imposition of Medicare's unadjusted national coinsurance 
amounts would have an adverse financial impact on TRICARE beneficiaries 
(i.e., imposition of significantly higher cost-sharing for Prime 
beneficiaries), the Agency has opted to use the following hospital

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outpatient deductible and cost-sharing/copayments currently being 
applied in Tables 1 and 2 below for Prime, Extra, and Standard TRICARE 
programs for hospital outpatient services:

                                    Table 1.--Hospital Outpatient Deductibles
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                                                Active duty family members
         TRICARE programs          ----------------------------------------------------  Retirees, their family
                                              E1-E4                  E5 & above           members  & survivors
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Prime.............................  None....................  None....................  None.
Extra.............................  $50 per Individual......  $150 per Individual.....  $150 per Individual.
                                    $100 Maximum per family.  $300 Maximum per family.  $300 Maximum per family.
Standard..........................  $50 per Individual......  $150 per Individual.....  $150 per Individual.
                                    $100 Maximum per family.  $300 Maximum per family.  $300 Maximum per family.
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                                                  Table 2.--Hospital Outpatient Copayments/Cost-Sharing
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                                                             TRICARE prime program
                                   ------------------------------------------------------------------------
          Type of service                      Active duty family member                                    TRICARE extra program     TRICARE standard
                                   ------------------------------------------------ Retirees, their family                                program
                                             E1-E4                E5 & above          members & survivors
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital Outpatient Departments:    $0 copayment per        $0 copayment per        $12 copayment per       Active Duty Family     Active Duty Family
 Clinic visits; therapy visits;      visit.                  visit.                  visit.                  Members: Cost-share--  Members: Cost-share--
 treatment rooms, etc.              ......................  ......................  ......................   15% of fee             20% of the allowable
                                    ......................  ......................  ......................   negotiated by          charge.
Emergency Services: Emergency and   ......................  ......................  ......................   contractor            Retirees, Their
 urgently needed care obtained in   $0 copayment per        $0 copayment per        $30 copayment per       Retirees, Their         Family Members &
 hospital emergency room.            visit.                  visit.                  emergency room visit.   Family Members &       Survivors: Cost-
                                                                                                             Survivors: Cost-       share--25% of the
                                                                                                             share--20% of the      allowable charge.
                                                                                                             fee negotiated by
                                                                                                             the contractor
Ambulatory Surgery (same day):      $0 copayment per        $0 copayment per        $25 copayment           ADFMs: Cost-share--    ADFMs: Cost-share--
 Hospital-based ambulatory           visit.                  visit.                 No separate copayment/   $25                    $25.
 surgical center.                   ......................  ......................   cost-share for         Retirees, Their        Retirees, Their
                                    ......................  ......................   separately billed       Family Members &       Family Members &
                                    ......................  ......................   professional            Survivors: Cost-       Survivors: Lesser of
                                    ......................  ......................   charges.                share--20% of the      25% of group rate or
                                    ......................  ......................  ......................   institutional fee      25% of billed
Birthing Centers Prenatal care,     ......................  ......................  ......................   negotiated by the      charge.
 outpatient delivery, and           $0 copayment per        $0 copayment per        $25 copayment            contractor.
 postnatal care provided in          visit.                  visit.
 hospital-based birthing center.
Partial Hospitalization Programs    $0 copayment per        $0 copayment per        40 per diem charge      ADFMs: $20 per diem    ADFMs: $20 per diem
 (PHPs): Mental health services      visit.                  visit.                 No separate copayment/   charge                 charge.
 provided in authorized hospital-                                                    cost-share for         Retirees, Their        Retirees, Their
 based PHP.                                                                          separately billed       Family Members &       Family Members &
                                                                                     professional charges    Survivors: Cost-       Survivors: Cost-
                                                                                                             share--20% of the      share--25% of the
                                                                                                             TRICARE allowed        TRICARE allowed
                                                                                                             amount                 amount.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    [cir] Hold-Harmless Protection--Since the inception of the Medicare 
OPPS, providers have been eligible to receive additional transitional 
outpatient payments (TOPs) if the payments they received under the OPPS 
were less than the payments they could have received for the same 
services under the payment system in effect before the OPPS. Prior to 
January 1, 2004, most hospitals that realized lower payments under OPPS 
received transitional corridor payments based on a percent of the 
decreased payments, with the exception of cancer hospitals, children's 
hospitals and rural hospitals having 100 or fewer beds which were held 
harmless under this provision and paid the full amount of the decrease 
in payment under the OPPS. Since transitional corridor payments were 
intended to be temporary payments to ease the provider's transition 
from a prior cost-based payment system to a prospective payments 
system, they were terminated as of January 1, 2004, with the exception 
of cancer and children's hospitals which were held harmless permanently 
under transitional corridor provisions of the statute (section 
1833(t)(7) of the Social Security Act). The authority for making 
transitional corridor payments under section 1833(t)(7)(D)(i) of the 
Act, as amended by section 411 Public Law 108-173, expired for rural 
hospitals having 100 or fewer beds, and sole community hospitals (SCHs) 
located in rural areas as of December 31, 2005. However, subsequent 
legislation (Section 5105 of Pub. L. 109-171) reinstituted the hold-
harmless transitional outpatient payments (TOPs)

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for covered OPD services furnished on or after January 1, 2006, and 
before January 1, 2009, for rural hospitals having 100 or fewer beds 
that are not SCHs. This provision provided an increased payment for 
such hospitals for outpatient services if the OPPS payment they 
received was less than the pre-BBA payment amount (i.e., the amount 
that was received prior to implementation of OPPS) that they would have 
received for the same covered service. When the OPPS payment is less 
than the payment the provider would have received prior to OPPS 
implementation, the amount of payment is increased by 90 percent of the 
amount of that difference for CY 2007, and by 85 percent of the amount 
of the difference for CY 2008. The amount of payment under section 
1833(t)(13)(B) of the Act, as amended by section 411 of Public Law 108-
73, also provided a payment increase for rural SCHs of 7.1 percent for 
all services and procedures paid under the OPPS, excluding drugs, 
biologicals, brachytherapy seeds and services paid under pass-through 
payments effective January 1, 2006, if justified by a study of the 
difference in costs for rural SCHs, which include Medicare essential 
access community hospitals or EACHs.
    While the Agency adopted the hold-harmless TOPs for rural hospitals 
having 100 or fewer beds and SCHs, it opted to totally exempt cancer 
and children's hospitals from the OPPS in lieu of imposing the hold-
harmless provision, given the administrative complexity of capturing 
the data required for payment of monthly interim TOP amounts. TOPs 
would require a comparison of what would have been paid [i.e., billed 
charges and CHAMPUS Maximum Allowable Charge (CMAC) amounts] prior to 
implementation of the OPPS for hospital outpatient services to those 
amounts actually paid under the OPPS for the same services. A TOP would 
be allowed in addition to the OPPS amount if payment to a cancer or 
children's hospital was lower than the amount that would have been paid 
prior to implementation of the OPPS. Since transitional corridor 
payments were specifically designed to supplement the losses 
experienced under the OPPS (i.e., to pay for services at the full 
amount that would have been allowed prior to implementation of the 
OPPS), and most, if not all, outpatient services paid at a billed or 
CMAC would exceed the OPPS amount, the program cannot justify the 
administrative burden/expense of maintaining the hold-harmless 
provisions for cancer and children's hospitals. As a result, TRICARE 
will continue to reimburse cancer and children's hospitals on a fee-
for-services basis using billed charges and CMAC rates; i.e., they will 
be excluded altogether from the OPPS.
    Adoption of the Medicare OPPS has also highlighted other policy 
considerations which must be addressed in order to accommodate 
preexisting authorization criteria and reimbursement systems. Following 
are these identified policy considerations and prescribed resolutions:
    [cir] Partial Hospitalization Programs (PHP)--Currently, TRICARE 
coverage extends to both full- and half-day psychiatric partial 
hospitalization services furnished by TRICARE-authorized partial 
psychiatric hospitalization programs and authorized mental health 
providers for the active treatment of a mental disorder. Each 
psychiatric partial hospitalization program must be either a distinct 
part of an otherwise authorized institutional provider or a 
freestanding program certified pursuant to TRICARE certification 
standards; i.e., the facility must be accredited by the Joint 
Commission on Accreditation of Healthcare Organizations (JCAHO) under 
the current edition of the Accreditation Manual for Mental Health, 
Chemical Dependency, and Mental Retardation/Developmental Disabilities 
Services and meet all other requirements as prescribed under 32 CFR 
199.6(b)(4)(xii)(A) through (D). These authorized and participating 
partial hospitalization programs are paid a percentage off of the 
average inpatient per diem amount per case to both high- and low-volume 
psychiatric hospitals. Full-day partial hospitalization programs 
(minimum of 6 hours) receive 40 percent of the average inpatient per 
diem, while partial hospitalization programs with less than 6 hours 
(with a minimum of three hours) will be paid a per diem of 75 percent 
of the rate for full-day partial hospitalization programs.
    Although the prescribed payment methodology for PHP under OPPS is 
similar to that currently being used (i.e., payment under a per diem 
recognizing the provider's overhead costs and support staff), there are 
subtle differences in that OPPS' all-inclusive per diems represent 
actual median costs of furnishing a day of partial hospitalization 
while per diems under the existing TRICARE system as prescribed under 
32 CFR 199.14(a)(2)(ix) are extrapolated from inpatient costs based on 
the intensity of the program (i.e., dependent on whether it is 
classified as a full- or half-day program). Another notable difference 
between the two programs is the continuation of reimbursement of half-
day PHPs (>= to 3 hrs. but < 6 hrs.) under TRICARE which are currently 
not recognized for payment under the Medicare OPPS (i.e., Medicare has 
not established a separate APC for half-day PHPs which can be used for 
reimbursement under the TRICARE OPPS). This deviation from the Medicare 
PHP required the establishment of an additional APC, the per diem of 
which was set at 75 percent of the unadjusted full-day PHP APC amount 
(i.e., 75 percent of the APC 0033 amount of $234.73, equaling $176.05 
for CY 2007). This will ensure continued coverage of a well established 
mental health treatment modality (half-day PHP) which has been in place 
under TRICARE for over a decade. The above-established per diems 
reflect the structure and scheduling of PHPs, and the composition of 
the PHP APC consists of the cost of all services provided each day. 
Although there is a requirement that each PHP day include a 
psychotherapy service, there is no specification regarding the specific 
mix of other services furnished within the day.
    The TRICARE criteria under which PHP services may be rendered are 
different than Medicare's--both with regard to the need for PHP 
services and facility requirements. Currently, Medicare OPPS partial 
hospitalization services may be provided to patients in lieu of 
inpatient psychiatric care in hospital outpatient departments or 
Medicare-certified community mental health centers (CMHCs). The Agency 
has opted to retain the existing mental health review criteria under 32 
CFR 199.4(b)(10) in order to ensure the continued level and quality of 
mental health care afforded under the basic program. Following are the 
TRICARE review criteria for determining the medical necessity of 
psychiatric partial hospitalization services:
     The patient is suffering significant impairment from a 
mental disorder (as defined in Sec.  199.2) which interferes with age 
appropriate functioning.
     The patient is unable to maintain himself or herself in 
the community, with appropriate support, at a sufficient level of 
functioning to permit an adequate course of therapy exclusively on an 
outpatient basis (but is able, with appropriate support, to maintain a 
basic level of functioning to permit partial hospitalization services 
and presents no substantial imminent risk of harm to self or others).
     The patient is in need of crisis stabilization, treatment 
of partially stabilized mental health disorders, or

[[Page 17275]]

services as a transition from an inpatient program.
     The admission into the partial hospitalization program is 
based on the development of an individualized diagnosis and treatment 
plan expected to be effective for the patient and permit treatment at a 
less intensive level.
    Based on existing mental health review criteria under 32 CFR 
199.4(b)(10) and certification requirements prescribed under 32 CFR 
199.6(b)(4)(xii)(A), including accreditation by the JCAHO, under the 
current edition of the Accreditation Manual for Mental Health, Chemical 
Dependency, and Mental Retardation/Developmental Disabilities Services, 
not all hospital-based PHPs will be assured of receiving payment under 
the OPPS unless they meet the above prescribed certification 
requirements and enter into a participation agreement with TRICARE. 
CMHC PHPs have been excluded from payment under the TRICARE OPPS since 
CMHCs are not recognized as authorized providers under the TRICARE 
program.
    While the authorization standards under 32 CFR 199.6(b)(4)(xii)(A) 
through (D) will be retained/applied for both hospital-based and 
freestanding PHPs currently recognized under the Program, including the 
requirement for a written participation agreement with TRICARE, 
freestanding PHPs will be exempt from OPPS and will continue to be 
reimbursed under the old TRICARE PHP per diem system as prescribed 
under 32 CFR 199.14(a)(2)(ix), subject to their own unique mental 
health copayment/cost-sharing provisions.
    [cir] Ambulatory Surgery Procedures--Currently, ambulatory surgery 
procedures provided in both freestanding ambulatory surgery centers 
(ASCs) and hospital outpatient departments or emergency rooms are paid 
using prospectively determined rates established on a cost basis and 
divided into eleven groups as prescribed under 32 CFR 199.14(d). These 
payment groups are further adjusted for area labor costs based on 
Metropolitan Statistical Areas (MSAs). The payment rates established 
under this system apply only to facility charges for ambulatory surgery 
(e.g., standard overhead amounts that include, but are not limited to, 
nursing and technician services, use of the facility and supplies and 
equipment directly related to the surgical procedure) and do not 
include such items as physician's fees, laboratory, X-rays or 
diagnostic procedures (other than those directly related to the 
performance of the surgical procedure), prosthetics and durable medical 
equipment for use in the patient's home. Ambulatory surgery procedures 
(both provided in hospital-based and freestanding ambulatory surgery 
centers) are subject to their own unique copayment/cost-sharing 
provisions under the current TRICARE ambulatory surgery benefit.
    With implementation of the OPPS, hospital-based ambulatory surgery 
procedures will no longer be reimbursed under the original eleven tier 
payment system, but will instead be paid on a rate-per-service basis 
that varies according to the APC group to which the surgical procedure 
is assigned. The relative weight of the APC group will represent the 
median hospital cost of the services included in the APC relative to 
the median cost of services included in APC 0606, Level 3 Clinic Visit. 
The prospective payment rate for each APC will be calculated by 
multiplying the APC's relative weight by a nationally established 
conversion factor and adjusting it for geographic wage differences. The 
APC payment will be subject to the deductible and cost-sharing/
copayment amounts currently being applied under Prime, Extra, and 
Standard TRICARE programs for hospital outpatient services. Denial of 
Medicare inpatient procedures will also be adhered to under the OPPS 
(i.e., denial of inpatient surgical procedures performed in a hospital 
outpatient setting) except for those inpatient procedures, which upon 
medical review, could be safely and efficaciously rendered in an 
outpatient setting due to TRICARE's younger, healthier beneficiary 
population. Exceptions to Medicare's inpatient surgical procedure 
listing were based in major part to standardized utilization management 
review criteria, (i.e., Interqual and Milliman), used by TRICARE 
Managed Care Support Contractors' medical review staff. TRICARE-
specific APCs will be developed for these designated inpatient 
procedures based on median costs from the most recent 12 months of 
claims history. OPPS reimbursement will also be extended for an 
inpatient procedure performed to resuscitate or stabilize a patient 
with an emergent, life-threatening condition who dies before being 
admitted as a patient, which in this case, will be paid under a new 
technology APC.
    Freestanding ASCs will be exempt from OPPS and will continue to be 
paid under the existing eleven tier payment system. ASC procedures will 
be placed into one of ten groups by their median per procedure cost, 
starting with $0 to $299 for Group 1, and ending with $1,000 to $1,299 
for Group 9 and $1,300 and above for Group 10, subject to their own 
unique copayment/cost-sharing provisions under the TRICARE freestanding 
ambulatory surgery benefit. The eleventh payment tier/group was added 
to the ASC reimbursement system as of November 1, 1998, for 
extracorporeal shock wave lithotripsy, with a rate established off of 
the inpatient Diagnostic Related Group (DRG) 323 which is currently 
$3,289.
    [cir] Birthing Centers--As described in 32 CFR 199.6(b)(4)(xi), a 
birthing center is a freestanding or institution-affiliated outpatient 
maternity care program which principally provides a planned course of 
outpatient prenatal care and outpatient childbirth services limited to 
low-risk pregnancies. These all-inclusive maternity and childbirth 
services are currently being reimbursed in accordance with 32 CFR 
199.14(e) at the lower of the TRICARE established all-inclusive rate or 
the billed charge. The all-inclusive rate includes laboratory studies, 
prenatal management, labor management, delivery, post-partum 
management, newborn care, birth assistant, certified nurse-midwife 
professional services, physician professional services, and the use of 
the facility to the extent that they are usually associated with a 
normal pregnancy and childbirth. Since institutional-affiliated 
maternity centers will continue to be reimbursed under the TRICARE 
maximum allowable birthing center all-inclusive rate methodology as 
prescribed under 32 CFR 199.14(e), payment will be equal to the sum of 
the Class 3 CMAC for total obstetrical care for a normal pregnancy and 
delivery (CPT code 59400) and the TMA supplied non-professional 
component amount, which includes both the technical and professional 
components of tests usually associated with a normal pregnancy and 
childbirth. As a result, hospital-based birthing centers will continue 
to be reimbursed the same as freestanding birthing centers except that 
updating of the hospital-based all inclusive rate, consisting of the 
CMAC for procedure code 59400 (Birthing Center, all-inclusive charge, 
complete) and the state specific non-professional component, will lag 
two months behind the freestanding birthing center all-inclusive 
update; i.e., the freestanding birthing center all-inclusive rate 
components will usually be updated on February 1 of each year to 
coincide with the annual CMAC file update, followed by the hospital-
based birthing center all-inclusive rate component updates on April 1 
of the same year.
    [cir] Observation Stays--Observation Services are those services 
furnished on a hospital's premises, including the use of a bed and 
periodic monitoring by a

[[Page 17276]]

hospital's staff, which are reasonable and necessary to evaluate an 
outpatient's condition or to determine the need for a possible 
admission to the hospital as an inpatient. Under Medicare, prior to CY 
2008, a hospital may receive separate APC payments for observation 
services for patients having diagnoses of chest pain, asthma, or 
congestive heart failure, when billed in conjunction with an evaluation 
and management visit for a minimum of 8 hours. Since these qualifying 
diagnoses would greatly restrict separate payment of observation stays 
currently being reimbursed based solely on medical necessity, they are 
being expanded to accommodate the special needs of unique TRICARE 
beneficiary populations (e.g., separate payment for maternity 
observations stays). Separate payment of maternity observation stays 
required the modification of the existing conditional criteria for 
separate payment of observation stays associated with pain, asthma or 
congestive heart failure. Under the TRICARE OPPS, additional hospital 
services (e.g., separate emergency room visit or clinic visit) will not 
be required on a claim with a maternity diagnosis in order to receive 
separate payment for an observation stay. The minimum time requirements 
have also been reduced from 8 to 4 hours to ensure maximum coverage of 
medically necessary maternity observation stays.
    [cir] End-State Renal Disease (ESRD) Dialysis Services--In 
accordance with sections 1881(b)(2) and (b)(7) of the Social Security 
Act, a facility that furnishes dialysis services to Medicare patients 
with ESRD is paid a prospectively determined rate for each dialysis 
treatment furnished. The rate is a composite that includes all costs 
associated with furnishing dialysis services except for the costs of 
physician services and certain laboratory tests and drugs that are 
billed separately. CMS has exercised the authority granted under 
section 1833(t)(1)(B)(i) to exclude from the outpatient PPS those 
services for patients with ESRD that are paid under the ESRD composite 
rate. Since TRICARE does not have a comparable composite rate in effect 
for payment of ESRD services, they will be reimbursed under TRICARE's 
OPPS.

II. Treatment Settings Subject to Outpatient Prospective Payment System

    The outpatient prospective payment system is applicable to any 
hospital participating in the Medicare program except for Critical 
Access Hospitals (CAHs), Indian Health Service hospitals, certain 
hospitals in Maryland that qualify for payment under the state's cost 
containment waiver, and hospitals located outside one of the 50 states, 
the District of Columbia and Puerto Rico and specialty care providers 
which include: (1) Cancer and children's hospitals; (2) freestanding 
ASCs; (3) freestanding Partial Hospitalization Programs (PHPs); (4) 
freestanding psychiatric and Substance Use Disorder Rehabilitation 
Facilities (SUDRFs); (5) Comprehensive Outpatient Rehabilitation 
Facilities (CORFs); (6) Home Health Agencies (HHAs); (7) hospice 
programs; (8) other corporate services providers (e.g., freestanding 
cardiac catheterization centers, freestanding sleep diagnostic centers, 
and freestanding hyperbaric oxygen treatment centers); (9) freestanding 
birthing centers; (10) VA hospitals; and (11) freestanding ESRD 
centers. Due to their inability to meet the more stringent requirements 
imposed for hospital-based and freestanding PHPs under the Program, 
CMHCs have also been excluded from payment under OPPS for partial 
hospitalization program (PHP) services since they are not recognized as 
authorized providers under the TRICARE program.
    An outpatient department, remote location hospital, satellite 
facility, or other provider-based entity must also be either created 
by, or acquired by, a main provider (hospital qualifying for payment 
under OPPS) for the purpose of furnishing health care services of the 
same type as those furnished by the main provider under the name, 
ownership, and financial administrative control of the main provider, 
in accordance with the following requirements under 42 CFR Sec.  413.65 
(Medicare Regulation) in order to qualify for payment under the OPPS:
     Licensure--The outpatient department, remote location 
hospital, or the satellite facility and the main hospital are operated 
under the same license, except in areas where the State requires a 
separate license for the department of the provider.
     Clinical integration--Professional staff of the outpatient 
department, remote location hospital or satellite facility are 
monitored by, and have clinical privileges at the main hospital. The 
medical director of the outpatient facility must also maintain a 
reporting relationship with the chief medical officer at the main 
hospital that has the same frequency, intensity and level of 
accountability that exists in the relationship between other 
departmental medical directors and the chief medical officer of the 
main hospital. Medical records for patients treated in the facility or 
organization must be integrated into a unified retrieval system (or 
cross reference) of the main hospital and there must be full access to 
all services provided at the main hospital for patients treated in the 
outpatient facility requiring further care.
     Financial integration. The financial operation of the 
outpatient facility must be fully integrated within the financial 
system of the main hospital, as evidenced by shared income and expenses 
between the main hospital and outpatient facility.
     Public awareness. The outpatient department, remote 
location hospital, or a satellite facility is held out to the public 
and other payers as part of the main provider. When patients enter the 
outpatient facility they are aware that they are entering the main 
provider and are billed accordingly.
    Having clear criteria for provider-based status is important 
because this designation can result in additional TRICARE payments for 
services at the provider-based facility (i.e., the incorporation of 
additional facility costs for covered outpatient services/procedures). 
TRICARE will accept the providers' determination on whether they meet 
the regulatory criteria for provider-based status for purposes of 
seeking reimbursement under the TRICARE OPPS.

III. Application of Ambulatory Payment Classification (APC) Model

    Payment for services under the OPPS is based on grouping outpatient 
services into APC groups in accordance with provisions outlined in 
section 1833(t) of the Social Security Act and its implementing 
regulation 42 CFR Part 419. This grouping is accommodated through the 
reporting of HCPCS codes and descriptors that are used to group 
homogenous services (both clinically and in terms of resource 
consumption) into their respective APC groups.
    During the development of the hospital OPPS it was recognized that 
certain hospital outpatient services were being paid based on fee 
schedules or other prospectively determined rates that were being 
applied across other ambulatory care settings. As a result, the 
following services were excluded from the OPPS in order to achieve 
consistency of payment across different service delivery sites: (1) 
Physician services; (2) nurse practitioner and clinical nurse 
specialist services; (3) physician assistant services; (4) certified 
nurse-midwife services; (5) services of a qualified psychologist; (6) 
clinical social worker services, except under half- and full-day 
partial hospitalization programs in which the services are included 
within the per diem payment amount;

[[Page 17277]]

(7) services of an anesthetist; (8) screening and diagnostic 
mammographies; (9) clinical diagnostic services; (10) non-implantable 
DME, orthotics, prosthetics, and prosthetic devices and supplies; (11) 
hospital outpatient services furnished to SNF inpatients as part of 
their comprehensive care plan; (12) physical therapy; (13) speech-
language pathology; (14) occupational therapy; (15) influenza and 
pneumococcal pneumonia vaccines; (16) take-home surgical dressings; 
(17) services and procedures designated as requiring inpatient care; 
and (18) ambulance services. These services will continue to be 
reimbursed under the current CMAC fee schedule or other TRICARE-
recognized allowable charge methodology (e.g., statewide prevailings).
    The remaining outpatient procedures which were not being paid under 
current fee schedules or other prospectively determined rates were 
grouped under an APC based on the following criteria:
     Resource Homogeneity--The amount and type of facility 
resources (for example, operating room, medical supplies, and 
equipment) that are used to furnish or perform the individual 
procedures or services within each APC group should be homogeneous. 
That is, the resources used are relatively constant across all 
procedures or services even though resources used may vary somewhat 
among individual patients.
     Clinical Homogeneity--The definition of each APC should be 
``clinically meaningful.'' That is, the procedures or services included 
within the APC group relate generally to a common organ system or 
etiology, have the same degree of extensiveness, and utilize the same 
method of treatment.
     Provider Concentration--The degree of provider 
concentration associated with the individual services that comprise the 
APC is considered. If a particular service is offered only in a limited 
number of hospitals, then the impact of payment for the services is 
concentrated in a subset of hospitals. Therefore, it is important to 
have an accurate payment level for services with a high degree of 
provider concentration. Conversely, the accuracy of payment levels for 
services that are routinely offered by most hospitals does not bias the 
payment system against any subset of hospitals.
     Frequency of Service--Unless there is a high degree of 
provider concentration, creating separate APC groups for services that 
are infrequently performed is avoided. Since it is difficult to 
establish reliable payment rates for low-volume groups, HCPCS codes are 
assigned to an APC that is most similar in terms of resource use and 
clinical coherence.
     Minimal Opportunities for Upcoding and Code 
Fragmentation--The APC system is intended to discourage using a code in 
a higher paying group to define the care. That is, putting two related 
codes such as the codes for excising a lesion for 1.1 cm and one of 1.0 
cm, in different APC groups may create an incentive to exaggerate the 
size of the lesions in order to justify the incrementally higher 
payment. APC groups based on subtle distinctions would be susceptible 
to this kind of coding. Therefore, APC groups were kept as broad and 
inclusive as possible without sacrificing resource or clinical 
homogeneity.
    These procedures, along with their specific HCPCS coding and 
descriptors, were used to identify and group services within each 
established APC group. They included: (1) Surgical procedures 
(including hospital-based ASC procedures currently being paid under the 
eleven tier ASC payment methodology); (2) radiology, including 
radiation therapy; (3) clinic visits; (4) emergency department visits; 
(5) diagnostic services and other diagnostic tests; (6) partial 
hospitalization for the mentally ill; (7) surgical pathology; (8) 
cancer therapy; (9) implantable medical items (e.g., prosthetic 
implants, implantable DME and implantable items used in performing 
diagnostic x-rays and laboratory tests); (10) specific hospital 
outpatient services furnished to a beneficiary who is admitted to a 
SNF, but in which case the services are beyond the scope of SNF 
comprehensive care plans; (11) certain preventive services, such as 
colorectal cancer screening; (12) acute dialysis (e.g., dialysis for 
poisoning); and (13) ESRD services. These hospital outpatient 
procedures will be paid on a rate-per-service basis that varies 
according to the APC group to which they are assigned.
    In accordance with section 1833(t)(2) of the Social Security Act, 
services and items within an APC group cannot be considered comparable 
with respect to the use of resources in the APC group if the highest 
median cost is more than 2 times the lowest median cost for an item or 
service within the same group (referred to a the ``2 times rule''). 
Exceptions may be granted in unusual cases, such as low-volume items 
and services.

IV. Packaging and Special Payment Provisions Under OPPS

    The prospective payment system establishes a national payment rate, 
standardized for geographic wage differences, that includes operating 
and capital-related costs that are directly related and integral to 
performing a procedure or furnishing a service on an outpatient basis, 
which has ultimately resulted in the establishment of distinct groups 
of surgical, diagnostic, and partial hospitalization services, as well 
as medical visits. No separate payment is made for packaged services, 
because the cost of these items is included in the APC payment for the 
service of which they are an integral part. These costs include, but 
are not limited to: (1) Use of operating suite; (2) use of procedure 
room or treatment room; (3) use of recovery room or area; (4) use of an 
observation bed; (5) anesthesia, along with supplies and equipment for 
administering and monitoring anesthesia or sedation; (6) certain drugs, 
biologicals, and other pharmaceuticals; (7) medical and surgical 
supplies; (8) surgical dressings; (9) devices used for external 
reduction of fractures and dislocations; (10) intraocular lenses 
(IOLs); (11) capital related costs; (12) costs incurred to procure 
donor tissue other than corneal tissue; (13) incidental services such 
as venipuncture; (14) implantable items used in connection with 
diagnostic laboratory tests, and other diagnostics; and (15) 
implantable prosthetic devices (other than dental) which replace all or 
part of an internal body organ (including colostomy bags and supplies 
directly related to colostomy care), including replacement of these 
devices.
    Payments for packaged services under the OPPS are bundled into the 
payment providers receive for separately payable services provided on 
the same day and are identified by the status indicator (SI) ``N'' 
(unconditionally packaged) or SI ``Q'' (conditionally packaged). 
Hospitals include charges for packaged services on their claims, and 
the costs associated with these packaged services are bundled into the 
costs for separately payable procedures in calculating their payment 
rates. The following criteria are used in determining whether 
procedures should be packaged: (1) Whether the service is normally 
provided separately or in conjunction with other services; (2) how 
likely it is for the costs of the packaged code to be appropriately 
mapped to the separately payable codes with which it was performed; (3) 
whether the APC payment to which the services were packaged will offset 
the hospital's actual

[[Page 17278]]

costs; and (4) whether the expected cost of the service is relatively 
low.
    Special logic has also been programmed into the OCE which will have 
the OPPS PRICER automatically assign payment for a special packaged 
service reported on a claim if there were no other services separately 
payable under the OPPS claim for the same date. A new status indicator 
``Q'' will be assigned to these special packaged codes to indicate that 
they are usually packaged, except for special circumstances when they 
are separately payable.
    Based on the above packaging criteria, it was determined that 
certain other expensive items and services which were otherwise 
considered an integral part of another procedure should not be packaged 
within that procedure's APC payment rate, since the resulting payment 
would not offset the costs of those items and services. This could have 
a potentially negative impact, thereby jeopardizing access to these 
items and services in a hospital outpatient setting. As a result, the 
costs associated with these items and services were not packaged within 
the APC of the primary procedure with which they were normally 
associated. Instead, separate APCs were developed for payment of these 
items and services under the following payment provisions:
    [cir] Transitional Pass-Through for Additional Costs of Drugs, 
Biologicals, and Radiopharmaceuticals. Although the costs of drugs, 
biologicals and pharmaceuticals are generally packaged into the APC 
payment rate for the primary procedure or treatment with which the 
drugs are usually furnished, there are special temporary additional 
payments or ``transitional pass-through payments'' available under 
section 1833(t)(6) of the Social Security Act for at least two years, 
but not more than three years for the following drugs and biologicals: 
(1) Current orphan drugs, as designated under section 526 of the 
Federal Food, Drugs, and Cosmetics Act; (2) current drugs and 
biological agents used for treatment of cancer; (3) current 
radiopharmaceutical drugs and biological products; and (4) new drugs 
and biologic agents in instances where the item was not being paid as a 
hospital outpatient service as of December 31, 1996, and where the cost 
of the item is ``not insignificant'' in relation to the hospital OPPS 
payment amount.
    Section 1833(t)(6)(D)(i) of the Social Security Act sets the 
payment rate for pass-through eligible drugs as amounts determined 
under section 1842(o) of the Act. Section 1847A of the Act establishes 
the use of average sales price (ASP) methodology (i.e., 106 percent of 
the ASP which is the rate equivalent to the payment that would be 
received in a physician office setting) as the basis for payment for 
drugs and biologicals described in section 1842(o)(1)(C) of the Act. 
Section 1883(t)(6)(D)(i) also states if a drug or biological is covered 
under a competitive acquisition contract under section 1847B of the 
Act, the payment rate is equal to the average price for the drug or 
biologicals for all competitive acquisition areas. Thus, drugs and 
biologicals with pass-through status in CY 2007 will receive payment 
consistent with the provision of section 1842(o) of the Act, at a rate 
that is equivalent to the payment they would receive in a physician 
office setting (106 percent of the ASP) or the rate that would be paid 
under the competitive acquisitions program, while pass-through 
radiopharmaceuticals will be paid the hospital's charge for the 
radiopharmaceutical adjusted to the cost using the hospital's overall 
cost-to-charge ratio (CCR).
    [cir] Packaging and Payment for Drugs, Biologicals and 
Radiopharmaceuticals Without Pass-Through Status. Drugs, biologicals, 
and radiopharmaceuticals that do not have pass-through status are paid 
in one of two ways: either packaged into the APC payment rate for the 
procedure or treatment with which the products are usually furnished, 
or separately based on a packaging threshold which has been set at $55 
for CY 2007. Therefore, for CY 2007 and beyond, drugs, biologicals and 
radiopharmaceuticals that are not new and do not have pass-through 
status will be packaged if their calculated per-day cost is less than 
$55 for CY 2007 or less than the updated threshold (i.e., the packaging 
threshold inflated annually by the Producer Price Index (PPI) for 
prescription drugs), with the exception of 5HT3 antiemetics which will 
continue to be paid separately regardless of their calculated per-day 
cost.
    Section 1833(t)(14) of the Act requires special classification of 
certain separately payable drugs, biologicals and radiopharmaceuticals 
and mandates payment under section 1833(t)(14)(A)(iii) of the Act for 
specified covered outpatient drugs in CY 2006 and subsequent years to 
be equal to the average acquisition cost for the drug subject to any 
adjustment for overhead costs, which for CY 2007 is a combined rate of 
106 percent of the ASP. Separately payable drugs and biologicals 
without ASP-based data will be paid at their mean cost calculated from 
Medicare CY 2005 hospital claims data. The preadmission-related 
services associated with intravenous immune globulin (IVIG) will 
continue to be paid under a New Technology APC with a rate of $75. 
Also, payment for blood clotting factors in the outpatient setting will 
be set at 106 percent of the ASP, plus the updated furnishing fee of 
$0.15. The temporary policy of paying radiopharmaceuticals at charges 
reduced to costs is also being extended for one additional year since 
it is still considered the best proxy for radiopharmaceutical 
acquisition and overhead costs. However, separate payment will only 
apply to those radiopharmaceuticals with per-day costs greater than 
$55.
    [cir] Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without OPPS Claims Data. 
For CY 2007, hospitals will receive payment for nonpass-through 
radiopharmaceuticals without hospital claims data that have been 
assigned HCPCS codes as of January 1, 2007, at the hospital's charge 
for the radiopharmaceutical adjusted to cost using the hospital's 
overall cost-to-charge ratio, which will be the same methodology used 
in the payment for pass-through radiopharmaceuticals. For new drugs 
without pass-through status or hospitals claims data, payment will be 
made at the lesser of the ASP or competitive acquisition contract price 
(Part B CAP). In rare instances where a drug does not have a Part B 
drug CAP rate or data available for use for ASP methodology, payment 
will be made at 95 percent of the product's most recent AWP. 
Established drugs without hospital claims data that have been 
classified as separately payable in CY 2007 will be paid per the ASP-
based methodology at a rate of 106 percent of the ASP.
    New drugs, biologicals and devices which qualify for separate 
payment under OPPS, but have not yet been assigned to a transitional 
APC (i.e., assigned to a temporary APC for separate payment of an 
expensive drug or device) will be reimbursed under the TRICARE standard 
allowable charge methodology. This allowable charge payment will 
continue until a transitional APC has been assigned (i.e., until CMS 
has had the opportunity to assign the new drug, biological or device to 
a temporary APC for separate payment).
    [cir] Drug Administration Coding and Payment. For CY 2007, 
hospitals will be expected to report the full set of CPT drug 
administration codes in a manner consistent with their descriptors, CPT 
instructions and correct coding

[[Page 17279]]

principles. They will no longer be able to report the alphanumeric 
HCPCS codes (C8950, C8951, C8952, C8954, and C8955) that were 
recognized prior to January 1, 2007. These newly recognized CPT codes 
will be assigned to six new drug administration APCs, with payment 
rates based on median costs for the APCs as calculated from Medicare's 
CY 2005 claims data.
    [cir] Payment for Blood and Blood Products. Since Medicare's 
implementation of the OPPS in August 1, 2000, separate payments have 
been made for blood and blood products through APCs rather than 
packaging them into the procedures with which they were administered. 
Hospital payment for the costs of blood and blood products, as well as 
the costs of collecting, processing, and storing blood products, are 
made through the OPPS payments for specific blood product APCs. For CY 
2007, these blood product payments will be based on the unadjusted, 
simulated median costs for blood and blood products that are derived 
from CY 2005 Medicare claims data, with the exception of the seven 
products for which there will be a payment adjustment to smooth their 
transition to full claims-based payments in the future.
    [cir] Other Procedure or Service Costs Not Packaged in APC Payment. 
Costs for casting, splinting and strapping services, immunosuppressive 
drugs for patients following organ transplant, and certain other high-
cost drugs that are infrequently administered are not packaged into the 
costs of the primary procedures with which they are normally 
associated. Instead, new APC groups have been created for these items 
and services, which will allow separate payment.
    [cir] Corneal Tissue Acquisition Costs. Corneal tissue acquisition 
costs will not be packaged with the APC payment for corneal transplant 
surgical procedures. Instead, separate payment will be made based on 
the hospital's reasonable costs incurred to acquire corneal tissue. 
Corneal acquisition costs must be submitted using HCPCS code V2785 
(Processing, Preserving and Transporting Corneal Tissue), indicating 
the actual cost of the acquisition rather than the hospital's charge on 
the bill.
    [cir] Transitional Pass-Through Payment for Devices. Transitional 
payments will only apply to new and innovative medical devices meeting 
the following criteria: (1) Were not recognized for payment as a 
hospital outpatient service prior to 1997 (i.e., payment was not being 
made as of December 31, 1996) or treated as meeting the time 
constraints under special prescribed conditions; (2) have been 
approved/cleared for use by the Food and Drug Administration (FDA); (3) 
are determined to be reasonable and necessary for the diagnosis or 
treatment of an illness or injury or to improve the functioning of a 
malformed body part; (4) are an integral and subordinated part of the 
procedure performed; (5) are used for one patient only (except for 
reprocessed single-use devices meeting FDA's most recent regulatory 
criteria on single-use devices); (6) are surgically implanted or 
inserted via a natural or surgically created orifice on incision and 
remain with the patient after the patient is released from the hospital 
outpatient department; (7) are not equipment, instruments, apparatus, 
implements, or such items for which depreciation and financing expenses 
are recovered as depreciable assets; (8) are not materials and supplies 
such as sutures, clips or customized surgical kits furnished incidental 
to a service or procedure; (9) are not material such as biologicals or 
synthetics that are used to replace human skin; (10) no existing or 
previously existing device category is appropriated for the device; 
(11) associated cost is not insignificant in relation to the APC 
payment for the service in which the innovative medical equipment is 
packaged; and (12) it has been demonstrated that utilization of the 
device provides substantial clinical improvement for beneficiaries 
compared with currently available treatments, including procedures 
utilizing devices in existing or previously existing device categories.
    The duration of transitional pass-through payments for devices is 
for at least two, but not more than three years. This period begins 
with the first date on which a transitional pass-through payment is 
made for any medical device that is described by the new medical 
category. The costs of the devices will be packaged into the costs of 
the procedures with which they are normally billed once they are no 
longer eligible for pass-through payment.
    Device pass-through payments (those procedures designated with a SI 
``H'') are calculated by applying the statewide cost-to-charge ratio 
(CCR), which is based on the geographical CBSA (2 digit = rural, 5 
digit = urban), to the hospital's charges on the claims and subtracting 
any appropriate pass-through offset. The offset adjustment only applies 
when a pass-through device is billed in addition to the primary 
procedure with which it is normally associated.
    Provisions are also in place in accordance with 1833(t)(6)(D)(ii) 
of the Social Security Act for reducing transitional pass-through 
payments by the estimated portion of each APC payment rate that could 
reasonably be attributed to the cost of the associated devices that are 
eligible for pass-through payments. Offsets are calculated by comparing 
the median APC cost without device packaging to the median APC cost 
(including device packaging), developed from claims with device codes, 
to determine the percentage of median APC costs attributable to the 
associated pass-through device. These percentages are then applied to 
the APC payment amounts in order to determine the applicable amounts to 
be deducted from the pass-through payments, known as the ``offset'' 
amounts. Offset amounts are only applied when it can be determined that 
an APC contained cost is actually associated with the device. 
Currently, there is only one transitional pass-through payment offset 
in effect for device category C1820 (generator, neurostimulator 
(implantable), with rechargeable battery and charging system) with an 
amount of $8,668.94, which represents 77.65 percent of the CY 2007 
payment rate for APC 0222.
    Two new device categories have been established for pass-through 
payment starting in 2007: (1) L8690--auditory osseointegrated device, 
external sound processor, replacement; and (2) C1821--interspinous 
process distraction device (implantable). The offset amounts for both 
of these new device categories were set to $0 for CY 2007, since there 
were no identifiable device-related costs associated with their 
procedure APCs (i.e., APC 0256 for L8690 and APC 0050 for C1821). The 
pass-through status of this rechargeable neurostimulator device (C1820) 
is scheduled to expire on January 1, 2008.
    [cir] Payment When Devices are Replaced Without Cost or Where 
Credit for a Replacement Device is Furnished to the Hospital. Payments 
will be reduced for selected APCs in cases in which an implanted device 
is replaced without cost to the hospital or with full credit for the 
removed device in accordance with 42 CFR 419.45. The amount of the 
reduction to the APC rate will be calculated in the same manner as the 
offset amount that would be applied if the implanted device assigned to 
the APC had pass-through status as defined under 42 CFR 419.66. OPPS 
payments would be contingent on section 1833(t)(2)(E) of the Social 
Security Act, which permits equitable adjustments to the OPPS payments 
contingent on meeting all of the following criteria: (1) All procedures 
assigned to the selected APCs must require implantable devices that 
would be reported if device replacement procedures were performed; (2) 
the

[[Page 17280]]

required devices must be surgically inserted or implanted devices that 
remain in the patient's body after the conclusion of the procedures, at 
least temporarily; and (3) the offset percent for the APC (i.e., the 
median cost of the APC without device costs divided by the median cost 
of the APC with device costs) must be significant--significant offset 
percent is defined as exceeding 40 percent.
    The presence of the modifier ``FB'' [``Item Provided Without Cost 
to Provider, Supplier, or Practitioner or Credit Received for 
Replacement (examples include, but are not limited to: devices covered 
under warranty, replaced due to defect, or provided as free samples)''] 
would trigger the adjustment in payment if the procedure code to which 
the modifier ``FB'' was amended appeared in Table 3 and was also 
assigned to one of the APCs listed in Table 4 below.

  Table 3.--Devices For Which the FB Modifier Must Be Reported With the
      Procedure When Furnished Without Cost or at Full Credit for a
                           Replacement Device
------------------------------------------------------------------------
                 Device                            Description
------------------------------------------------------------------------
C1721..................................  AICD, dual chamber.
C1722..................................  AICD, single chamber.
C1764..................................  Event recorder, cardiac.
C1767..................................  Generator, neurostim, imp.
C1771..................................  Rep dev, urinary, w/sling.
C1772..................................  Infusion pump, programmable.
C1776..................................  Joint device (implantable).
C1777..................................  Lead, AICD, endo single coil.
C1778..................................  Lead, neurostimulator.
C1779..................................  Lead, pmkr, transvenous VDD.
C1785..................................  Pmkr, dual, rate-resp.
C1786..................................  Pmkr, single, rate-resp.
C1813..................................  Prostheses, penile, inflatab.
C1815..................................  Pros, urinary sph, imp.
C1820..................................  Generator, neuro, rechg bat
                                          sys.
C1882..................................  AICD, other than sing/dual.
C1891..................................  Infusion pump, non-prog, perm.
C1895..................................  Lead, AICD, endo dual coil.
C1896..................................  Lead, AICD, non sing/dual
C1897..................................  Lead, neurostim, test kit.
C1898..................................  Lead, pmkr, other than trans.
C1899..................................  Lead, pmkr/ACID combination.
C1900..................................  Lead coronary venous.
C2619..................................  Pmkr, dual, non rate-resp.
C2620..................................  Pmkr, single, non rate-resp.
C2621..................................  Pmkr, other than sing/dual.
C2622..................................  Prosthesis, penile, non-inf.
C2626..................................  Infusion pump, non-prog, temp.
C2631..................................  Rep dev, urinary, w/o sling.
L8614..................................  Cochlear device/system.
------------------------------------------------------------------------


 Table 4.--Adjustments to APCs in Cases of Devices Reported Without Cost
                  or For Which Full Credit Is Received
------------------------------------------------------------------------
                                                               CY 2007
       APC               SI             APC group title      offset amt.
                                                              (percent)
------------------------------------------------------------------------
0039............  S...............  Level I Implantation of        78.85
                                     Neurostimulator.
0040............  S...............  Percutaneous                   54.06
                                     Implantation of
                                     Neurostimulator
                                     Electrodes, Excluding
                                     Cranial Nerve.
0061............  S...............  Laminectomy or Incision        60.06
                                     for Implantation of
                                     Neurostimulator
                                     Electrodes, Excluded.
0089............  T...............  Insertion/Replacement          77.11
                                     of Permanent Pacemaker
                                     and Electrodes.
0090............  T...............  Insertion/Replacement          74.74
                                     of Pacemaker Pulse
                                     Generator.
0106............  T...............  Insertion/Replacement/         41.88
                                     Repair of Pacemaker
                                     and/or Electrodes.
0107............  T...............  Insertion of                   90.44
                                     Cardioverter-
                                     Defibrillator.
0108............  T...............  Insertion/Replacement/         77.75
                                     Repair of Cardioverter-
                                     Defibrillator Leads.
0222............  T...............  Implantation of                77.65
                                     Neurological Device.
0225............  S...............  Implantation of                79.04
                                     Neurostimulator
                                     Electrodes, Cranial.
0227............  T...............  Implantation of Drug           80.27
                                     Infusion Devices.
0229............  T...............  Transcatheter Placement        46.17
                                     of Intravascular
                                     Shunts.
0259............  T...............  Level IV ENT Procedures        84.61
0315............  T...............  Level II Implantation          76.03
                                     of Neurostimulator.
0385............  S...............  Level I Prosthetic             83.19
                                     Urological Procedures.
0386............  S...............  Level II Prosthetic            61.16
                                     Urological Procedures.
0418............  T...............  Insertion of Left              87.32
                                     Ventricular Pacing
                                     Elect..
0654............  T...............  Insertion/Replacement          77.35
                                     of a Permanent Dual
                                     Chamber Pacemaker.
0655............  T...............  Insertion/Replacement/         76.59
                                     Conversion of a
                                     Permanent Dual Chamber
                                     Pacemaker.
0680............  S...............  Insertion of Patient           76.40
                                     Activated Event
                                     Recorders.
0681............  T...............  Knee Arthroplasty......        73.37
------------------------------------------------------------------------

    If the device code (i.e., one of the codes in Table 3 above) is 
assigned to one of the APCs listed in Table 4 above, the unadjusted 
payment rate for the procedure APC will be reduced by an amount equal 
to the percent in Table 4 times the unadjusted payment rate. The actual 
adjustments can be viewed on the following CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS/
    In cases in which the device is being replaced without cost, the 
hospital will report a token device charge. However, if the device is 
being inserted as an upgrade, the hospital will report the difference 
between its usual charge for the device being replaced and the credit 
for the replacement device. Multiple procedure reductions would also 
continue to apply even after the APC payment adjustment to remove 
payment for the device cost, because there would still be the expected 
efficiencies in performing the procedure if it was provided in the same 
operative session as another surgical procedure. Similarly, if the 
procedure was interrupted before administration of anesthesia (i.e., 
there was a modifier 52 or 73 on the same line as the procedure), a 50 
percent reduction would be taken from the adjusted amount.
    [cir] Coding and Payment of Emergency Department Visits. The 
following five Type B emergency department G-codes have been 
established for emergency departments meeting the definition of a 
dedicated emergency department (DED) under the Emergency Medical 
Treatment and Labor Act (EMTALA) regulations in 42 CFR 489.24, but 
which are not Type A emergency departments (i.e., they may meet the DED 
definition but are not available 24 hours a day, 7 days a week).

[[Page 17281]]



     Table 5.--CY 2007 Final HCPCS Codes To Be Used To Report Emergency Department Visits Provided in Type B
                                              Emergency Departments
----------------------------------------------------------------------------------------------------------------
              HCPCS code                   Short descriptor                      Long descriptor
----------------------------------------------------------------------------------------------------------------
G0380................................  Level 1 hosp. type B     Level 1 hospital emergency department visit
                                        visit.                   provided in a Type B emergency department. (The
                                                                 ED must meet at least one of the following
                                                                 requirements: (1) It is licensed by the State
                                                                 in which it is located under applicable State
                                                                 law as an emergency room or emergency
                                                                 department; (2) It is held out to the public
                                                                 (by name, posted signs, advertising, or other
                                                                 means) as a place that provides care for
                                                                 emergency medical conditions on an urgent basis
                                                                 without requiring a previously scheduled
                                                                 appointment; or (3) During the calendar year
                                                                 immediately preceding the calendar year in
                                                                 which a determination under this section is
                                                                 being made, based on a representative sample of
                                                                 patient visits that occurred during that
                                                                 calendar year, it provides at least one-third
                                                                 of all of its outpatient visits for the
                                                                 treatment of emergency medical conditions on an
                                                                 urgent basis without requiring a previously
                                                                 scheduled appointment.).
G0381................................  Level 2 hosp. type B     Level 2 hospital emergency department visit
                                        visit.                   provided in a Type B emergency department. (The
                                                                 ED must meet at least one of the following
                                                                 requirements: (1) It is licensed by the State
                                                                 in which it is located under applicable State
                                                                 law as an emergency room or emergency
                                                                 department; (2) It is held out to the public
                                                                 (by name, posted signs, advertising, or other
                                                                 means) as a place that provides care for
                                                                 emergency medical conditions on an urgent basis
                                                                 without requiring a previously scheduled
                                                                 appointment; or (3) During the calendar year
                                                                 immediately preceding the calendar year in
                                                                 which a determination under this section is
                                                                 being made, based on a representative sample of
                                                                 patient visits that occurred during that
                                                                 calendar year, it provides at least one-third
                                                                 of all of its outpatient visits for the
                                                                 treatment of emergency medical conditions on an
                                                                 urgent basis without requiring a previously
                                                                 scheduled appointment.).
G0382................................  Level 3 hosp. type B     Level 3 hospital emergency department visit
                                        visit.                   provided in a Type B emergency department. (The
                                                                 ED must meet at least one of the following
                                                                 requirements: (1) It is licensed by the State
                                                                 in which it is located under applicable State
                                                                 law as an emergency room or emergency
                                                                 department; (2) It is held out to the public
                                                                 (by name, posted signs, advertising, or other
                                                                 means) as a place that provides care for
                                                                 emergency medical conditions on an urgent basis
                                                                 without requiring a previously scheduled
                                                                 appointment; or (3) During the calendar year
                                                                 immediately preceding the calendar year in
                                                                 which a determination under this section is
                                                                 being made, based on a representative sample of
                                                                 patient visits that occurred during that
                                                                 calendar year, it provides at least one-third
                                                                 of all of its outpatient visits for the
                                                                 treatment of emergency medical conditions on an
                                                                 urgent basis without requiring a previously
                                                                 scheduled appointment.).
G0384................................  Level 4 hosp. type B     Level 4 hospital emergency department visit
                                        visit.                   provided in a Type B emergency department. (The
                                                                 ED must meet at least one of the following
                                                                 requirements: (1) It is licensed by the State
                                                                 in which it is located under applicable State
                                                                 law as an emergency room or emergency
                                                                 department; (2) It is held out to the public
                                                                 (by name, posted signs, advertising, or other
                                                                 means) as a place that provides care for
                                                                 emergency medical conditions on an urgent basis
                                                                 without requiring a previously scheduled
                                                                 appointment; or (3) During the calendar year
                                                                 immediately preceding the calendar year in
                                                                 which a determination under this section is
                                                                 being made, based on a representative sample of
                                                                 patient visits that occurred during that
                                                                 calendar year, it provides at least one-third
                                                                 of all of its outpatient visits for the
                                                                 treatment of emergency medical conditions on an
                                                                 urgent basis without requiring a previously
                                                                 scheduled appointment.).
G0385................................  Level 5 hosp. type B     Level 5 hospital emergency department visit
                                        visit.                   provided in a Type B emergency department. (The
                                                                 ED must meet at least one of the following
                                                                 requirements: (1) It is licensed by the State
                                                                 in which it is located under applicable State
                                                                 law as an emergency room or emergency
                                                                 department; (2) It is held out to the public
                                                                 (by name, posted signs, advertising, or other
                                                                 means) as a place that provides care for
                                                                 emergency medical conditions on an urgent basis
                                                                 without requiring a previously scheduled
                                                                 appointment; or (3) During the calendar year
                                                                 immediately preceding the calendar year in
                                                                 which a determination under this section is
                                                                 being made, based on a representative sample of
                                                                 patient visits that occurred during that
                                                                 calendar year, it provides at least one-third
                                                                 of all of its outpatient visits for the
                                                                 treatment of emergency medical conditions on an
                                                                 urgent basis without requiring a previously
                                                                 scheduled appointment.).
----------------------------------------------------------------------------------------------------------------

    The use of these G-codes, along with the following redefinition of 
a Type A emergency department, will serve as a vehicle to capture 
median cost and resource differences among visits to Type A emergency 
departments, Type B emergency departments and clinics:
    Type A Emergency Department--A type A emergency department is a 
hospital-based facility or department that must be open 24 hours a day, 
7 days a week and meet at least one of the following requirements: (1) 
It is licensed by the State in which it is located under applicable 
State laws as an emergency department; or (2) It is held out to the 
public (by name, posted signs, advertising, or other means) as a place 
that provides care for emergency medical conditions on an urgent basis 
without requiring a previously scheduled appointment.
    A new G-code (G0390--Trauma response team activation associated 
with hospital critical care services) was also created (effective 
January 1, 2007) to be used in addition to CPT codes 99291 and 99292 to 
address the meaningful cost difference between critical care when 
billed with and without trauma activation. If critical care is provided 
without trauma activation, the hospital will bill with either CPT 99291 
or 99292, receiving payment for APC 0617 with a median cost of $402.67. 
However, if trauma activation occurs, the hospital would be allowed to 
bill one unit of G-code (G0390), reported with revenue code 68x on the 
same date of service, thereby receiving $491.66 under APC 0618. 
Hospitals will continue to bill CPT codes for both clinic and Type A 
Emergency department visits until national guidelines have been 
established.
    The above CPT E/M codes and other HCPCS codes currently assigned to 
the

[[Page 17282]]

clinic visit APCs have been mapped in Table 6 to eleven new APCs; five 
for clinic visits; five for emergency department visits; and one for 
critical care services, based on median costs and clinical 
consideration.

                                Table 6.--Assignment of CPT E/M Codes and Other HCPCS Codes to New Visit APCs for CY 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 CY 2007 APC title                                    CY 2007 APC        HCPCS                Short descriptor
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level 1 Hospital Clinic Visits....................................................            0604           92012  Eye exam, established pat.
                                                                                    ..............           99201  Office/outpatient visit, new (Level
                                                                                                                     1).
                                                                                    ..............           99211  Office/outpatient visit, est (Level
                                                                                                                     1).
                                                                                    ..............           G0101  CA screen; pelvic/breast exam.
                                                                                    ..............           G0245  Initial foot exam pt lops.
                                                                                    ..............           G0241  Office consultation (Level 1).
                                                                                    ..............           G0271  Confirmatory consultation (Level 1).
                                                                                    ..............           G0264  Assmt otr CHF, CP, asthma.
Level 2 Hospital Clinic Visits....................................................            0605           92002  Eye exam, new patient.
                                                                                    ..............           92014  Eye exam and treatment.
                                                                                    ..............           99202  Office/outpatient visit, new (Level
                                                                                                                     2).
                                                                                    ..............           99212  Office/outpatient visit, est (Level
                                                                                                                     2).
                                                                                    ..............           99213  Office/outpatient visit, est (Level
                                                                                                                     3).
                                                                                    ..............           99243  Office consultation (Level 3).
                                                                                    ..............           99242  Office consultation (Level 2).
                                                                                    ..............           99273  Confirmatory consultation (Level 3).
                                                                                    ..............           99272  Confirmatory consultation (Level 2).
                                                                                    ..............           99431  Initial care, normal newborn.
                                                                                    ..............           G0246  Follow-up eval of foot pt lop.
                                                                                    ..............           G0344  Initial preventive exam.
Level 3 Hospital Clinic Visits....................................................            0606           92004  Eye exam, new patient.
                                                                                    ..............           99203  Office/outpatient visit, new (Level
                                                                                                                     3).
                                                                                    ..............           99214  Office/outpatient visit, est (Level
                                                                                                                     4).
                                                                                    ..............           99274  Confirmatory consultation (Level 4).
                                                                                    ..............           99244  Office consultation (Level 4).
Level 4 Hospital Clinic Visits....................................................            0607           99204  Confirmatory consultation (Level 1).
                                                                                    ..............           99215  Office/outpatient visit, est (Level
                                                                                                                     5).
                                                                                    ..............           99245  Office consultation (Level 5).
                                                                                    ..............           99275  Confirmatory consultation (Level 5).
Level 5 Hospital Clinic Visits....................................................            0608           99205  Office/outpatient visit, new (Level
                                                                                                                     5).
                                                                                    ..............           G0175  OPPS service, sched team conf.
Level 1 Type A Emergency Visits...................................................            0609           99281  Emergency department visit.
Level 2 Type A Emergency Visits...................................................            0613           99282  Emergency department visit.
Level 3 Type A Emergency Visits...................................................            0614           99283  Emergency department visit.
Level 4 Type A Emergency Visits...................................................            0615           99284  Emergency department visit.
Level 5 Type A Emergency Visits...................................................            0616           99285  Emergency department visit.
Critical Care.....................................................................            0617           99291  Critical care, first hour.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    [cir] Inpatient Only Procedures. The inpatient list on TMA's OPPS 
Web site at http://www.tricare.mil/opps specifies those services that 
are only paid when provided in an inpatient setting because of the 
nature of the procedure, the need for at least 20 hours of 
postoperative recovery time or monitoring before the patient can be 
safely discharged, or the underlying physical condition of the patient. 
The following criteria will be used when reviewing procedures to 
determine whether or not they should be moved from the inpatient list 
and assigned to an APC group for payment under OPPS: (1) The simplest 
procedure described by the code may be performed in most outpatient 
departments; (2) the procedure is related to codes that have already 
been removed from the inpatient list; (3) the procedure is being 
performed in numerous hospitals on an outpatient basis; and (4) the 
procedure can be appropriately and safely performed in an ASC. While it 
is anticipated that TRICARE will be following the Medicare inpatient 
listing fairly closely, there may be occasions where, upon medical 
review, it is found that a particular inpatient procedure can be 
provided safely in an outpatient setting due to TRICARE's younger, 
healthier beneficiary population. These procedures will be removed from 
the TRICARE inpatient listing and will be assigned to either an 
existing or new APC group based on their median costs.
    If a patient was not admitted as an inpatient, and the procedure 
designated as an inpatient-only procedure (by OPPS payment status 
indicator ``C'') was performed to resuscitate or stabilize a patient 
with an emergency, life-threatening condition and the patient dies 
before being admitted as an inpatient, the hospital would bill for 
payment under the OPPS for the services that were furnished on that 
date and included modifier--``CA'' on the line with the HCPCS code for 
the inpatient procedure. Payment for all services other than the 
inpatient procedure designated under OPPS by status indicator ``C'', 
furnished on the same date, would be bundled into a single payment 
under APC 0375 (Ancillary Outpatient Services the Patient Expires) 
whose CY 2007 median cost is $3,539.
    [cir] Partial Hospitalization Services. Partial hospitalization 
services are those services furnished by TRICARE-authorized partial 
hospitalization programs and authorized mental health providers for the 
active treatment of a mental disorder. All services must follow a 
medical model and patient care must be under the general direction of a 
licensed psychiatrist employed by the partial hospitalization program 
to ensure medication and physical needs of all the patients are 
considered. The OPPS established per diem payment for both half- and 
full-day partial hospitalization represents the hospital's costs for 
overhead, support staff and the services of clinical social workers 
(CSWs) and occupational therapists

[[Page 17283]]

(OTs). For Substance Use Disorder Rehabilitation Facilities (SUDRFs), 
the cost of alcohol and addiction counselor services would also be 
included in the PHP per diem. However, the OPPS does not include the 
cost of services for physicians, clinical psychologists, and 
psychiatric nurse practitioners (NPs), which will continue to be billed 
separately for covered mental health services. In order to receive 
payment under OPPS, the hospital must use specific HCPCS and revenue 
codes and report partial hospitalization services under bill type 13X, 
along with condition code 41 on the UB-04 (HCFA 1450 claim form). The 
claim must also include a mental health diagnosis and an authorization 
on file for each day of service, along with a designated H-code (i.e., 
either H0035 for half-day PHP or H0037 for full-day PHP) and its 
accompanying revenue code, prior to assigning a half-or full-day 
partial hospitalization APC. Specific therapy codes (e.g., coding for 
family, group and individual psychotherapy) will be reported in 
addition to the designated partial hospitalization codes H0035 and 
H0037 and will be packaged into a single PHP code for the same date of 
service, with the exception of electroconvulsive therapy (ECT). Claims 
that do not meet the above criteria (e.g., claims filed without 
condition code 41, appropriate H-coding--H0035 or H0037, and/or revenue 
code) will undergo further payment review to ensure that outpatient 
mental health procedures do not exceed the full-day partial 
hospitalization per diem amount; i.e., the sum of the individual mental 
health APC amounts on any particular day does not exceed the full-day 
partial hospitalization per diem amount. The half-day PHP per diem (APC 
T0001) will be priced at 75 percent of the full-day APC (0033) amount 
of $233.37 for CY 2007. Free-standing psychiatric partial 
hospitalization services will continue to be reimbursed the all-
inclusive PHP per diem rates as established under 32 CFR 
199.14(a)(2)(ix), subject to their own unique mental health copayment/
cost-sharing provisions.
    [cir] Separate Payment for Observation Stays. Observation care is a 
well-defined set of specific, clinically appropriate services that 
include short-term treatment, assessment, and reassessment before a 
decision can be made regarding whether patients will require further 
treatment as hospital inpatients, or if they are able to be discharged 
from the hospital. The determination of whether or not observation 
services are separately payable under APC 0339 (observation) has been 
shifted from the hospital billing department to the OPPS claims 
processing logic using two HCPCS codes (i.e., G0378--Hospital 
observation services per hour, and G0379--Direct admission of patient 
for hospital observation care). These HCPCS codes will be assigned 
status indicator ``Q'' (package service subject to separate payment 
based on criteria) that will trigger the OCE logic during the 
processing of the claim to determine if the observation service or 
direct admission service is packaged with the other separately payable 
hospital services provided, or if a separate APC payment for 
observation services or direct admission to observation is appropriate. 
Following are the criteria that must be met in order to receive 
separate payment under APC 0039: (1) The beneficiary must have one of 
four medical conditions--congestive heart failure, chest pain, asthma, 
or maternity--as documented by specific ICD-9-CM diagnosis codes; (2) 
the number of units reported with HCPCS code G0378 must be equal to or 
exceed 8 hours for observation stays with diagnoses of chest pain, 
asthma or congestive heart failure and a minimum of 4 hours for 
maternity observation services; (3) an emergency department visit, 
clinic visit, critical care visit, or direct admission to observation 
services using HCPCS code G037 must be provided on the same day as, or 
the day before the observation except for maternity observation stays; 
(4) ongoing physician evaluation must be provided. The FY 2007 median 
cost for the observation APC 0339 is $442.81.
    Direct admissions to observation will continue to be paid at a rate 
equal to that of a Level 1 Clinic Visit (APC 0604) with a CY 2007 
median cost of $50.37 when a beneficiary is seen by a physician in the 
community and then is directly admitted into a hospital outpatient 
department for observation care that does not qualify for separate 
payment under APC 0039, or under T0002. In order to receive separate 
payment for a direct admission into observation (APC 0604), the claim 
must show: 1) Both HCPCS codes G0378 (Hourly Observation) and G0379 
(Direct Admit to Observation) with the same date of service; 2) that 
there are no services with status indictor ``T'' or ``V'' (clinic or 
emergency department visit) or critical care (APC 0620) provided on the 
same day of service as HCPCS code G0379; and 3) that the observation 
care does not qualify for separate payment under APC 0339.
    If the period of observation spans more than one calendar day, 
hospitals should include all of the hours for the entire period of 
observation on a single line and enter as the date of service for that 
line the date the patient is admitted to observation. Also, if there 
are multiple maternity observation stays on the same day without 
condition code G0 or 27 to indicate that the visits were distinct and 
independent of each other, the first listed observation stay will be 
paid and the rest will be denied.
    [cir] Payment for Brachytherapy Sources. In accordance with section 
1833(t)(2)(H) of the Social Security Act, brachytherapy sources are 
being paid separately under their own service groups (APCs) reflecting 
the number, isotope, and radioactive intensity of the devices of 
brachytherapy furnished, including separate groups for palladium-103 
and iodine-125 devices. The payment for devices of brachytherapy based 
on hospitals' charges, adjusted to costs as prescribed under section 
1833(t)(16)(C) of the Social Security Act, has been extended under the 
Tax Relief and Health Care Act of 2006 to January 1, 2008. As a result, 
brachytherapy sources will continue to be assigned to status indicator 
``H'' and will not be eligible for outlier payments in CY 2007. The 
codes for the CY 2007 separately paid sources, long descriptors and 
APCs are listed in Table 7 below:

  Table 7.--Separately Paid Brachytherapy Sources With Long Descriptors
                            and Assigned APCs
------------------------------------------------------------------------
    CPT/HCPCS          Long descriptor             SI            APC
------------------------------------------------------------------------
A9527............  Iodine 1-125, sodium     H..............         2632
                    iodide solution,
                    therapeutic, per
                    millicurie.
C1716............  Brachytherapy source,    H..............         1716
                    Gold 198, per source.
C1717............  Brachytherapy source,    H..............         1717
                    High Dose Rate Iridium
                    192, per source.
C1718............  Brachytherapy source,    H..............         1718
                    Iodine 125, per source.
C1719............  Brachytherapy source,    H..............         1719
                    Non-High Dose Rate
                    Iridium 192, per
                    source.
C1720............  Brachytherapy source,    H..............         1720
                    Palladium 103, per
                    source.

[[Page 17284]]

 
C2616............  Brachytherapy source,    H..............         2616
                    Yttrium-90, per source.
C2632............  (See note below).......  D..............  ...........
C2633............  Brachytherapy source,    H..............         2633
                    Cesium-131, per source.
C2634............  Brachytherapy source,    H..............         2634
                    High Activity, Iodine-
                    125, greater than 1.01
                    mCi (NIST), per source.
C2635............  Brachytherapy source,    H..............         2635
                    High Activity,
                    Palladium-103, greater
                    than 2.2 mCi (NIST),
                    per source.
C2636............  Brachytherapy linear     H..............         2636
                    source, Palladium-103,
                    per 1 MM.
C2637............  Brachytherapy source,    H..............        2637
                    Ytterbium-169, per
                    source.
------------------------------------------------------------------------
Note: C2632 has been deleted and replaced by A9527, effective January 1,
  2007.

    [cir] APC for Vaginal Hysterectomy. When billing for vaginal 
hysterectomies, hospitals must use procedure 58260, which will be 
assigned to APC 0202.
    [cir] New Technology APCs. A process has also been developed that 
will recognize new technologies that do not otherwise meet the 
definition of current orphan drugs, or current cancer therapy drugs and 
biologicals and brachytherapy, or current radiopharmaceutical drugs and 
biological products, and which are considered a covered benefit under 
TRICARE. In contrast to the other APC groups, the new technology APC 
groups do not take into account clinical aspects of the services they 
are to contain, but only their costs. This process, along with 
transitional pass-throughs, will provide additional payment for a 
significant share of new technologies. New items and services will be 
assigned to new technology APCs when it is determined that they cannot 
appropriately be placed into existing APC groups. The new technology 
APC groups have established payment rates based on the midpoint of 
ranges of possible costs providing a mechanism for initiating payment 
at an appropriate level within a relatively short timeframe. The cost 
bands for New Technology APCs range from: $0 to $50, in increments of 
$10; $50 to $100, in increments of $50; $100 to $2,000, in increments 
of $100; and $2,000 to $6,000, in increments of $500. These increments 
which are in two parallel sets of New Technology APCs--one with status 
indictor ``S'' and the other with ``T''--allow assignment to the same 
APC group procedures that are appropriately subject to a multiple 
procedure payment reduction (T) with those that should not be 
discounted (S).
    [cir] Coding Requirement for Reimbursement Under TRICARE OPPS. To 
receive TRICARE reimbursement under OPPS, providers must follow, and 
contractors shall enforce, all Medicare specific coding requirements. 
TRICARE Management Activity (TMA) will develop specific APCs (those 
APCs beginning with a ``T'') for those services that are unique to the 
TRICARE beneficiary population (e.g., those TRICARE specific APCs for 
half-day partial hospitalization program (PHP) services and maternity 
observation stays).

V. OPPS Reimbursement Methodology

    [cir] General Overview. Under the TRICARE OPPS, hospital outpatient 
services are paid on a rate-per-services basis that varies according to 
the APC group to which the service is assigned. The APC classification 
system is composed of groups of services that are comparable clinically 
and with respect to the use of resources. Level 1 (CPT) and Level II 
HCPCS codes and descriptors are used to identify and group the services 
within each APC. Costs associated with items or services that are 
directly related and integral to performing a procedure or furnishing a 
service have been packaged into each procedure or service within an APC 
group with the exception of: (1) New temporary technology APCs for 
certain approved services that are structured based on cost rather than 
clinical homogeneity; and (2) separate APCs for certain medical 
devices, drugs, biologicals, radiopharmaceuticals and devices of 
brachytherapy under transitional pass-through provisions. TRICARE is 
adopting Medicare's classification system, along with its nationally 
established APC payment amounts as prescribed in section 1833(t) of the 
Social Security Act and in its accompanying Medicare regulation (42 CFR 
part 419) for reimbursement of hospital outpatient services, to the 
extent practicable, in accordance with 10 U.S.C. 1079(j)(2), with the 
realization that there will be subtle differences occurring between the 
TRICARE and Medicare OPPS methodologies based on differences in the age 
and general health of the populations they serve (i.e., it can be 
assumed that the TRICARE population is younger and healthier than the 
population being served by Medicare). For example, TRICARE has already 
found it necessary to develop two new TRICARE specific APCs, one for 
maternity observation stays (T0002) and the other for a half-day 
partial hospitalization program (T0001) to accommodate its unique 
benefit structure and beneficiary population. There may also be subtle 
differences in the inpatient-only procedure listings being maintained 
by the two programs since some of the Medicare inpatient-only 
procedures may be determined by TRICARE, upon medical review, to be 
safe for administration in an outpatient setting due to its younger, 
healthier population. This may require the development of additional 
APC groups, along with nationally established payment amounts based on 
their median costs from the previous year's claims history.
    The payment rate for each APC is calculated by multiplying the 
APC's relative weight by the conversions factor. Weights are derived 
based on median hospital costs for services/procedures assigned to the 
hospital outpatient APC groups. Billed charges for items integral to 
performing the major procedure or visit, which include packaged HCPCS 
codes (i.e., codes with SI = ``N'') and revenue codes appearing on the 
same claim, are converted to costs by multiplying each revenue center 
charge by the appropriate hospital-specific CCR. Centers for Medicare 
and Medicaid Services (CMS) currently use a four-tiered hierarchy of 
cost center CCRs to match a cost center to every possible revenue code 
appearing in the outpatient claims, with the top tier being the most 
common cost center and the lowest tier being the default CCR. If a 
hospital's cost center CCR was deleted by trimming, another cost center 
CCR in the revenue hierarchy can be applied. If no other department CCR 
can be applied to the revenue code on the claim, CMS uses the 
hospital's overall CCR for the revenue code.
    The costs of the above services/procedures are then standardized 
for geographic wage variations by dividing

[[Page 17285]]

the labor-related portion of the operating and capital costs (currently 
estimated at 60 percent on the average for each billed item) by the 
hospital inpatient prospective payment system (IPPS) wage index. The 
standardized labor-related cost and the nonlabor-related cost component 
for each billed item are summed to derive the total standardized cost 
for each separately payable HCPCS code. Extreme costs outside three 
standard deviations from the geometric mean will be eliminated prior to 
calculating the median cost for each separately payable HCPCS code. The 
median costs of these procedures will then be mapped to their assigned 
APCs, and the median costs of those assigned procedures will be used in 
establishing the overall APC median cost.
    The relative payment weights are calculated for each APC by 
dividing the median cost of each APC by the median cost for APC 0606 
(Level 3 Clinic Visit), which is $83.88 for CY 2007, as a 
reconfiguration of the visit APCs. APC 0606 was chosen in order to 
maintain consistency in using a median for calculating unscaled weights 
representing the median cost of some of the most frequently provided 
services. The relative payment weights were further adjusted by 
1.364598352 for budget neutrality, based on a comparison of aggregate 
payments using CY 2006 relative weights to aggregate payments using the 
CY 2007 final relative weights.
    The other component used in establishing national APC payment 
amounts is the conversion factor, updated on an annual basis in 
accordance with section 1833(t)(3)(C)(iv) of the Social Security Act, 
which provides for CY 2007 an updated amount equal to the hospital 
inpatient market basket percentage increase applicable to hospital 
discharges under section 1886(b)(3)(B)(iii) of the Act. The market 
basket increase update factor of 3.4 percent for CY 2007, along with 
the required wage index budget neutrality adjustment of approximately 
0.999331979, the adjustment of 0.04 percent for the difference in the 
pass-through set-aside, and the adjustment for the rural payment 
adjustment for rural SCHs (including EACHs) of 0.999975941, resulted in 
a standard conversion factor for CY 2007 of $61.468.
    The national unadjusted APC payment rates that were calculated by 
multiplying the CY 2007 scaled weight for each APC by the final CY 2007 
conversion factor apply to all the services that are classified within 
the APC group. These national rates (i.e., the unadjusted national 
rates for both APCs and the HCPCS to which OPPS payment was assigned) 
are listed on TMA's OPPS Web site at http://www.tricare.mil/opps.
    [cir] Determination of Payment. A payment status indicator (SI) is 
provided for every code in the HCPCS to identify how the service or 
procedure described by the code would be paid under the hospital 
outpatient prospective payment system (OPPS); i.e., it indicates if a 
service represented by a HCPCS code is payable under the OPPS or 
another payment system, and also which particular OPPS payment policies 
apply. One, and only one, SI is assigned to each APC and to each HCPCS 
code. Following are the CY 2007 payment status indicators, along with a 
description of the particular services each indicator identifies.

      Table 8.--CY 2007 Payment Status Indicators for Hospital OPPS
------------------------------------------------------------------------
    Indicator             Description             OPPS payment status
------------------------------------------------------------------------
A...............  Services paid under some    Not paid under OPPS. Paid
                   payment method other than   by contractors under a
                   OPPS (e.g., payment for     fee schedule or payment
                   non-implantable             system other than OPPS.
                   prosthetic and orthotic
                   devices, DME, ambulance
                   services, and individual
                   professional services).
B...............  More appropriate code       Not paid under OPPS.
                   required for TRICARE OPPS.
C...............  Inpatient procedures......  Not paid under OPPS. Admit
                                               patient. Bill as
                                               inpatient.
E...............  Items or services not       Not paid under OPPS.
                   covered by TRICARE.
F...............  Acquisition of corneal      Not paid under OPPS. Paid
                   tissue, certain CRNA        on allowable charge
                   services, and Hepatitis B   basis.
                   vaccines.
G...............  Pass-through drugs and      Paid separate APCs under
                   biologicals.                OPPS.
H...............  (1) Pass-through device     (1) Separate cost-based
                   categories.                 pass-through payment; not
                                               subject to cost-share/co-
                                               payment.
 
                  (2) Brachytherapy sources.  (2) Separate cost-based
                                               non-pass-through payment.
                  (3) Radiopharmaceutical     (3) Separate cost-based
                   agents.                     non-pass-through payment.
K...............  Non-pass-through drugs and  Paid separate APCs under
                   biologicals and blood and   OPPS.
                   blood products.
N...............  Packaged incidental items   Packaged into the primary
                   and services.               procedure APC payment
                                               amount to which the
                                               incidental item or
                                               service is normally
                                               associated.
P...............  Partial hospitalization...  Per diem APC payments for
                                               both half-day and full-
                                               day partial
                                               hospitalization programs.
Q...............  Services either separately  Paid under OPPS; services
                   payable or packaged.        either packaged or
                                               separately payable
                                               depending on the specific
                                               circumstances of the
                                               HCPCS billing. OCE logic
                                               will be applied in
                                               determining if the
                                               services will be packaged
                                               or separately payable.
S...............  Significant procedures      Paid under OPPS; separate
                   allowed under the OPPS      APC payment.
                   for which multiple
                   procedure reduction does
                   not apply.
T...............  Surgical services allowed   Paid under OPPS; separate
                   under OPPS with multiple    APC payment.
                   procedure payment
                   reduction.
V...............  Medical visits (including   Paid under OPPS; separate
                   clinic or emergency         APC payment.
                   department visits).
W...............  Invalid HCPCS or invalid    Not paid under OPPS.
                   revenue code with blank
                   HCPCS.
X...............  Ancillary services........  Paid under OPPS; separate
                                               APC payment.
Z...............  Valid revenue code with     Not paid under OPPS.
                   blank HCPCS and no other
                   SI assigned.
TB..............  Reimbursement not allowed   Not paid under OPPS.
                   for CPT/HCPCS code
                   submitted.
------------------------------------------------------------------------


[[Page 17286]]

    [cir] Adjustments for Specific Hospital Payment. The hospital DRG 
wage adjustment factor will be used to adjust the portion of the 
payment rate that is attributable to labor-related costs for relative 
differences in labor and labor-related costs across geographic regions, 
with the exception of APCs with SIs ``K'' and ``G'' because of the 
inseparable, subordinate status of the outpatient department within the 
overall hospital setting. The OPPS will also adhere to the same wage 
index changes as the TRICARE-DRG based payment system, except the 
effective date for changes will be January 1 of each year instead of 
October 1. This way only one wage index file will have to be maintained 
for both the OPPS and DRG-based payment systems. Following are the 
steps taken in achieving this adjustment for APCs in which multiple 
procedure discounting is not applied:
    Step 1. Calculate 60 percent (labor-related portion) of the 
national unadjusted payment rate.
    Step 2. Determine the wage index area in which the hospital is 
located and identify the wage index that applies to the specified 
hospital. The wage index values assigned to each hospital area reflect 
the new geographic statistical areas as a result of revised OMB 
standards (urban and rural) to which hospitals are assigned for FY 2007 
under the IPPS.
    Step 3. Adjust the wage index of hospitals located in certain 
qualifying counties that have a relatively high percentage of hospital 
employees who reside in the county, but who work in a different county 
with a higher wage index.
    Step 4. Multiply the applicable wage index determined under Steps 2 
and 3 by the amount determined in Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
    Step 5. Calculate 40 percent (the nonlabor-related portion) of the 
national unadjusted payment rate and add the amount to the resulting 
product in step 4. The result is the wage index adjusted payment rate 
for the relevant wage index area in which the hospital is located.
    Step 6. If the provider is a Sole Community Hospital (SCH), 
multiply the wage adjusted payment rate by 1.071 to calculate the total 
payment. This adjustment will apply to all services and procedures paid 
under the OPPS (i.e., SIs ``P,'' ``S,'' ``T,'' ``V,'' and ``X''), 
excluding drugs, biologicals and services paid subject to pass-through 
payment (i.e., SIs ``G,'' ``H,'' and ``K'').
    Applicable deductibles and/or cost-sharing/copayment amounts will 
be subtracted from the wage adjusted APC payment rate based on the 
eligibility status of the beneficiary at the time outpatient services 
were rendered (i.e., those deductibles and cost-sharing/copayment 
amounts applicable to Prime, Extra, and Standard beneficiary 
categories). TRICARE will retain its current hospital outpatient 
deductibles, cost-sharing/copayment amounts (refer to Tables 1 and 2 
above) and catastrophic loss protection under the OPPS. The ASC cost-
sharing provision (i.e., assessment of a single copayment for both the 
professional and facility charge for a Prime beneficiary) will be 
adopted as long as it is administratively feasible. This will not apply 
to Extra and Standard beneficiaries since their cost-sharing is based 
on a percentage of the total allowed amount.
    [cir] Additional APC Payment Adjustments. OPPS payment amounts are 
discounted when more than one surgical procedure (SI= T) is performed 
during a single operative session. Under these circumstances, TRICARE 
will reimburse the full payment and the beneficiary will pay the full 
cost-share/copayment for the procedure having the highest payment rate, 
while the remaining surgical procedure payments will be reduced by 50 
percent, along with the beneficiary associated cost-share/copayment to 
reflect the savings associated with having to prepare the patient only 
once and the incremental costs associated with anesthesia, operating 
and recovery room use, and other services required for the second and 
subsequent procedures. A 50 percent discount will also be applied to 
the OPPS payment amounts and beneficiary copayments/cost-shares for 
procedures terminated before anesthesia is induced, as identified by 
modifiers -73 (Discounted Outpatient Procedure Prior to Anesthesia 
Administration) and -52 (Reduced Services). Full payment will be 
received for a procedure that is started but discontinued after the 
induction of anesthesia as reported by modifier -74 (Discounted 
Procedure). In this case, payment would recognize the costs incurred by 
the hospital to prepare the patient for surgery and the resources 
expended in the operating room and recovery room of the hospital. 
Discounting will also be applied to conditional, inherent, and 
independent bilateral procedures.
    An additional payment is provided for outpatient services for which 
a hospital's charges, adjusted to cost, exceed the sum of the wage 
adjusted APC rate plus a fixed dollar threshold and a fixed multiple of 
the wage adjusted APC rate. Only line item services with SIs ``P,'' 
``S,'' ``T'', ``V,'' or ``X'' will be eligible for outlier payment 
under OPPS. No outlier payments will be calculated for line item 
services with SIs ``G,'' ``H,'' ``K,'' and ``N,'' with the exception of 
blood and blood products.
    For CY 2007, the outlier threshold is met when the cost of 
furnishing a service or procedure exceeds 1.75 times the APC payment 
amount and exceeds the APC payment rate plus the $1,825 fixed-dollar 
threshold. The fixed-dollar threshold was added to better target 
outliers to those high cost and complex procedures where a very costly 
service could present a hospital with significant financial loss. If a 
provider meets both of these conditions (i.e., the multiple threshold 
and the fixed-dollar threshold), the outlier payment is calculated at 
50 percent of the amount by which the cost of furnishing the service 
exceeds 1.75 times the APC payment rate. The hospital would receive the 
normal APC payment rate along with the additional outlier amount. For 
example, suppose a hospital charges $26,000 for a procedure for which 
the APC adjusted amount is $3,000 and the overall facility CCR is 0.30. 
The estimated cost to the hospital is $7,800 (0.30 x $26,000). In order 
to determine whether the procedure is eligible for outlier payment, it 
first must be determined whether the cost for the service exceeds both 
the APC multiple outlier cost threshold of $5,250 (1.75 x $3,000) and 
the fixed-dollar threshold of $4,825 ($3,000 + $1,825). Since the 
estimated cost to the hospital ($7,800) exceeds both threshold amounts, 
the hospital would be eligible for 50 percent of the difference, which 
in this case would be $1,275 ($7,800--$5,250/2).
    [cir] Payment Hierarchy for Non-OPPS Procedures. If the outpatient 
procedure is not assigned an APC payment amount (i.e., is not assigned 
SI ``G,'' ``H,'' ``K,'' ``P,'' ``S,'' ``T,'' ``V,'' or ``X''), but may 
be reimbursed under an existing TRICARE fee schedule or other 
prospectively determined rate (i.e., procedures assigned to SI ``A''), 
the following hierarchy will be used in pricing the procedure. The 
PRICER will first look to see if there is an appropriate CMAC available 
for pricing. If a CMAC cannot be found, it will then look to the 
Durable Medical Equipment Claims: Prosthetics, Orthotics, and Supplies 
(DMEPOS) fee schedule for pricing. If a DMEPOS fee schedule rate is not 
available for pricing, it will turn to statewide prevailings. If a 
statewide prevailing cannot be found, the PRICER will reimburse the 
procedure at the billed charge.

[[Page 17287]]

VI. Military Readiness/Contingency Options for Payment Under OPPS

    In recognition of the Department's requirement to support military 
readiness and contingency operations, and in response to recent 
congressional concerns regarding same, the agency has developed two 
options for implementation of OPPS. The first option involves a three-
year transitional implementation of payment adjustments that may be 
utilized to limit the decline in payments under OPPS for TRICARE 
network hospitals that are in close proximity to military bases and 
treat a disproportionate share of military family members and/or 
hospitals that provide essential network specialty care. These 
temporary payment adjustments would target TRICARE network hospitals 
that are most vulnerable to OPPS revenue reductions and that are 
essential for continued military readiness and support of contingency 
operations.
    This adjustment would increase payment for primary care and 
emergency room visits to hospital outpatient departments (HOPDs) over a 
3-year transitional period. Primary care and emergency room visits to 
HOPDs are categorized into 10 APC categories (APC codes 604-609 and 
613-616) which represent over 600,000 hospital visits annually. On 
average, about one quarter of the revenues from TRICARE for HOPD 
services are for these 10 codes, representing the biggest payment 
reduction under OPPS. Under this transitional payment adjustment, the 
APC payment levels for network hospitals for the 5 clinical visit APCs 
would be set at 130 percent of the Medicare APC level, while the 5 
emergency room (ER) visit APCs would be increased by 150 percent in the 
first year of OPPS implementation. In the second year, the APC payment 
levels would be set at 120 percent of the Medicare APC level for clinic 
visits and at 130 percent for ER APCs. In the third year, the APC visit 
amounts would be set at 110 and 120 percent, respectively, and in the 
fourth year, the TRICARE and Medicare payment levels for the 10 APC 
visit codes would be identical. Two sets of adjustment factors (i.e., 
one for clinic visits and the other for ER visits) are being used since 
revenue cuts for ER visits are generally greater than those associated 
with clinic visits. Transitional payment adjustments for these 10 visit 
codes would buffer the initial revenue reductions which will be 
experienced upon implementation of TRICARE's OPPS, providing hospitals 
with sufficient time to adjust and budget for potential revenue 
reductions for hospitals most vulnerable to implementation of OPPS.
    The second option involves authority for the Director, TRICARE 
Management Activity, or a designee, under provisions of this rule to 
adopt, modify, and/or extend temporary adjustments to OPPS payments for 
TRICARE network hospitals deemed essential for military readiness and 
support during contingency operations. Upon a determination by the TMA 
Director, or designee, at any time following implementation that it is 
impracticable to support military readiness or contingency operations 
by making OPPS payments in accordance with the same reimbursement rules 
implemented by Medicare, a temporary deviation may be granted. This 
will ensure the availability of adequate civilian healthcare resources 
necessary to meet all ongoing military readiness and contingencies. The 
criteria for adopting, modifying and/or extending temporary adjustments 
to OPPS payments under this authority shall be issued through TRICARE 
policies, instructions, procedures and guidelines as deemed appropriate 
by the Director, TRICARE Management Activity, or a designee, for those 
network hospitals essential for continued military readiness and 
deployment in a time of contingency operations.

VII. Regulatory Procedures

Executive Order 12866, ``Regulatory Planning and Review''

    Section 801 of title 5, United States Code (U.S.C.), and Executive 
Order (E.O.) 12866 requires certain regulatory assessments and 
procedures for any major rule or significant regulatory action, defined 
as one that would result in an annual effect of $100 million or more on 
the national economy or which would have other substantial impacts. It 
has been certified that this rule is not an economically significant 
rule, however, it is a regulatory action which has been reviewed by the 
Office of Management and Budget as required under the provisions of 
E.O. 12866.

Section 202, Public Law 104-4, ``Unfunded Mandates Reform Act''

    It has been certified that his rule does not contain a Federal 
mandate that may result in the expenditure by State, local and tribal 
governments, in aggregate, or by the private sector, of $100 million or 
more in any one year.

Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    The Regulatory Flexibility Act (RFA) requires each Federal agency 
prepare, and make available for public comment, a regulatory 
flexibility analysis when the agency issues a regulation which would 
have a significant impact on a substantial number of small entities. 
This is not a major rule under 5 U.S.C. 801 since the projected 
reduction in TRICARE payments to affected hospitals would be below the 
$100 million threshold. The estimates of reduction are based on 
historical TRICARE costs and an assessment of potential users times 
average benefit costs per person for implementation of the new 
prospective payment system. Following is a projected government impact 
analysis, reflecting an overall cost savings of $81.0 million dollars 
for the first 12 months of implementation based on 2006 TRICARE claims 
data. This rule also

               Impact Assessment of Implementation of OPPS
                      [$Millions--first 12 months]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Projected Cost Savings Based On Current Data...............     $231.0
Offsets to Cost Savings:
  Application of Existing Cost-Sharing.....................      (12.0)
  Reduction/Rebalancing of Discounts.......................      (72.0)
Transitional Adjustments...................................      (44.0)
Military Contingency Adjustments...........................       (8.0)
Effects of OHI.............................................      (14.0)
                                                            ------------
    Net Cost Savings*......................................       81.0
------------------------------------------------------------------------

does not require a regulatory flexibility analysis, as the significant 
policy action was taken by Congress and the rule merely puts it into 
effect. The policy of the Regulatory Flexibility Act that agencies 
adequately evaluate all potential options for an action does not apply 
when Congress has already dictated the action. In addition, it has been 
certified that this proposed rule will not significantly affect a 
substantial number of small entities.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    This rule will not impose significant additional information 
collection requirements on the public under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3511). Existing information collection 
requirements of the TRICARE and Medicare programs will be utilized.

Executive Order 13132, ``Federalism''

    This proposed rule has been examined for its impact under E.O. 
13132 and it does not contain policies that have federalism 
implications that would have substantial direct effects on the States, 
on the relationship between

[[Page 17288]]

the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government; therefore, 
consultation with State and local officials is not required.

List of Subjects in 32 CFR Part 199

    Claims, Dental health, Health care, Health insurance, Individuals 
with disabilities, Military personnel.

    Accordingly, 32 CFR part 199 is proposed to be amended as follows:

PART 199--[AMENDED]

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

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

    2. Section 199.2(b) is amended by adding definitions for Ambulatory 
Payment Classifications (APCs) and TRICARE Outpatient Prospective 
Payment System (OPPS) and placing them in alphabetical order to read as 
follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Ambulatory Payment Classifications (APCs). Payment of services 
under the TRICARE OPPS is based on grouping outpatient procedures and 
services into ambulatory payment classification groups based on 
clinical and resource homogeneity, provider concentration, frequency of 
service and minimal opportunities for upcoding and code fragmentation. 
Nationally established rates for each APC are calculated by multiplying 
the APC's relative weight derived from median costs for procedures 
assigned to the APC group, scaled to the median cost of the APC group 
representing the most frequently provided services, by the conversion 
factor.
    TRICARE Outpatient Prospective Payment System (OPPS). OPPS is a 
hospital outpatient prospective payment system, based on nationally 
established APC payment amounts and standardized for geographic wage 
differences that includes operating and capital-related costs that are 
directly related and integral to performing a procedure or furnishing a 
service in a hospital outpatient department.
* * * * *


Sec.  199.4  [Amended]

    3. Section 199.4 is proposed to be amended by removing paragraph 
(c)(3)(i)(C)(1) and redesignating paragraphs (c)(3)(i)(C)(2) and 
(c)(3)(i)(C)(3) as (c)(3)(i)(C)(1) and (c)(3)(i)(C)(2).
    4. Section 199.14 is amended by revising paragraphs (a)(2)(ix)(A); 
redesignating paragraphs (a)(5)(i) through (a)(5)(xii) as (a)(5)(i)(A) 
through (a)(5)(i)(L); adding new paragraphs (a)(5)(i) introductory text 
and (a)(5)(ii); and revising paragraph (d)(1) to read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (2) * * *
    (ix) * * *
    (A) In general. Psychiatric and substance use disorder 
rehabilitation partial hospitalization services authorized by Sec.  
199.4(b)(10) and (e)(4) and provided by institutional providers 
authorized under Sec.  199.6(b)(4)(xii) and (b)(4)(xiv) are reimbursed 
on the basis of prospectively determined, all-inclusive per diem rates 
pursuant to the provisions of paragraph (a)(2)(ix)(C) of this section, 
with the exception of hospital-based psychiatric and substance use 
disorder rehabilitation partial hospitalization services which are 
reimbursed in accordance with provisions of paragraph (a)(5)(ii) of 
this section. The per diem payment amount must be accepted as payment 
in full for all institutional services provided, including board, 
routine nursing service, ancillary services (includes music, dance, 
occupational and other such therapies), psychological testing and 
assessment, overhead and any other services for which the customary 
practice among similar providers is included as part of the 
institutional charges.
* * * * *
    (5) * * *
    (i) Outpatient Services Not Subject to Hospital Outpatient 
Prospective Payment System (OPPS). The following are payment methods 
for outpatient services that are either provided in an OPPS exempt 
hospital or paid outside the OPPS payment methodology under existing 
fee schedules or other prospectively determined rates in a hospital 
subject to OPPS reimbursement.
* * * * *
    (ii) Outpatient Services Subject to OPPS. Outpatient services 
provided in hospitals subject to Medicare OPPS as specified in 42 CFR 
413.65 and 42 CFR 419.20 will be paid in accordance with the provisions 
outlined in sections 1833(t) of the Social Security Act and its 
implementing Medicare regulation (42 CFR Part 419). Under the above 
governing provisions, CHAMPUS will recognize to the extent practicable, 
in accordance with 10 U.S.C. 1079(j)(2), Medicare's OPPS reimbursement 
methodology to include specific coding requirements, ambulatory payment 
classifications (APCs), nationally established APC amounts and 
associated adjustments (e.g., discounting for multiple surgery 
procedures, wage adjustments for variations in labor-related costs 
across geographical regions and outlier calculations). During the 
transition to OPPS, temporary deviations from Medicare's statutory and/
or regulatory requirements and future changes arising from its 
continuing experience with OPPS may be granted for any TRICARE network 
hospital by the Director, TRICARE Management Activity (TMA), or a 
designee, to accommodate CHAMPUS' unique benefit structure and 
beneficiary population. In addition, the Director, TMA, or a designee, 
may at any time after implementation adopt, modify and/or extend 
temporary adjustments to OPPS payments for TRICARE network hospitals 
deemed essential for military readiness and deployment in time of 
contingency operations. Any temporary adjustment to OPPS payments shall 
be made only on the basis of a determination that it is impracticable 
to support military readiness or contingency operations by making OPPS 
payments in accordance with the same reimbursement rules implemented by 
Medicare. The criteria for adopting, modifying, and/or extending 
deviations and/or adjustments to OPPS payments shall be issued through 
TRICARE policies, instructions, procedures and guidelines as deemed 
appropriate by the Director, TMA, or a designee.
* * * * *
    (d) * * *
    (1) In general. CHAMPUS pays institutional facility costs for 
ambulatory surgery on the basis of prospectively determined amounts, as 
provided in this paragraph, with the exception of ambulatory surgery 
procedures performed in hospital outpatient departments, which are to 
be reimbursed in accordance with the provisions of paragraph (a)(5)(ii) 
of this section. This payment method is similar to that used by the 
Medicare program for ambulatory surgery. This paragraph applies to 
payment for freestanding ambulatory surgical centers. It does not apply 
to professional services. A list of ambulatory surgery procedures 
subject to the payment method set forth in the paragraph shall be 
published periodically by the Director, TRICARE Management Activity 
(TMA). Payment to freestanding ambulatory surgery centers is limited to 
these procedures.
* * * * *


[[Page 17289]]


    March 21, 2008.
L. M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
 [FR Doc. E8-6514 Filed 3-31-08; 8:45 am]
BILLING CODE 5001-06-P