[Federal Register Volume 73, Number 238 (Wednesday, December 10, 2008)]
[Rules and Regulations]
[Pages 74945-74966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29251]


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DEPARTMENT OF DEFENSE

Office of the Secretary

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

32 CFR Part 199


TRICARE; Hospital Outpatient Prospective Payment System (OPPS)

AGENCY: Office of the Secretary, DoD.

ACTION: Final rule.

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SUMMARY: This final 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: Effective Date: February 9, 2009.

FOR FURTHER INFORMATION CONTACT: David E. Bennett or Martha M. Maxey, 
TRICARE Management Activity, Medical Benefits and Reimbursement Branch, 
telephone (303) 676-3494 or (303) 676-3627.

SUPPLEMENTARY INFORMATION:

I. Introduction and Background

    The Medicare 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.,

[[Page 74946]]

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 
healthcare professional and other non-institutional healthcare 
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 Medicare 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 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 Medicare 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 
Department of Defense (DoD), otherwise referred to as the agency for 
purposes of this rule, 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

[[Page 74947]]

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:
    [rtarr8] 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 Medicare 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 
TRICARE 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 TRICARE OPPS.
    [rtarr8] 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 Medicare 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 
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 members &
                                         E1-E4              E5 & above                    survivors
----------------------------------------------------------------------------------------------------------------
Prime..........................  None................  None................  None.
Extra..........................  $50 per Individual..  $150 per Individual.  $150 per Individual.
                                 $100 Maximum per      $300 Maximum per      $300 Maximum per family.
                                  family.               family.
Standard.......................  $50 per Individual..  $150 per Individual.  $150 per Individual.
                                 $100 Maximum per      $300 Maximum per      $300 Maximum per family.
                                  family.               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               Retirees, their     TRICARE extra program     TRICARE standard
                                    ------------------------------------------------    family members &                                  program
                                              E1-E4                E5 & above              survivors
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Hospital Outpatient Departments      $0 copayment per visit  $0 copayment per visit  $12 copayment per      Active Duty Family     Active Duty Family
 clinic visits; therapy visits;                                                       visit.                 Members: Cost-share--  Members: Cost-share--
 treatment rooms, etc.                                                                                       15% of fee             20% of the allowable
                                                                                                             negotiated by          charge.
                                                                                                             contractor.

[[Page 74948]]

 
                                                                                                            Retirees, Their        Retirees, Their
                                                                                                             Family Members &       Family Members &
                                                                                                             Survivors: Cost-       Survivors: Cost-
                                                                                                             share--20% of the      share--25% of the
                                                                                                             fee negotiated by      allowable charge.
                                                                                                             the contractor.
Emergency Services Emergency and     $0 copayment per visit  $0 copayment per visit  $30 copayment per
 urgently needed care obtained in                                                     emergency room visit.
 hospital emergency room.
Ambulatory Surgery (same day)        $0 copayment per visit  $0 copayment per visit  $25 copayment........  ADFMs: Cost-share--    ADFMs: Cost-share--
 Hospital-based ambulatory surgical                                                                          $25.                   $25.
 center.
                                                                                     No separate copayment/ Retirees, Their        Retirees, Their
                                                                                      cost-share for         Family Members &       Family Members &
                                                                                      separately billed      Survivors: Cost-       Survivors: Lesser of
                                                                                      professional charges.  share--20% of the      25% of group rate or
                                                                                                             institutional fee      25% of billed
                                                                                                             negotiated by the      charge.
                                                                                                             contractor.
Birthing Centers Prenatal care,      $0 copayment per visit  $0 copayment per visit  $25 copayment........
 outpatient delivery, and postnatal
 care provided in hospital-based
 birthing center.
Partial Hospitalization Programs     $0 copayment per visit  $0 copayment per visit  $40 per diem charge..  ADFMs: $20 per diem    ADFMs: $20 per diem
 (PHPs) Mental health services                                                                               charge.                charge.
 provided in authorized hospital-
 based PHP.
                                                                                     No separate copayment/ Retirees, Their        Retirees, Their
                                                                                      cost-share for         Family Members &       Family Members &
                                                                                      separately billed      Survivors: Cost-       Survivors: Cost-
                                                                                      professional charges.  share--20% of the      share--25% of the
                                                                                                             TRICARE allowed        TRICARE allowed
                                                                                                             amount.                amount.
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    [rtarr8] Hold-Harmless Protection--At the inception of the Medicare 
OPPS, providers were 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) for covered 
OPD services furnished on or after January 1, 2006, and before January 
1, 2010, for rural hospitals having 100 or fewer beds and SCHs. This 
provision provided an increased payment for such hospitals for 
outpatient services if the Medicare 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 Pub. L. 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 TRICARE OPPS in lieu of imposing the 
hold-harmless provision, given the administrative complexity of 
capturing the data required for payment of

[[Page 74949]]

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 billed charges 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:
    [rtarr8] Partial Hospitalization Programs (PHP)--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 healthcare 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 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 Joint Commission, 
under the current edition of the Standards for Behavioral Healthcare, 
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 TRICARE OPPS and will continue to 
be reimbursed under the existing 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.
    [rtarr8] 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 TRICARE 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 TRICARE 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 on 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. TRICARE 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,

[[Page 74950]]

which in this case, will be paid under a new technology APC.
    Freestanding ASCs will be exempt from TRICARE 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.
    [rtarr8] 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.
    [rtarr8] Observation Stays--Observation Services are those services 
furnished on a hospital's premises, including the use of a bed and 
periodic monitoring by a 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. While 
observation services reported with HCPCS code G0378 (hospital 
observation service, per hour) have been packaged into other 
independent separately payable hospital outpatient services since 
January 1, 2008, maternity observation claims that have a maternity 
diagnosis, a minimum of four hours per observation stay and not primary 
surgical procedure on the day of observation will still be identified 
using HCPCS code G0378 and reimbursed separately under APC T0002. 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.
    [rtarr8] End-Stage 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 applies to any hospital 
participating in the Medicare program in the 50 United States, the 
District of Columbia, and Puerto Rico, 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 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) Home 
Health Agencies (HHAs); (6) hospice programs; (7) other corporate 
services providers (e.g., comprehensive outpatient rehab facilities, 
freestanding cardiac catheterization centers, freestanding sleep 
diagnostic centers, and freestanding hyperbaric oxygen treatment 
centers); (8) freestanding birthing centers; (9) Veterans 
Administration (VA) hospitals; and (10) 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 TRICARE's 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 TRICARE OPPS) for the purpose of furnishing healthcare 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 
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

[[Page 74951]]

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 TRICARE 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 TRICARE 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; (7) services of an anesthetist; (8) 
screening and diagnostic mammographies; (9) clinical diagnostic 
services; (10) non-implantable durable medical equipment (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.

[[Page 74952]]

IV. Public Comments

    The TRICARE OPPS proposed rule (72 FR 17271) was published on April 
1, 2008, providing a 60-day public comment period. Ten timely items of 
correspondence were received containing multiple comments on the 
proposed rule which resulted in a substantive change in hospital-based 
PHP reimbursement (i.e., reimbursement of a single per diem based on a 
minimum of three service units and payment of PHP professional services 
outside the per diem) and provided clarification regarding the 
temporary transitional payment adjustment (TTPA) and temporary military 
contingency payment adjustment (TMCPA) available under the TRICARE OPPS 
which will provide hospitals sufficient time to adjust and budget for 
potential revenue reductions and to ensure network adequacy deemed 
essential for military readiness and support during contingency 
operations. Following is a summary of the public comments and our 
responses:
    Comment: Several commentors expressed support for the first option 
outlined in the proposed rule to provide an implementation plan 
involving three-year transitional payment adjustments for TRICARE 
network hospitals, but took exception to the proposal that the 
transitional adjustments only apply to 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. The commentors further supported the three-year 
transition to set higher payment percentages for the ten APCs (five 
clinic visits and five emergency room (ER) visits) during the first 
year, with reductions in each of the transition years. Several 
commentors also recommended a stop-loss system such as the one used in 
the implementation of the Medicare OPPS.
    Response: We appreciate the commentor's concerns regarding the 
temporary transitional payment process and have modified it to include 
all hospitals, both network and non-network. For network hospitals, the 
temporary transitional payment adjustments (TTPAs) will cover a four-
year period. The four-year transition will set higher payment 
percentages for the ten Ambulatory Payment Classification (APC) codes 
604-609 and 613-616, with reductions in each of the transition years. 
For non-network hospitals, the adjustments will cover a three-year 
period, with reductions in each of the transition years.
    For network hospitals, under the TTPAs, the APC payment level for 
the five clinic visit APCs would be set at 175 percent of the Medicare 
APC level, while the five ER visit APCs would be increased by 200 
percent in the first year of TRICARE OPPS implementation. In the second 
year, the APC payment levels would be set at 150 percent of the 
Medicare APC level for clinic visits and 175 percent for ER APCs. In 
the third year, the APC visit amounts would be set at 130 percent of 
the Medicare APC level for clinic visits and 150 percent for ER APCs. 
In the fourth year, the APC visit amounts would be set at 115 percent 
of the Medicare APC level for clinic visits and 130 per cent for ER 
APCs. In the fifth year, the TRICARE and Medicare payment levels for 
the 10 APC visit codes would be identical.
    For non-network hospitals, under the TTPAs, the APC payment level 
for the five clinic and ER visit APCs would be set at 140 percent of 
the Medicare APC level in the first year of TRICARE OPPS 
implementation. In the second year, the APC payment levels would be set 
at 125 percent of the Medicare APC level for clinic and ER visits. In 
the third year, the APC visit amounts would be set at 110 percent of 
the Medicare APC level for clinic and ER visits. In the fourth year, 
the TRICARE and Medicare payment levels for the 10 APC visit codes 
would be identical.
    The transitional payment adjustments have been increased from those 
percentage amounts appearing in the proposed rule (73 FR 17271) to 
further buffer the decrease in revenues that hospitals will be 
experiencing during initial implementation of TRICARE OPPS. TTPA 
adjustments will also be extended to non-network providers, although 
they will be lower than for network hospitals to provide incentives for 
network participation. TRICARE will not utilize a stop-loss system such 
as the one used in the implementation of Medicare OPPS as it is not 
administratively feasible to adopt this type of transition under 
TRICARE. As stated in the proposed rule, these TTPAs will 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.
    Based on our discussions with the TRICARE Regional Offices (TROs), 
in regard to the second option to adopt, modify, and/or extend 
temporary adjustments to TRICARE's OPPS payments for TRICARE network 
hospitals deemed essential for military readiness and support during 
contingency operations, it was decided the policy for determining 
network waivers under the CHAMPUS Maximum Allowable Charge (CMAC) 
methodology should be used as a model to determine whether a temporary 
military contingency payment adjustment (TMCPA) under OPPS is 
warranted. This does not mean that network hospitals will be exempt 
from OPPS or that the 115% locality based waiver ceiling applies. Under 
the TMCPAs, this final rule will allow the reimbursement of higher 
payment rates for hospital-based outpatient healthcare services, if it 
is determined necessary to ensure adequate Preferred Provider networks. 
It might be determined that the initial TTPA of 200% for ER visits in a 
particular network hospital is not sufficient to ensure network 
adequacy and as a result, an additional TMCPA of 25 percent, (i.e., 225 
percent of the OPPS rate for ER visits) would be necessary to support 
military contingency operations. The higher rate will be authorized 
only if all reasonable efforts have been exhausted in attempting to 
create an adequate network and that it is cost-effective and 
appropriate to pay the higher rate to ensure an appropriate mix of 
primary care and specialists in the network. For this purpose, such 
evidence may include consideration of the number of providers in the 
locality who provide the affected services, the mix of primary/
specialty providers needed to meet patient access standards, the number 
of TRICARE beneficiaries in the locality, and the availability of 
Military Treatment Facility providers and any other factors the TMA 
Director, or designee determines relevant. If it is determined that the 
availability of an adequate number and mix of qualified healthcare 
providers in a network is not found, the Director TRO (DTRO) shall 
conduct a thorough analysis and forward recommendations with a cost 
estimate for approval to the TMA Director or designee through the TMA 
Contracting Officer (CO) for coordination. Those who can apply for the 
TMCPAs are: The DTRO; providers through the DTRO; Managed Care Support 
Contractors (MCSCs) through the DTRO; and Military Treatment Facilities 
(MTFs) through the DTRO. The TMA Director or designee is the final 
approval authority for TMCPAs. The procedures that are to be followed 
when submitting a TMCPA request will be outlined in the TRICARE 
Reimbursement Manual.
    Comment: One commentor recommended the final rule include a

[[Page 74953]]

definition of the term ``close proximity'' and what constitutes a 
``disproportionate share of military family members'' and ``essential 
network specialty care'' for future reference.
    Response: Since these terms will not be used in determining whether 
TMCPAs will be authorized, there is no need to add a definition for 
``close proximity'' and explain what constitutes a ``disproportionate 
share of military family members'' and ``essential network specialty 
care.''
    Comment: Another commentor expressed concern that certain TRICARE 
dependent hospitals will be negatively impacted to the point that 
ongoing service capability to military personnel and their families 
will be severely limited. This commentor states a reasonable solution 
would be to create criteria for alternative reimbursement methodologies 
that would reflect an institution's dependence upon TRICARE. These 
provisions would include an exemption for network hospitals serving a 
disproportionate number of TRICARE patients and the continuation of 
TRICARE Maximum Allowable Charge rates for network hospitals entitled 
to an exemption.
    Response: Under the governing statutory provisions implementing 
TRICARE's OPPS, TMA cannot exempt hospitals from TRICARE's OPPS on a 
case-by-case basis; however, see above response on the establishment of 
higher rates under TRICARE's OPPS using the TTPAs and TMCPAs.
    Comment: Another commentor requested the requirement of ``military 
readiness or contingency operations'' be clarified or interpreted to 
allow exceptions at any time, to assure the military is prepared to 
perform its mission at any time and not only at times of ongoing 
operations. The commentor also believes the Director should be allowed 
to grant not just a ``temporary deviation'' but also be allowed to 
grant a more permanent exclusion from OPPS, if it is determined that a 
hospital's participation in TRICARE is required to support military 
readiness. The commentor further states that it is a major financial 
commitment for a hospital to participate in TRICARE and if the 
participation is only allowed on a temporary basis, this makes it 
problematic for the hospital to participate. They feel that allowing a 
more permanent exclusion from OPPS would be helpful in allowing a 
hospital to remain a part of the TRICARE network.
    Response: As stated above, the statutory provisions implementing 
TRICARE's OPPS, does not allow TMA to permanently exclude hospitals 
from TRICARE's OPPS; however, there is latitude under these statutory 
provisions for the adoption of temporary transitional payment 
adjustments (TTPAs). These TTPAs will 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. In addition, OPPS will ensure consistency of 
hospital outpatient payments throughout the United States, thus 
reducing the denial and return of claims to providers for coding 
errors. Providers will have access to OCE/Pricer software that will 
facilitate the filing and payment of outpatient claims with their 
TRICARE claims processors. This will reduce overall administrative 
costs for both providers and TRICARE contractors. Also, there are 
additional transitional adjustments, (i.e., TMCPAs) that will ensure 
network adequacy during military contingency operations. A change in 
troop deployment, the mix of primary/specialty providers needed to meet 
patient access standards, and base realignment and/or closures could 
impact whether a military contingency payment adjustment is warranted. 
Therefore, it would not be fiscally responsible to make these 
adjustments permanent.
    Comment: Another commentor suggests that if DoD adopts a fully 
Medicare-based OPPS system for TRICARE, it will have a substantially 
negative effect upon the financial conditions of community hospitals 
closest to military installations that military personnel, retirees and 
their families depend upon for important medical services. The 
commentor further states that if DoD pegs outpatient hospital 
reimbursement rates to insufficient Medicare reimbursement, they 
believe that hospitals in California and elsewhere would consider not 
performing outpatient procedures on TRICARE members, or withdrawing 
from TRICARE contracts due to poor reimbursement. This could, in turn, 
harm access to enrollee outpatient care. This commentor recommends 
that: (1) DoD should, apart from the congressionally altered market 
basket update factor, separately calculate TRICARE OPPS rates based on 
the actual market basket update factor, which they believe more 
accurately reflects hospitals' costs. Doing so would ensure that more 
TRICARE network hospitals would retain their affiliation with the 
program and that hospitals closest to large military installations 
would not be adversely affected; (2) DoD should adopt a 15 percent 
``glide path'' methodology that is similar to its prior rate adjustment 
methodologies enshrined at 32 CFR 199.14. Under this methodology, 
TRICARE-participating hospitals may not have their TRICARE outpatient 
rate reduced by more than 15 percent per year. For example, under this 
proposal, for the first year of the TRICARE transition OPPS period, 
TRICARE-contracting facilities would receive the TRICARE outpatient 
contracted rate, reduced by the lesser of: (a) The amount the contract 
rate exceeds the TRICARE OPPS rate for the same service or procedure; 
or (b) 15 percent off the contract rate. This amount becomes the 
contract rate for each subsequent year's calculation, until the 
difference between the TRICARE outpatient contracted amount and the 
TRICARE OPPS amount have equilibrated.
    Response: In section 707 of NDAA-02, Congress changed the statutory 
authorization (in 10 U.S.C. 1079(j)(2)) that TRICARE payment methods 
for institutional care ``may be'' determined to the extent practicable 
in accordance with Medicare payment rules to a mandate that TRICARE 
payment methods ``shall be'' determined in accordance with Medicare 
payment rules. Based on this statutory mandate, TRICARE is adopting 
Medicare's prospective payment system for reimbursement of hospital 
outpatient services currently in effect for the Medicare program. As 
stated above, to minimize the potential negative impact OPPS may have 
on hospitals (both network and non-network), TRICARE has developed the 
TTPAs and TMCPAs.
    Comment: One commentor requested clarification on whether there 
were other hospital outpatient services that were excluded from the 
TRICARE OPPS other than the eighteen (18) listed in 63 FR Pages 17276 
and 27277.
    Response: There are no other hospital outpatient services that are 
excluded under TRICARE's OPPS other than those listed in the proposed 
rule.
    Comment: One commentor strongly recommended that the Final Rule 
establish an implementation date that is at least 90 days from the date 
of the publication of the Final Rule to allow adequate time for 
education and system changes to ensure a smooth transition to this new 
payment methodology.
    Response: The agency will attempt to provide as much time as 
possible to ensure a smooth transition to this new payment methodology.
    Comment: This same commentor urges TRICARE to release the updated

[[Page 74954]]

TRICARE specific OCE each quarter at the same time the updated Medicare 
OCE is released.
    Response: TRICARE will release its updated OCE each quarter to 
coincide with Medicare's release of its OCE.
    Comment: This same commentor seeks clarification of the statement 
``upon medical review'' for those inpatient procedures that the Agency 
believes can be safely and efficaciously rendered in an outpatient 
setting due to TRICARE's younger, healthier beneficiary population. The 
commenter also seeks clarification on how the medical review process 
will take place, specifically if the medical review process will be 
conducted for an individual beneficiary claim based upon the review 
criteria or on advantages to a methodology that applies criteria to an 
individual beneficiary claim because of the diversity of the population 
which TRICARE serves.
    Response: The current TRICARE exceptions to Medicare's inpatient 
surgical procedure listing was a result of a review of those inpatient 
procedures that the Agency determined could be safely and efficaciously 
rendered in an outpatient setting for TRICARE beneficiaries, based on 
standardized utilization management review criteria used by the TRICARE 
Managed Care Support Contractors' medical review staff. TRICARE's 
determination of whether a procedure is removed from Medicare's 
inpatient only list is not based on medical review of individual 
beneficiary claims but on generally accepted medical standards of 
practice as substantiated by standardized utilization management review 
criteria.
    Comment: This same commentor suggests clarifying the payment rate 
of ``TRICARE standard allowable charge methodology'' for nonpass-
through drugs, biologicals and radiopharmaceuticals with HCPCS codes, 
but without claims data, to be ``the same as the payment methodology 
under Medicare OPPS, i.e., separate payment based upon the payment rate 
for nonpass-through drugs and biologicals, in accordance with the ASP 
methodology.''
    Response: TRICARE is adopting the same payment methodology as the 
Medicare OPPS effective January 1, 2008, in that the updated payment 
rates for drugs and biologicals will be based on average sale prices.
    Comment: One commentor states the statement in the proposed rule 
appears vague on whether the Trauma Activation HCPCS G code will be 
paid in addition to the Critical Care CPT codes reported on the same 
date of service. The commentor is requesting that TRICARE clarify in 
the final rule that HCPCS code G0390 will be paid in addition to CPT 
critical care codes 99291 and 99292 when reported on the same date of 
service.
    Response: TRICARE confirms if trauma activation occurs, HCPCS code 
G0390 will be paid in addition to CPT critical care codes 99291 or 
99292 when reported on the same date of service.
    Comment: One commentor had concerns about the requirement that 
hospitals must use procedure code 58260, which will be assigned to APC 
0202, when billing for vaginal hysterectomies. The commentor states 
that while CPT code 58260 is appropriate for vaginal hysterectomies for 
uterus 250g or less, it would be inappropriate if performed in 
conjunction with other procedures such as with removal of tube(s) and 
or ovarie(s) and other combinations of vaginal hysterectomies because a 
more specific CPT code (58262) describes these services. The commentor 
states that proposing to submit a specific code for all vaginal 
hysterectomies when another CPT code is more appropriate conflicts with 
the standard set forth by the Department of Health and Human Services 
and HIPAA. The commentor recommends that TRICARE instruct providers to 
report the appropriate CPT code representative of the procedure being 
performed from the CPT code range of 58260-58294, rather than to report 
CPT code 58260 for all vaginal hysterectomies.
    Response: TRICARE will instruct providers to report the appropriate 
CPT code for vaginal hysterectomies rather than to report CPT code 
58260 for all vaginal hysterectomies.
    Comment: We received multiple comments expressing concern over the 
differences in Medicare's PHP reimbursement under OPPS and TRICARE's 
proposed PHP reimbursement.
    Response: Upon further review, TRICARE has decided to adopt 
Medicare's PHP reimbursement methodology for hospital-based PHPs. For 
CY 2009, we are adopting CMS' two separate APC payment rates for PHP: 
One for days with three services (APC 0172) and one for days with four 
or more services (APC 0173). In addition, TRICARE will allow services 
of physicians, clinical psychologists, Clinical Nurse Specialists 
(CNS's), Nurse Practitioners (NPs) and Physician Assistants (PAs) to 
bill separately for their professional services delivered in a PHP. The 
only professional services which will be included in the per diem are 
those furnished by Clinical Social Workers (CSWs), Occupational 
Therapists (OTs), and alcohol and addiction counselors.
    Comment: This commentor also states the Medicare PHP reimbursement 
methodology does not have a provision for recognizing the costs for 
proving such specialized partial hospitalization services to children. 
They believe the use of a Medicare methodology, without accounting for 
the additional costs of providing care for children in these programs 
is not reasonable and will further weaken already limited access to 
community services for TRICARE beneficiaries.
    Response: We appreciate the comment. TMA currently is reviewing all 
aspects of its PHPs and will take this under consideration. In the 
interim, the Medicare PHP reimbursement methodology will be applied to 
all hospital-based PHP services.
    Comment: One commentor requested a full financial impact analysis 
be done to determine the impact a move to Medicare reimbursement rates 
will have on the ability of certified providers to stay in the TRICARE 
program and provide adequate access to PHP services for TRICARE 
beneficiaries.
    Response: With our adoption of the Medicare full day rate for 
partial hospitalization and allowing payment of professional services 
outside the per diem rate, except for CSWs, OTs, and alcohol and 
addiction counselors, we feel the overall PHP payment (i.e., the 
TRICARE OPPS per diem plus payment for those professional services 
identified above) is comparable to the per diem rates currently in 
effect under TRICARE policy. In addition, the TMCPAs would also apply 
to ensure adequate access to PHP services.
    Comment: Another commentor requested a thorough, detailed impact 
analysis be made available so that providers could better assess and 
anticipate the economic ramifications of this major change in TRICARE 
policy. They state that while the net reported impact of this rule does 
not exceed the $100 million threshold that would require ``certain 
regulatory assessments and procedures (73 FR 17287),'' the gross impact 
is more than twice the $100 million threshold and it is obvious from 
the reconciliation provided that this rule has some component parts 
with large impacts. The commentor states it would be helpful and 
informative if the Agency could share information that would illuminate 
the redistributive and/or economic impact of this proposed rule.
    Response: Based on revised claims data (i.e., charge and payment 
data from January 2007-June 2007) it has been estimated that this 
rulemaking is

[[Page 74955]]

``economically significant'' as measured by the $100 million threshold, 
and hence also a major rule under the Congressional Review Act. 
Accordingly, a Regulatory Impact Analysis has been incorporated into 
the final rule presenting the costs and benefits associated with 
implementation of the TRICARE OPPS. Refer to the Regulatory Impact 
Analysis below for a detailed overview of the economic effects of this 
final rulemaking.
    Comment: One commentor stated the Medicare PHP rate is established 
based on inclusion of Community Mental Health Centers. TRICARE does not 
permit CMHCs to be certified providers. The commentor goes on to state 
that because of this, the Medicare rate calculation is not a good proxy 
for TRICARE partial hospitalization programs because TRICARE does not 
include CMHCs as providers, but Medicare median costs rely very heavily 
on the cost structure of CMHCs.
    Response: We agree with the commentor that historically the median 
per diem cost for CMHCs greatly exceeded the median per diem cost for 
hospital-based PHPs and fluctuated significantly from year to year 
while the median per diem cost for hospital-based PHPs remained 
relatively constant. However, CMS noted that for CY 2006 the hospital-
based PHPs per diem median cost was $177 and for CMHCs, the per diem 
median cost was $172. CMS reports it has observed a stabilizing trend 
in CMHCs data and similar per diem costs between hospital-based and 
CMHC PHPs.
    Comment: One commentor stated that TRICARE requires compliance with 
a set of standards (including potential on-site surveys) intended to 
assure the Department of Defense that the quality of care of certified 
programs exceeds minimal standards. Medicare does not have a like set 
of standards. The commentor states that additional resources are 
required to assure compliance with these standards both in the initial 
certification process and in the ongoing monitoring of compliance. 
These additional requirements should be taken into consideration in any 
rate-setting methodology. The commentor states compliance with these 
standards imposes additional duties on certified providers.
    Response: The Agency will take these comments into consideration as 
we continue to monitor the applicability of OPPS reimbursement rates to 
PHP programs that are subject to TRICARE's more stringent certification 
standards.
    Comment: One commentor states that in the event a TRICARE network 
hospital qualifies for deviations and/or temporary adjustment to OPPS 
payments for a period of two (2) years or greater (i.e., a ``TRICARE 
Adjusted Network Hospital''), then in order to support such TRICARE 
Adjusted Network Hospital's effort to recruit and maintain an adequate 
physician active medical staff, the Director, TMA or a designee can 
provide reimbursement to TRICARE participating active medical staff 
physicians of a TRICARE Adjusted Network Hospital reimbursement equal 
to the prevailing TRICARE maximum Allowable Charge schedule (TMAC) plus 
an additional fifteen percent (15%) of such TMAC.
    Response: The professional reimbursement is subject to its own 
waiver process as outlined in 32 CFR Part 199.14(j)(1)(iv)(D) and (E). 
The two waivers recognized under the TRICARE Program for increased 
professional provider payments are as follows:
     Locality Waivers: If it is determined that access to 
specific health care services is severely impaired, higher payment 
rates could be applied to all similar services performed in a locality. 
Payment rates could be established through the addition of a percentage 
factor to an otherwise applicable payment amount, or by calculating a 
prevailing charge, or by using another government payment rate.
     Network Waiver: If it is determined that higher rates are 
necessary to ensure availability of an adequate number and mix of 
qualified network providers then the amount of reimbursement would be 
limited to the lesser of (a) an amount equal to the local fee for 
service charge; or (b) up to 115 percent of the CMAC.
    Comment: The same commentor provided recommendations relating to 
OPPS coding guidelines and updates.
    Response: Providers will have access to commercial OCE/Pricer 
software that will facilitate the filing and payment of outpatient 
claims with their TRICARE claims processors. In addition, the following 
data elements are available on TMA's OPPS Web site at http://www.tricare.mil/opps/ and are updated quarterly and/or annually to 
coincide with the quarterly OPPS updates: (1) Ambulatory Payment 
Classifications (APCs) with Status Indicators (SIs) and Payment Rates; 
(2) Payment Status by HCPCS Code; (3) Payment Status Indicator 
Descriptions; (4) Statewide Cost-to-Charge Ratios; and (5) OPPS 
Provider File.
    The following data elements are also available under TRICARE's 
Rates and Reimbursement Web site at http://tricare.mil/tma/Rates.aspx 
and are updated quarterly to coincide with Medicare's quarterly OPPS 
updates: (1) Age and Gender Restrictions Lists; (2) Inpatient 
Procedures List; (3) No Government Pay Procedure Code List; and (4) 
Questionable Covered Services List.
    Comment: The same commentor provided recommendations relating to 
authorization of healthcare services.
    Response: We appreciate the comments; however, the healthcare 
authorization process is outside the scope of the TRICARE OPPS 
implementing guidelines.
    Comment: This same commentor expressed concern about TRICARE's 
departure from the requirement that ``TRICARE payment methods for 
institutional care be determined, to the extent practicable, in 
accordance with the same reimbursement rules used by Medicare,'' by 
replacing Medicare specific coding and claims payment guidelines with 
TRICARE specific coding and claims payment guidelines. The commentor 
further states that TRICARE contractors be required to follow Medicare 
specific coding and claims payment guidelines as required under the 
Balanced Budget Act of 1997 and as adopted by Medicare's prospective 
payment system for reimbursement of hospital inpatient and outpatient 
services. Only in the event that Medicare does not have guidelines 
shall guidelines specific to TRICARE be developed and utilized.
    Response: While TRICARE intends to remain as true as possible to 
Medicare's coding guidelines, 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 and the unique characteristics 
of the TRICARE beneficiary population.

V. TRICARE OPPS Reimbursement Methodology

    [rtarr8] 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

[[Page 74956]]

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 a new TRICARE specific APC for maternity observation stays 
(T0002) 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 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 $83.21 for CY 2008, 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 1.3226 
for budget neutrality, based on a comparison of aggregate payments 
using CY 2007 relative weights to aggregate payments using the CY 2008 
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 2008 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 3.3 percent for CY 2008, along with 
the required wage index budget neutrality adjustment of approximately 
1.0019, the adjustment of 0.12 percent for the difference in the pass-
through set-aside resulted in a final standard conversion factor for CY 
2008 of $63.694.
    The national unadjusted APC payment rates that were calculated by 
multiplying the CY 2008 scaled weight for each APC by the final CY 2008 
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 TRICARE OPPS payment was 
assigned) are listed on TMA's OPPS Web site at http://www.tricare.mil/opps.
    [rtarr8] 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 TRICARE's 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 2008 payment status indicators, along with a 
description of the particular services each indicator identifies.

   Table 8--CY 2008 Payment Status Indicators for TRICARE's Outpatient
                              Hospital OPPS
------------------------------------------------------------------------
      Indicator              Description           OPPS payment status
------------------------------------------------------------------------
A...................  Services paid under some  Not paid under OPPS.
                       payment method other      Paid by contractors
                       than OPPS (e.g.,          under a fee schedule or
                       payment for non-          payment system other
                       implantable prosthetic    than OPPS.
                       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.
                       tissue, certain CRNA      Paid on allowable
                       services, and Hepatitis   charge basis.
                       B vaccines.
G...................  Pass-through drugs and    Paid separate APCs under
                       biologicals.              OPPS.

[[Page 74957]]

 
H...................  Pass-through device       Separate cost-based pass-
                       categories allowed on a   through payment; not
                       cost basis.               subject to cost-share/
                                                 co-payment.
K...................  Non-pass-through drugs    Paid separate APCs under
                       and biologicals,          OPPS.
                       therapeutic
                       radiopharmaceuticals,
                       brachytherapy sources,
                       blood and blood
                       products.
N...................  Packaged incidental       Packaged into the
                       items and services.       primary procedure APC
                                                 payment amount to which
                                                 the incidental item or
                                                 service is normally
                                                 associated.
P...................  Partial hospitalization.  Per diem APC payments
                                                 for partial
                                                 hospitalization
                                                 programs.
Q...................  Services either           Paid under OPPS;
                       separately payable or     services either
                       packaged.                 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;
                       allowed under the OPPS    separate APC payment.
                       for which multiple
                       procedure reduction
                       does not apply.
T...................  Surgical services         Paid under OPPS;
                       allowed under OPPS with   separate APC payment.
                       multiple procedure
                       payment reduction.
V...................  Medical visits            Paid under OPPS;
                       (including clinic or      separate APC payment.
                       emergency 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         Not paid under OPPS.
                       allowed for CPT/HCPCS
                       code submitted.
------------------------------------------------------------------------

    [rtarr8] 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 TRICARE 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 2008 
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 TRICARE 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 TRICARE 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.
    [rtarr8] Additional APC Payment Adjustments. TRICARE 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

[[Page 74958]]

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 TRICARE's 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 2008, 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 $1,575 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 $4,575 ($3,000 + $1,575). 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).
    [rtarr8] TRICARE's 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.

VI. TRICARE's OPPS Transitional Adjustments

    Temporary transitional payment adjustments (TTPAs) will be in place 
for all hospitals, both network and non-network in order to buffer the 
initial decline in payments upon implementation of TRICARE's OPPS. This 
is consistent with the stop loss transitional period over which CMS 
fully implemented its OPPS rate structure, providing hospitals with 
sufficient time to adjust and budget for potential revenue reductions. 
It will also provide additional incentives for TRICARE network 
participation.
    For network hospitals, the temporary transitional payment 
adjustments (TTPAs) will cover a four-year period. The four-year 
transition will set higher payment percentages for the ten Ambulatory 
Payment Classification (APC) codes 604-609 and 613-616, with reductions 
in each of the transition years. For non-network hospitals, the 
adjustments will cover a three year period, with reductions in each of 
the transition years. For network hospitals, under the TTPAs, the APC 
payment level for the five clinic visit APCs would be set at 175 
percent of the Medicare APC level, while the five ER visit APCs would 
be increased by 200 percent in the first year of OPPS implementation. 
In the second year, the APC payment levels would be set at 150 percent 
of the Medicare APC level for clinic visits and 175 percent for ER 
APCs. In the third year, the APC visit amounts would be set at 130 
percent of the Medicare APC level for clinic visits and 150 percent for 
ER APCs. In the fourth year, the APC visit amounts would be set at 115 
percent of the Medicare APC level for clinic visits and 130 percent for 
ER APCs. In the fifth year, the TRICARE and Medicare payment levels for 
the 10 APC visit codes would be identical.
    For non-network hospitals, under the TTPAs, the APC payment level 
for the five clinic and ER visit APCs would be set at 140 percent of 
the Medicare APC level in the first year of OPPS implementation. In the 
second year, the APC payment levels would be set at 125 percent of the 
Medicare APC level for clinic and ER visits. In the third year, the APC 
visit amounts would be set at 110 percent of the Medicare APC level for 
clinic and ER visits. 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 will 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.
    An additional temporary military contingency payment adjustment 
(TMCPA) will also be available at the discretion of 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. If at any time 
following implementation it is determined by the TMA Director, or 
designee, that it is impracticable to support military readiness or 
contingency operations by making TRICARE's 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 locality-based reimbursement rate 
waiver process under the CHAMPUS Maximum Allowable Charge (CMAC) 
methodology will be used as a model for considering TMCPA. This will 
allow for reimbursement of higher payment rates for healthcare services 
that would otherwise be allowable, if it is determined necessary to 
ensure adequate provider networks essential for military readiness and 
contingency operations. For example, it might be determined that the 
initial TTPA of 200 percent for ER visits in a particular hospital is 
not sufficient to ensure network adequacy and as a result, an 
additional TMCPA of 25 percent, (i.e., 225 percent of the OPPS rate for 
ER visits) would be necessary to support military contingency 
operations. The higher rate will be authorized only if all reasonable 
efforts have been exhausted in attempting to create an adequate 
network, and it is cost-effective and

[[Page 74959]]

appropriate to pay the higher rate to ensure an appropriate mix of 
primary care and specialists in the network. For this purpose, such 
evidence may include consideration of the number of providers in the 
locality who provide the affected services, the mix of primary/
specialty providers needed to meet patient access standards, the number 
of TRICARE beneficiaries in the locality, and the availability of 
Military Treatment Facility providers and any other factors the TMA 
Director, or designee determines relevant. If it is determined that the 
availability of an adequate number and mix of qualified healthcare 
providers in a network is not found, the Director TRO (DTRO) shall 
conduct a thorough analysis and forward recommendations with a cost 
estimate for approval to the TMA Director, or designee, through the TMA 
Contracting Officer (CO) for coordination. Those who can apply for the 
TMCPAs are: The DTRO; providers through the DTRO; Managed Care Support 
Contractors (MCSCs) through the DTRO; and Military Treatment Facilities 
(MTFs) through the DTRO. The TMA Director or designee is the final 
approval authority for TMCPAs. TMCPAs will generally be granted for up 
to 3 years, after which time hospitals may reapply for subsequent 3-
year periods based on current utilization and access data. It is 
anticipated that the duration between publication of the final rule and 
TRICARE OPPS implementation will provide sufficient time for hospital's 
to apply and receive a final approval determination by the Director, 
TMA or designee. The procedures that are to be followed when submitting 
a TMCPA request will be outlined in the TRICARE Reimbursement Manual.
    TMCPAs may also be extended to non-network hospitals on a case-by-
case basis for specific procedures where it is determined that the 
procedures cannot be obtained timely enough from a network hospital. 
For such case-by-case extensions, ``Temporary'' might be less than 
three years at the discretion of the TMA Director, or designee.

VII. Regulatory Impact Analysis

A. Overall Impact

    The Department of Defense has examined the impacts of this final 
rule as required by Executive Order 12866 (September 1993, Regulatory 
Planning and Review), the Regulatory Flexibility Act (RFA) (September 
19, 1980, Pub. L. 96-354), the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), and the Congressional Review Act (5 U.S.C. 804(2)).
1. Executive Order 12866
    Executive Order 12866 (as amended by Executive Order 13258) directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any 1 year).
    We estimate that the effects of the TRICARE OPPS provisions that 
would be implemented by this rule would result in hospital revenue 
reductions exceeding $100 million in any 1 year. We estimate the total 
reduction (from the proposed changes in this rule) in hospital revenue 
under the OPPS for its first year of implementation (assumed for 
purposes of this RIA to be April 1, 2009-March 31, 2010) from revenue 
in the same period without the proposed OPPS changes to be 
approximately $460 million.
    We estimate that this rulemaking is ``economically significant'' as 
measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
Regulatory Impact Analysis that, to the best of our ability, presents 
the costs and benefits of the rulemaking.
2. Congressional Review Act, 5 U.S.C. 801
    Under the Congressional Review Act, a major rule may not take 
effect until at least 60 days after submission to Congress of a report 
regarding the rule. A major rule is one that would have an annual 
effect on the economy of $100 million or more or have certain other 
impacts. This final rule is a major rule under the Congressional Review 
Act. As noted above, the estimated total reduction in hospital revenue 
under the OPPS for its first year of implementation from revenue in the 
same period without the proposed OPPS changes is approximately $460 
million.
3. Regulatory Flexibility Act (RFA)
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals, other providers, ASCs, and 
other suppliers are considered to be small entities, either by being 
nonprofit organizations or by meeting the Small Business Administration 
(SBA) definition of a small business (having revenues of $31.5 million 
or less in any 1 year). For purposes of the RFA, we have determined 
that all hospitals would be considered small entities according to the 
SBA size standards. Individuals and States are not included in the 
definition of a small entity. Therefore, the Secretary has determined 
that this final rule would have a significant impact on a substantial 
number of small entities. We generally prepare a final regulatory 
flexibility analysis that is consistent with the RFA (5 U.S.C. section 
604), unless we certify that the final rule would not have a 
significant impact on a substantial number of small entities. The 
Regulatory Impact Analysis as well as the contents contained in the 
preamble is meant to serve as the Final Regulatory Flexibility 
Analysis.
    Public comments were received during the proposed rule (73 FR 
17271) comment period which resulted in substantive changes in 
hospital-based PHP reimbursement (i.e., reimbursement of a single per 
diem based on a minimum of three service units and payment of PHP 
professional services outside the per diem) and provided clarification 
regarding the Agency's revised transitional plan. Under this revised 
plan, temporary transitional payment adjustments will now apply to both 
network and non-network hospitals even though the transitional 
percentage adjustments for non-network hospitals will be less than 
those for network hospitals thereby continuing to ensure incentives for 
network participation. The duration of the temporary transitional 
payment adjustments (TTPAs) has also been extended for an additional 
year (four years for network hospitals and 3 years for non-network 
hospitals). The TTPA process will be administratively practicable while 
at the same time ensuring the stop-loss protection to allow hospitals 
the necessary time to adjust and budget for potential revenue 
reductions. Clarification was also provided regarding temporary 
contingency payment adjustments (TMPCAs) available under the TRICARE 
OPPS which will ensure network adequacy deemed essential for military 
readiness and support during contingency operations. Since all 
hospitals were considered small entities as part of the Regulatory 
Impact Analysis the above revisions and clarifications will have a 
significant

[[Page 74960]]

impact on a substantial number of small entities.
4. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $130 million. This final rule will not 
mandate any requirements for State, local, or tribal governments.
5. 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. We 
don't anticipate any increased costs to hospitals because of paperwork, 
billing or software requirements since we are adopting Medicare's 
billing/coding requirements; i.e., hospitals will be coding and filing 
claims in the same manner as they currently are with Medicare.
6. Executive Order 13132, ``Federalism''
    This 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 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.

B. Hospitals Included In and Excluded From TRICARE's OPPS

    The outpatient prospective payment system encompasses nearly all 
hospitals that participate in the TRICARE program. However, Maryland 
hospitals that are paid under a cost containment waiver are excluded 
from the OPPS. In addition, Critical Access Hospitals (CAHs), 
Children's hospitals, Inpatient Rehabilitation Facilities (IRFs), Long 
Term Care hospitals (LTCHs), and Cancer hospitals are excluded from the 
OPPS.

C. Analysis of the Impact of Policy Changes on Payment Under TRICARE's 
OPPS

1. Alternatives Considered
    Alternatives that we considered, the proposed changes that we will 
make, and the reasons that we have chosen each option are discussed 
below.
(a) Alternatives Considered for Addressing Reduction in Payments for ER 
Visits
    Analysis of the effects of the proposed OPPS policies indicate that 
by type of service, the greatest reductions in hospital payments would 
occur for the facility charges associated with ER visits and other 
visits. Table 1 provides our projection of the effect of OPPS on 
hospital payments by type of service without any transition payments. 
It shows that of the projected $598 million reduction in hospital 
payments (before transition payments), over one-half of that reduction 
would come from reduced payments for the facility charges associated 
with ER visits and other hospital clinic visits. This reduction far 
exceeds the reductions for all other services. In reviewing the other 
types of services affected by OPPS, with four exceptions there are 
either increases in payments under OPPS (surgeries) or very small 
decreases in aggregate payments (defined as less than 1 percent of 
projected current policy allowed amounts--equal to $18 million--which 
is the case for J-codes and other HCPCS codes). The four exceptions 
are: (1) Radiology/pathology services, for which the OPPS payments are 
projected to equal over 80 percent of current policy allowed amounts; 
(2) other medical services (non-visits, including cardiology tests) for 
which the OPPS payments are projected to equal two-thirds of current 
policy allowed amounts; (3) supplies, which under OPPS will be bundled 
into other APCs or be coded for payment; and (4) ``facility dump 
codes'', which are services that TRICARE has reimbursed under TRICARE 
code 99088 (this code is used by claims processors to represent 
services that are either billed without a CPT code or have revenue 
codes that the claims processor has coded as 99088). We project that 87 
percent of current policy allowed amounts for these facility ``dump 
codes'' will be reimbursed under OPPS.
    Because the majority of the impact of OPPS on hospital payments 
will occur for facility charges for visits (ER and hospital clinic 
visits), we examined options to phase in the impact of OPPS for these 
services. Primary care and emergency room visits to hospital outpatient 
departments are categorized into 10 main codes (APC codes 604-609 and 
613-616). For most hospitals, the largest reductions under OPPS occur 
for these 10 codes, especially the ER visit codes. We considered a 
number of alternatives to address this impact as part of the transition 
to the Medicare APC level. One alternative was to set the TRICARE APC 
levels at a higher level than the Medicare APCs during a three-year 
transition period (in the fourth year all TRICARE APC payments would be 
at the Medicare APC level). Because of TRICARE's interest in 
establishing and preserving a network of hospitals, this option would 
apply to only hospitals in the TRICARE network. Under this option, we 
set the first-year TRICARE APC levels at 150 percent of the Medicare 
APC levels for the ER codes (APCs 609, 613, 614, 615, and 616) and at 
130 percent of the Medicare APC levels for the hospital clinic visit 
codes (APCs 604-608). These percentages would apply to the first year 
of implementation and lower percentages would apply to the second and 
third years of implementation. By year four, the TRICARE APC levels 
would be equal to the Medicare APC levels. Even though this option 
increased the level of hospital payments, we did not choose this option 
because it would still result in a reduction in hospital payments for 
ER and hospital clinic visits of over 50 percent.
    A second option we considered was identical to the first with two 
exceptions. First, it would increase the year-one level of the TRICARE 
APC payments for the 10 ER visits and clinic visits codes identified 
above (APCs 604-609 and 613-616) to 200 percent of the Medicare APC 
values for the five ER visit codes and to 175 percent of the Medicare 
APC values for the five hospital clinic visit codes. A second 
difference is that the transition would be lengthened from three years 
to four years (i.e., the Medicare APC levels would not be reached for 
these 10 codes until the start of the fifth year of implementation). 
Although this option would result in higher hospital payments than the 
first option, we did not choose this option because it would still 
represent over a 40 percent reduction in ER and clinic visit payments 
in the first year of implementation.
    A third option we considered and the one we are proposing in this 
OPPS rule is identical to the second option except that it would extend 
transition payments for the 10 ER and hospital clinic visit codes to 
non-network hospitals. Thus, all hospitals would receive higher 
payments for the 10 visit

[[Page 74961]]

codes. As shown in Table 2, this option would set the TRICARE APC 
levels in the first year of implementation at 140 percent of the 
Medicare APC level for non-network hospitals for all 10 codes. Even 
though the transition payments are lower for non-network hospitals than 
network hospitals, this option provides increased payments for all 
hospitals with ER and/or hospital clinic visits. We selected this 
option because we found that it reduced the overall impact of OPPS to 
about 25 percent of current-policy allowed amounts, because it led to a 
reduction in hospital payments for ER and clinic visit in the first 
year of less than 40 percent, and because it would relieve the impact 
on all hospitals with ER and/or hospital clinic visits. We refer to 
these payments as temporary transitional payment adjustments (TTPAs). 
The impact is shown in Table 3.
(b) Alternatives Considered for Addressing Hospitals With a High 
Concentration of TRICARE Patients
    We were concerned there might be access problems at some hospitals 
with a high concentration of TRICARE patients if their HOPD payments 
were decreased significantly. In particular, we were concerned that 
some hospitals might leave the TRICARE network if HOPD payments were 
reduced too quickly. Under this option, network hospitals which rely on 
TRICARE for 20 percent or more of their HOPD revenues would be paid APC 
amounts that are above the Medicare APC levels. We focussed on network 
hospitals because many of the hospitals with a high level of TRICARE 
patients are network hospitals. Under this option, each network 
hospital would provide documentation to TRICARE that they were reliant 
on TRICARE for 20 percent or more of their HOPD revenues and the 
TRICARE fiscal intermediaries would then increase their APC payment by 
a percentage amount (we assumed by 7 percent).
    This option would potentially affect the roughly 1,700 TRICARE 
network hospitals. We estimate that about one-third of the largest 200 
TRICARE network hospitals would meet the criteria that the TRICARE 
allowed amounts under current policy be greater than or equal to 20 
percent or more of their total HOPD revenues. If OPPS payments were 
increased by 7 percent for these hospitals, it would increase TRICARE 
payments by about $20 million per year. There would also be 
administrative costs associated with verifying that hospitals relied on 
TRICARE for more than 20 percent of their revenue. We did not choose 
this option because we did not think it was sufficiently targeted to 
access problems. In addition, many of these TRICARE-reliant hospitals 
may be benefited significantly by the increase in ER payments under the 
TTPAs.
    A second option we considered and the one we are proposing in this 
OPPS rule is to provide three-year transitional payments adjustments 
for TRICARE network hospitals if they are deemed essential for military 
readiness and support during contingency operations. Under this option, 
temporary military contingency payment adjustments (TMCPAs) would be 
granted if TRICARE determines that it is necessary to ensure adequate 
Preferred Provider networks. It might be determined that the initial 
TTPA of 200 percent for ER visits in a particular hospital is not 
sufficient to ensure network adequacy and as a result, an additional 
TMCPA of 25 percent, (i.e., 225 percent of the OPPS rate for ER visits) 
would be necessary to support military contingency operations. The 
higher rate will be authorized only if all reasonable efforts have been 
exhausted in attempting to create an adequate network and TRICARE 
determines that it is cost-effective and appropriate to pay the higher 
rate to ensure an appropriate mix of primary care and specialists in 
the network. For this purpose, such evidence many include consideration 
of the number of providers in the locality who provide the affected 
services, the mix of primary/specialty providers needed to meet patient 
access standards, the number of TRICARE beneficiaries in the locality, 
and the availability of Military Treatment Facility providers and any 
other factors the TMA Director, or designee determines relevant.
(c) Alternatives Considered for Addressing All Services
    We also considered options for increasing all APC payments above 
the Medicare APC levels. Under this option, TMA would have a four-year 
phase-in of OPPS. In the first year, hospitals would have their HOPD 
payments based on 25 percent of the OPPS amount and 75 percent of the 
amount that they would have been reimbursed under current policy. In 
the second, third, and fourth years, the percentage paid according to 
OPPS would increase to 50 percent, 75 percent, and 100 percent, 
respectively.
    We did not select this option for two reasons. First, we think that 
for many services, this option would provide little benefit to hospital 
providers. For example, for surgeries, which would be paid more under 
OPPS than under current policy, this option would be administratively 
complex and not provide relief to hospitals (in fact, it would lower 
their payments). In addition, this option would be administratively 
cumbersome and costly, because it would require the FIs to process each 
claim twice. We think it would increase administrative claims 
processing costs by over $15 million per year.
2. Methodology
    We analyzed the impact of OPPS on hospital outpatient payments. Our 
analysis compares the payment impact of OPPS compared to current law. 
Current law reflects pre-OPPS payment methodologies in effect in 
October 2008 and assumed to continue prior to April 1, 2009 (the 
assumed date of implementation of OPPS for purposes of this RIA).
    The data used in developing the quantitative analyses presented 
below are taken from charge and payment data from January 2007-June 
2007 and the current TRICARE hospital provider file (prepared in 
September 2008). Our analysis has several qualifications. First, we 
draw upon various sources for the data used to categorize hospitals in 
Table 4, below. In some cases, there is a degree of variation in the 
data from the different sources. We have attempted to construct these 
variables with the best available source overall having information 
from TMA's provider file, as well as Medicare's POS and PSF provider 
files. For individual hospitals, however, some miscategorizations are 
possible. In addition, we were unable to match some hospital claims 
data to the provider file.
    Using charge data from 2007, we simulated payments using the pre-
OPPS and OPPS payment methodologies. Both pre-OPPS and OPPS payment 
estimates include operating and capital costs. The excluded Maryland 
hospitals and the other excluded hospital types (CAHs, IRFs, LTCHs, and 
Cancer hospitals) were not included in the simulations.
    We also trimmed extremely low charges per unit (under $10) from the 
impact analysis because we believe the data to be unreliable. Inclusion 
of claims with billed and allowed charges under $10 would not allow us 
to assess the impacts among the various classes of hospitals 
accurately, as they likely have errors in dollar amounts or units.
    After we removed the excluded Maryland hospitals, the claims with 
low payments, and hospitals for which we could not assign payment and 
hospital classification variables, we used the remaining hospitals as 
the basis for our analysis.

[[Page 74962]]

3. Limitations of Our Analysis
    The distributional impacts presented here are the projected effects 
of the proposed policy changes on various hospital groups. We present 
results only for hospitals whose claims were used for modeling the 
impacts shown in Table 4 below. We do not show proposed hospital-
specific impacts for hospitals whose claims we were unable to use or 
hospital claims that could not be matched to the provider file. As 
discussed in this rule, LTCHs, IRFs, CAHs, Children's hospitals, Cancer 
hospitals and hospitals in Maryland are exempt from this rule and are 
excluded from Table 4.
    We estimate the effects of the proposed policy changes by 
estimating the effects on payments per service, while holding all other 
payment policies constant. We use the best data available but do not 
attempt to predict behavioral responses to our proposed policy changes, 
with one exception: We assumed that 25 percent of supply services would 
not be bundled into other APC payments and that hospitals would likely 
recode these supplies into CPT codes that would be reimbursed 
separately. Although we make projections of the change in payments per 
service (to reflect inflation in billed charges and APC amounts) we do 
not make adjustments for future changes in variables such as service 
volume, service-mix, or number of encounters.
    One behavioral change that we did not model is the change in 
hospital discounts. We know that many network hospitals currently 
provide discounts for both inpatient and outpatient services. For this 
RIA, we assumed that all the outpatient discounts would be eliminated. 
We also know that many of the inpatient discounts will also be 
eliminated, although we did not include that impact in the RIA. Thus, 
the RIA overstates the impact on hospital payments, especially for 
these network hospitals that will reduce or eliminate their inpatient 
discounts in order to reduce the impact of the OPPS change on their 
revenues.
    A second impact that is not included in this RIA is the impact of 
the TMCPA payments. We did not attempt to estimate which hospitals 
would receive these payments or the level of the payments. Thus, the 
RIA overstates the impact on hospital payments, particularly for 
hospitals that would receive TMCPA payments.
4. Effects on Hospitals
    Table 4, Impact of TRICARE Hospital Outpatient Prospective Payment 
System (OPPS), below, demonstrates the results of our analysis. The 
table categorizes hospitals by various geographic and special payment 
consideration groups to illustrate the varying impacts on different 
types of hospitals. The first column represents the number of hospitals 
in each category. The second column shows the impact of the OPPS 
excluding the transition payments. It shows the percentage of the 
projected current policy allowed amounts for HOPD facility charges that 
would be paid under OPPS without transition payments. The third column 
shows the impact of the OPPS including the transition payments.
    The first row of Table 4 shows the overall impact on the 3,754 
hospitals included in the analysis. We included as much data as 
possible to the extent that we were able to capture all the provider 
information necessary to determine payment. Our estimates include the 
same set of services for both pre-OPPS (current policy) and OPPS 
payments so that we could determine the impact of the OPPS as 
accurately as possible. Because payment under OPPS can only be 
determined if bills are accurately coded, the data upon which the 
impacts were developed do not reflect all hospital outpatient services 
from January 2007 to June 2007, but only those that were coded using 
valid HCPCS codes.
    The next three rows of the table contain hospitals categorized 
according to their geographic location (urban and rural). We include 
2,469 hospitals located in urban areas (MSAs) in our analysis. In 
addition, we include 1,285 hospitals located in rural areas in our 
analysis. The next two groupings are by bed-size categories, shown 
separately for urban and rural hospitals.
    We then show the distribution by the TRICARE-network status of 
hospitals, as of the date of the service (January-June 2007). We then 
show the distribution of urban and rural hospitals by regional census 
divisions. The final category groups hospitals according to whether or 
not they have residency programs (teaching hospitals that receive an 
indirect medical education (IME) adjustment).
    Column 2 of Table 4 compares our estimate of OPPS payments without 
application of the transition payments, but incorporating policy 
changes, to our estimate of payments under the current system. It shows 
the percentage of allowed amounts for HOPD services paid under OPPS as 
a percentage of the allowed amounts for HOPD services paid under 
current policy. The impact is shown for the period from April 1, 2009-
March 31, 2010.
    Column 3 presents the percentage of allowed amounts paid under OPPS 
after application of the transition payments to our estimate of allowed 
amounts under the pre-OPPS system (current policy). The differences 
between the pre-OPPS and the OPPS payment reflect the combined impact 
of the transition payment adjustments and distributional differences 
attributable to variation in charge structures among hospitals. It also 
presents our assumption about the growth in payments prior to OPPS 
(billed charges for services subject to the OPPS are assumed to 
increase by 7 percent per year) and in APC payments (assumed to 
increase by 3.3 percent per year).
    We estimate that in the April 2009-March 2010 period, payments to 
hospitals for their HOPD facility charges will decrease by 25 percent 
under the OPPS compared to the pre-OPPS payments. This includes the 
impact of the transition payments. The values in Table 4 differ 
slightly from those in Table 3 because not all hospital payments are 
included in Table 4 due to the issues discussed above.
    For all groups of hospitals, payments under the OPPS without the 
transition payments are below current policy payments for HOPD facility 
charges. For all of these hospital groups, the transition payments 
mitigate this impact. The following discussion highlights some of the 
changes in payments among hospital classifications.
    Payment to urban and rural hospitals would decrease substantially 
without the transition payments (24 percent for rural and 35 percent 
for urban hospitals). These hospitals experience a decline in payments 
even with the transition payments (11 percent and 24 percent for rural 
and urban hospitals, respectively).
    Teaching hospitals, whose payments would decrease by 33 percent 
without the transition payments, have much of these losses offset by 
the transition payments.
    The transition payments have a major impact on TRICARE networks 
hospitals. It increases the percentage of current policy allowed 
amounts paid for HOPD facility charges from 67 percent without the 
transition payments to 80 percent with the transition payments. The 
transition payments also increase the percentage of current policy 
allowed amounts paid under OPPS to small and rural hospitals. Under 
OPPS with the transition payments sole community hospitals will receive 
over 90 percent of the current policy amounts. Small rural hospitals 
will also receive over 90 percent of current policy amounts.

[[Page 74963]]

    If the effect of the transition payments were removed, differences 
between pre-OPPS payments and OPPS payments among hospitals would still 
exist. These distributional differences are the result of many factors. 
First, charge structure variations result in differences between pre-
OPPS payments and OPPS payments. Hospitals whose charges are low 
relative to payment would gain under the OPPS even without the 
transition payments.

      Table 1--Estimated Impact of TRICARE OPPS on Hospitals During the April 1, 2009-March 31, 2010 Period
                                (Assuming no transition payments (In $ millions))
----------------------------------------------------------------------------------------------------------------
                                                       (1)             (2)             (3)             (4)
Category of hospital outpatient service               Estimated    OPPS allowed    OPPS allowed    Reduction in
                                                        allowed    amounts as a         amounts  allowed amounts
                                                  amounts under      percent of                              (1)-(3)
                                                 current policy  current policy
                                                                        allowed
                                                                        amounts
----------------------------------------------------------------------------------------------------------------
Surgeries......................................            $406            102%            $413             ($7)
Radiology/Pathology............................             298             82%             245              53
Visits (ER and Other)..........................             516             35%             180             336
Other Medical (non-visits).....................             192             66%             127              65
J-codes........................................              34             81%              27               7
Other HCPCS codes..............................              20             43%               8              12
Supplies.......................................             146             25%              37             109
Facility ``Dump Codes''........................             177             87%             154              23
                                                ----------------------------------------------------------------
    Total......................................           1,789             67%           1,191             598
----------------------------------------------------------------------------------------------------------------
Note: (1) This table does not include any transition payments to hospitals.
(2) This table does not include the impact of reduced hospital discounts for inpatient services.
(3) 75 percent of supplies are assumed to be bundled into other APC payments. We assume that providers will
  recode the other 25 percent of supply costs (such as J-codes, A-codes, etc.) and will be paid.
(4) Excluded hospitals such as Maryland hospitals, Children's, LTCH, IRFs, and CAHs are excluded from this
  table. Services not affected by OPPS (like clinical laboratory and rehab therapy) are not included.
(5) Facility ``dump codes'' are services that have been reimbursed by TRICARE under CPT 99088.


      Table 2--Transition Schedule for 10 Visit Codes, by Type of Visit Code and Network Status of Hospital
                                   (TRICARE APC as a percent of Medicare APC)
----------------------------------------------------------------------------------------------------------------
                                                              Network                       Non-network
                                                 ---------------------------------------------------------------
                                                                     Hospital                        Hospital
                                                        ER            clinic            ER            clinic
----------------------------------------------------------------------------------------------------------------
Yr 1............................................            200%            175%            140%            140%
Yr 2............................................            175%            150%            125%            125%
Yr 3............................................            150%            130%            110%            110%
Yr 4............................................            130%            115%            100%            100%
Yr 5............................................            100%            100%            100%            100%
----------------------------------------------------------------------------------------------------------------
Note: 10 codes are APC codes 604-609 and 613-616.


      Table 3--Estimated Impact of TRICARE OPPS on Hospitals During the April 1, 2009-March 31, 2010 Period
                                   (With transition payments (in $ millions))
----------------------------------------------------------------------------------------------------------------
                                       (1)             (2)             (3)             (4)             (5)
Category of hospital outpatient       Estimated    OPPS allowed    OPPS allowed    OPPS allowed    Reduction in
 service                                allowed    amounts as a         amounts    amounts with  allowed amounts
                                  amounts under      percent of                      transition              (1)-(4)
                                 current policy  current policy                         payment
                                                        allowed
                                                        amounts
----------------------------------------------------------------------------------------------------------------
Surgeries......................            $406            102%            $413            $413             ($7)
Radiology/Pathology............             298             82%             245             245              53
Visits (ER and Other)..........             516             35%             180             320             196
Other Medical (non-visits).....             192             66%             127             127              65
J-codes........................              34             81%              27              27               7
Other HCPCS codes..............              20             43%               8               8              12
Supplies.......................             146             25%              37              37             109
Facility ``Dump Codes''........             177             87%             154             154              23
                                --------------------------------------------------------------------------------
    Total......................           1,789             67%           1,191           1,331             458
----------------------------------------------------------------------------------------------------------------
Note: (1) This table includes the impact of the TTPA payments to hospitals.
(2) This table does not include the impact of reduced hospital discounts for inpatient services.
(3) 75 percent of supplies are assumed to be bundled into other APC payments. We assume that providers will
  recode the other 25 percent of supply costs (such as J-codes, A-codes, etc.) and will be paid.

[[Page 74964]]

 
(4) Excluded hospitals such as Maryland hospitals, Children's, LTCH's, IRFs, and CAHs are excluded from this
  table. Services not affected by OPPS (like clinical laboratory and rehab therapy) are not included.
(5) Facility ``dump codes'' are services that have been reimbursed by TRICARE under CPT 99088.
(6) First-year transition for network hospitals is equal to 200% of Medicare APC for 5 ER visit codes and 175%
  of Medicare APC amounts for 5 hospital clinic visit codes. For non-network hospitals, the first-year
  transition is 140% of Medicare amounts for both the 5 ER and the 5 hospital clinic visit codes.


           Table 4--First-Year Impact of TRICARE Hospital Outpatient Prospective Payment System (OPPS)
                         [Percentage of current policy allowed amounts paid under OPPS]
----------------------------------------------------------------------------------------------------------------
                                                                        (1)             (2)             (3)
                                                                       Number of  OPPS Effect on  OPPS Effect on
                                                                       hospitals     OP payments     OP payments
                                                                                        (Without           (with
                                                                                      transition      transition
                                                                                       payments)       payments)
                                                                                       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
ALL HOSPITALS...................................................           3,754            66.2            77.2
URBAN HOSPITALS.................................................           2,469            64.7            75.5
RURAL HOSPITALS
    Sole Community..............................................             646            79.3            91.5
    Other Rural.................................................             639            72.7            86.6
BEDS (URBAN)
    0-99 Beds...................................................             630            71.5            83.1
    100-199 Beds................................................             804            63.0            77.1
    200-299 Beds................................................             458            63.8            74.0
    300-499 Beds................................................             395            65.5            74.7
    500+ Beds...................................................             182            64.2            71.3
BEDS (RURAL)
    0-49 Beds...................................................             595            76.6            91.3
    50-100 Beds.................................................             438            75.6            87.6
    101+ Beds...................................................             252            75.9            89.1
NETWORK STATUS
    Network.....................................................           1,671            66.6            79.9
    Non-Network.................................................           2,083            64.7            67.7
REGION (URBAN)
    New England.................................................             116            76.7           101.0
    Middle Atlantic.............................................             341            63.1            75.9
    South Atlantic..............................................             359            59.4            73.6
    East North Cent.............................................             409            70.0            83.8
    East South Cent.............................................             160            63.4            75.1
    West North Cent.............................................             159            76.3            78.5
    West South Cent.............................................             360            60.4            74.0
    Mountain....................................................             153            72.8            74.1
    Pacific.....................................................             363            70.8            71.9
    Puerto Rico.................................................              49            71.8            74.7
REGION (RURAL)
    New England.................................................              41            81.9            97.1
    Middle Atlantic.............................................              75            80.3           105.3
    South Atlantic..............................................             185            73.5            89.9
    East North Cent.............................................             181            78.3            89.1
    East South Cent.............................................             200            69.8            87.7
    West North Cent.............................................             207            87.0            92.5
    West South Cent.............................................             219            69.5            86.8
    Mountain....................................................             116            75.1            76.5
    Pacific.....................................................              61            78.6            83.1
TEACHING STATUS
    Non-Teaching................................................           2,719            65.6            77.5
    Teaching....................................................           1,035            66.9            76.7
----------------------------------------------------------------------------------------------------------------

List of Subjects in 32 CFR Part 199

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

0
Accordingly, 32 CFR Part 199 is amended as follows:

PART 199--[AMENDED]

0
1. The authority citation for Part 199 continues to read as follows:

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


0
2. Paragraph 199.2(b) is amended by adding definitions for ``Ambulatory 
Payment Classifications (APCs)'' and ``TRICARE Hospital 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

[[Page 74965]]

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 Hospital 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]

0
3. Section 199.4 is 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).

0
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 the following new paragraphs (a)(5)(i) 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 Sec.  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) subject to 
exceptions as authorized by Sec.  199.14(a)(5)(ii). 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). While CHAMPUS 
intends to remain as true as possible to Medicare's basic OPPS 
methodology, there will be some deviations required to accommodate 
CHAMPUS' unique benefit structure and beneficiary population as 
authorized under the provisions of 10 U.S.C. 1079(j)(2). Temporary 
transitional payment adjustments (TTPAs) will be in place for all 
hospitals, both network and non-network in order to buffer the initial 
decline in payments upon implementation of TRICARE's OPPS. For network 
hospitals, the temporary transitional payment adjustments (TTPAs) will 
cover a four-year period. The four-year transition will set higher 
payment percentages for the ten Ambulatory Payment Classification (APC) 
codes 604-609 and 613-616, with reductions in each of the transition 
years. For non-network hospitals, the adjustments will cover a three 
year period, with reductions in each of the transition years. For 
network hospitals, under the TTPAs, the APC payment level for the five 
clinic visit APCs would be set at 175 percent of the Medicare APC 
level, while the five ER visit APCs would be increased by 200 percent 
in the first year of OPPS implementation. In the second year, the APC 
payment levels would be set at 150 percent of the Medicare APC level 
for clinic visits and 175 percent for ER APCs. In the third year, the 
APC visit amounts would be set at 130 percent of the Medicare APC level 
for clinic visits and 150 percent for ER APCs. In the fourth year, the 
APC visit amounts would be set at 115 percent of the Medicare APC level 
for clinic visits and 130 per cent for ER APCs. In the fifth year, the 
TRICARE and Medicare payment levels for the 10 APC visit codes would be 
identical.
    For non-network hospitals, under the TTPAs, the APC payment level 
for the five clinic and ER visit APCs would be set at 140 percent of 
the Medicare APC level in the first year of OPPS implementation. In the 
second year, the APC payment levels would be set at 125 percent of the 
Medicare APC level for clinic and ER visits. In the third year, the APC 
visit amounts would be set at 110 percent of the Medicare APC level for 
clinic and ER visits. In the fourth year, the TRICARE and Medicare 
payment levels for the 10 APC visit codes would be identical.
    An additional temporary military contingency payment adjustment 
(TMCPA) will also be available at the discretion of the Director, TMA, 
or a designee, at any time after implementation to 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 TMCPAs 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 
CHAMPUS policies, instructions, procedures and guidelines as deemed 
appropriate by the Director, TMA, or a designee. TMCPAs may also be 
extended to non-network hospitals on a case-by-case basis for specific 
procedures where it is determined that the procedures cannot be 
obtained timely enough from a network hospital. For such case-by-case 
extensions, ``Temporary'' might be less than three

[[Page 74966]]

years at the discretion of the TMA Director, or 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.
* * * * *

    Dated: December 5, 2008.
Patricia Toppings,
OSD Federal Register, Liaison Officer, Department of Defense.
[FR Doc. E8-29251 Filed 12-5-08; 4:15 pm]
BILLING CODE 5001-06-P