[Federal Register Volume 76, Number 128 (Tuesday, July 5, 2011)]
[Proposed Rules]
[Pages 39043-39048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16629]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[Docket ID DoD-2010-HA-0072; RIN 0720-AB41]


TRICARE; Reimbursement of Sole Community Hospitals and Adjustment 
to Reimbursement of Critical Access Hospitals

AGENCY: Office of the Secretary, Department of Defense (DoD).

ACTION: Proposed rule.

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SUMMARY: This proposed rule is to implement the statutory provision at 
10 United States Code (U.S.C.) 1079(j)(2) that TRICARE payment methods 
for institutional care be determined, to the extent practicable, in 
accordance with the same reimbursement rules as those that apply to 
payments to providers of services of the same type under Medicare. This 
proposed rule implements a reimbursement methodology similar to that 
furnished to Medicare beneficiaries for inpatient services provided by 
Sole Community Hospitals (SCHs). It will be phased in over a several-
year period.

DATES: Written comments received at the address indicated below by 
September 6, 2011 will be accepted.

ADDRESSES: You may submit comments, identified by docket number or 
Regulatory Information Number (RIN) and title, by either of the 
following methods:
    The Web site: http://www.regulations.gov. Follow the instructions 
for submitting comments.
    Mail: Federal Docket Management System Office, Room 3C843, 1160 
Defense Pentagon, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at http://www.regulations.gov as they are received without 
change, including any personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Ms. Martha M. Maxey, TRICARE 
Management Activity (TMA), Medical Benefits and Reimbursement Branch, 
telephone (303) 676-3627.

SUPPLEMENTARY INFORMATION: 

I. Introduction and Background

    Hospitals are authorized TRICARE institutional providers under 10 
U.S.C. 1079(j)(2) and (4). Under 10 U.S.C. 1079(j)(2), the amount to be 
paid to hospitals, skilled nursing facilities, and other institutional 
providers under TRICARE, ``shall be determined to the extent 
practicable in accordance with the same reimbursement rules as apply to 
payments to providers of services of the same type under Medicare.'' 
Medicare reimburses SCHs for inpatient care the greatest of these 
aggregate amounts:
    1. What the SCH would have been paid under the Medicare Diagnosis-
Related Group (DRG) method for all of that hospital's Medicare 
discharges.
    2. The amount that would have been paid if the SCH were paid the 
average ``cost'' per discharge at that hospital in Fiscal Year (FY) 
1982, 1987, 1996, or 2006, updated to the current year, for all its 
Medicare discharges.
    TRICARE currently pays SCHs for inpatient care in one of two ways:
    Network Hospitals: Payment is an amount equal to billed charges 
less a negotiated discount. The discounted reimbursement is usually 
substantially greater than what would be paid using the Diagnosis-
Related Group (DRG) method.
    Non-network Hospitals: Payment is equal to billed charges.
    TRICARE's current method results in reimbursing SCHs substantially 
more than Medicare does for equivalent inpatient care. A change is 
needed to conform to the statute.
    Under 32 CFR 199.14(a)(1)(ii)(D)(6), SCHs are exempt from the 
TRICARE DRG-based payment system. Based on the above statutory mandate, 
TRICARE is proposing to use an approach that approximates The Centers 
for Medicare and Medicaid Services' (CMS) method for SCHs.

II. SCH Reimbursement Methodology

    Establishing a TRICARE SCH inpatient reimbursement method exactly 
matching that of Medicare is not practicable. While TRICARE can 
calculate the aggregate DRG reimbursement for all TRICARE discharges by 
a SCH during a year, using the Medicare cost per discharge would not be 
appropriate for TRICARE. Differences in the TRICARE and Medicare 
beneficiary case mix render the Medicare average cost per discharge not 
directly applicable for TRICARE purposes.
    In addition, basing SCH reimbursement on annual updates to a 
TRICARE base-year average cost per discharge could result in 
inappropriate payments to some SCHs. At many SCHs, the number of 
TRICARE discharges per year is very low. Approximately half of the SCHs 
had fewer than 20 TRICARE discharges annually. The TRICARE average cost 
per discharge in 1 year may not be a good predictor of the average cost 
per discharge in a future year due to significant change in the case 
mix that can occur between two small sets of patients.
    Alternatively, TRICARE could make payments equal to the SCH's 
specific cost-to-charge ratio (CCR) multiplied by the hospital's billed 
charges for services. This would avoid making payments unrelated to 
case mix and would be consistent with the Medicare principle of 
relating payments for SCHs to cost of services. This is the approach 
adopted in the proposed rule.

III. TRICARE's SCH Phase-in Period

    In introducing its current SCH reimbursement method, Medicare used 
a 3-year phase-in period to provide the hospitals time for making 
business and clinical process adjustments. TRICARE is proposing a 
phase-in period with a maximum 15 percent per-year reduction from the 
starting point in TRICARE-allowed amounts for non-network

[[Page 39044]]

hospitals and a 10 percent-per-year reduction for network hospitals. 
This involves calculating a hospital's ratio of TRICARE-allowed to 
billed charges and reducing that by 15 percentage points each year for 
non-network hospitals and 10 percentage points each year for network 
hospitals until it reaches the hospital's CCR. For example, if a non-
network hospital currently had a TRICARE-allowed to billed ratio of 100 
percent, it would be paid 85 percent of billed charges in year one, 70 
percent in year 2, 55 percent in year 3, and 40 percent in year 4. For 
a network hospital that had a TRICARE-allowed to billed ratio of 98 
percent, it would be paid 88 percent in year 1, 78 percent in year two, 
68 percent in year 3, and 58 percent in year 4. It should be noted that 
in no year could the TRICARE payment fall below costs (most hospitals 
have costs equal to 30 to 50 percent of billed charges). This 
transition method would approximately follow the CHAMPUS Maximum 
Allowable Charge physician payment system reform precedent and limit 
reductions to no more than 15 percent per year during the phase-in 
period. It also provides an incentive for hospitals to remain in the 
network by allowing a 5 percent difference in payment reductions per 
year. Finally, it will buffer the revenue reductions experienced upon 
initial implementation of TRICARE's SCH payment reform while allowing 
hospitals sufficient time to adjust and budget for these reductions.
    TRICARE will pay a SCH for inpatient services it provides during a 
FY the greater of two aggregate amounts: (1) What the SCH would have 
been paid under the DRG method for all of that hospital's TRICARE 
discharges; or (2) An amount equal to the SCH's specific CCR multiplied 
by the hospital's billed charges for the TRICARE services. This will be 
accomplished through a year-end adjustment to the reimbursements 
provided during the year.

IV. New SCHs and SCHs With No Inpatient Claims

    TRICARE will pay a new SCH using the average CCR for all SCHs 
calculated in the most recent year until it files a Medicare cost 
report. For SCHs that had no inpatient claims from TRICARE prior to 
implementation of the SCH payment reform but do have a claim, TRICARE 
will pay them based on their Medicare CCR.

V. SCH General Temporary Military Contingency Payment Adjustment

    In addition to the SCH phase-in period outlined in paragraph III. 
above, the agency is proposing a SCH Temporary Military Contingency 
Payment Adjustment (TMCPA) for TRICARE network hospitals located within 
Military Treatment Facility (MTF) Prime Service Areas (PSAs) and deemed 
essential for military readiness and support during contingency 
operations. The TMA Director, or designee, may approve a SCH General 
TMCPA for hospitals that serve a disproportionate share of Active Duty 
Service members (ADSMs) and Active Duty dependents (ADDs). Procedures 
for requesting a SCH TMCPA will be outlined in the SCH section of the 
TRICARE Reimbursement Manual.

VI. Critical Access Hospital General Temporary Military Contingency 
Payment Adjustment

    On August 31, 2009, we published a final rule (74 FR 44752), which 
implemented a reimbursement methodology similar to that furnished to 
Medicare beneficiaries for services provided by critical access 
hospitals (CAHs), i.e., reimbursing them 101 percent of reasonable 
costs. It has come to our attention that there may be some CAHs located 
in MTF PSAs that are deemed essential for military readiness and 
support during contingency operations. Thus, the agency also is 
proposing a CAH TMCPA for TRICARE network hospitals located within MTF 
PSAs and deemed essential for military readiness and support during 
contingency operations. The TMA Director may approve a CAH TMCPA for 
hospitals that serve a disproportionate share of ADSMs and ADDs. 
Procedures for requesting a CAH General TMCPA will be outlined in the 
CAH section of the TRICARE Reimbursement Manual.

VII. Regulatory Impact Analysis

A. Overall Impact

    The Department of Defense has examined the impacts of this proposed 
rule as required by Executive Orders (E.O.s) 12866 (September 1993, 
Regulatory Planning and Review) and 13563 (January 18, 2011, Improving 
Regulation and Regulatory 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 and Executive Order 13563
    EOs 12866 and 13563 direct 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). E.O. 13563 emphasizes the 
importance of quantifying both costs and benefits, of reducing costs, 
of harmonizing rules, and of promoting flexibility. A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one year).
    We estimate that the effects of the SCH provisions that would be 
implemented by this rule would result in SCH revenue reductions 
exceeding $100 million in any one year. We estimate the total reduction 
(from the proposed changes in this rule) in hospital revenues under the 
SCH reform for its first year of implementation (assumed for purposes 
of this RIA to be FY2012), compared to expenditures in that same period 
without the proposed SCH changes, to be approximately $211 million. 
However, as discussed below, the proposed transitions will reduce this 
amount considerably. When the transitions are taken into account, the 
first year impact will be a reduction in allowed amounts of $31 
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 Notice of Proposed Rule Making (NPRM) is a major rule 
under the Congressional Review Act.
3. Regulatory Flexibility Act
    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 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 $34.5 million or less in any

[[Page 39045]]

one year). For purposes of the RFA, we have determined that all SCHs 
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 proposed rule 
would have a significant impact on a substantial number of small 
entities. We generally prepare a regulatory flexibility analysis that 
is consistent with the RFA (5 U.S.C. section 604), unless we certify 
that the 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 
Proposed Regulatory Flexibility Analysis.
4. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100 million in 1995 dollars, updated annually for inflation. That 
threshold level is currently approximately $140 million. This proposed 
rule will not mandate any requirements for State, local, or tribal 
governments or the private sector.
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. 3502-3511). Existing information collection 
requirements of the TRICARE and Medicare programs will be utilized. We 
do not anticipate any increased costs to hospitals because of 
paperwork, billing, or software requirements since we are keeping 
TRICARE's billing/coding requirements; i.e., hospitals will be coding 
and filing claims in the same manner as they currently are with 
TRICARE.
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 the SCH Reforms

    The SCH reform encompasses all SCHs as defined by Medicare that 
participate in the TRICARE program that have inpatient stays for 
TRICARE patients. It will also include SCHs classified by CMS as 
Essential Access Community Hospitals (EACH) hospitals. However, 
Maryland hospitals that are paid by Medicare and TRICARE under a cost 
containment waiver are excluded from the SCH Reform.

C. Analysis of the Impact of Policy Changes on Payment Under SCH Reform 
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.
1. Alternatives Considered for Addressing Reduction in SCH Payments
    Analysis of the effects of paying SCHs using the computation of 
either the greater of what the SCH would have been paid under the DRG 
method for all of that hospital's TRICARE discharges or an amount equal 
to the SCH's specific CCR multiplied by the hospital's billed charges 
for the TRICARE services approach would reduce the TRICARE payments to 
these SCHs by an average of over 50 percent. This approach would pay 
each SCH the greater of two aggregate amounts: (1) The sum of the 
TRICARE-allowed amounts if all the TRICARE inpatient admissions over a 
12-month period were paid using the TRICARE DRG method; or (2) the 
TRICARE-allowed amounts if all the TRICARE inpatient admissions over a 
12-month period were paid using the CCR approach (in which the TRICARE-
allowed amount for each admission is equal to the billed charge for 
that admission multiplied by the hospital's historical CCR). Table 1 
provides our estimate of the impact of this approach without any 
transitions. We found that there would be large reductions in payments 
for all types of SCHs (see Table 3).
    Because the impact of moving from a charge-based reimbursement to a 
cost-based reimbursement similar to Medicare's would produce large 
reductions in the TRICARE-allowed amounts for all types of SCHs, we 
considered a phase-in of this approach over a 4-year period. Under this 
option, the CCR portion of the approach would be modified so that the 
hospital's billed charge on each claim would not be multiplied by the 
hospital's CCR until the fourth year (when the transition was 
complete). In the first 3 years, the billed charges for each claim 
would be multiplied by a ratio so that there was an equal reduction in 
the ratio used each year over the 4-year transition. For example, if 
the hospital were receiving 100 percent of its billed charges prior to 
implementation of the SCH reform and it had a CCR of 0.32, then its 
billed charges would be multiplied by factors of 0.83, 0.66, and 0.49 
in the first 3 years respectively so that each year the payment ratio 
declined by an equal amount (in this case by a factor of 0.17). In each 
year, the aggregate level of allowed amounts produced using the CCR 
approach at each SCH would be compared with the aggregate level of DRG-
allowed amounts at the SCH, and the SCH would be paid the greater of 
the two aggregate amounts. This 4-year transition would allow hospitals 
to have a phased transition to the cost-based rates. Although this 
option would provide a multi-year period for SCHs to transition to the 
cost-based rates, we did not choose this option because it would still 
result in large reductions for some SCHs over a relatively short period 
of time.
    A second option we considered was to have a transition based on a 
reduction of 15 percentage points per year in the allowed amounts for 
each SCH. Under this option, the CCR portion in this approach would be 
modified. During the transition period, the billed charges on each 
claim at an SCH would be multiplied by a factor so that the ratio 
decreased by 15 percentage points each year from the level in the 
previous year. For example, if the SCH were receiving 100 percent of 
its billed charges prior to SCH reform and it had a CCR of 0.32, then 
its billed charges would be multiplied by factors of 0.85, 0.70, 0.55, 
and 0.40 in the first 4 years respectively, so that each year the ratio 
declined by 15 percentage points. In the fifth year, the ratio would be 
set at 0.32, the hospital's CCR. (The actual number of years of 
transition will depend on the hospital's CCR and could be more or less 
than the 4 years in this example as the ratio will never be less than 
the CCR.) In each year, the aggregate level of allowed amounts produced 
using the CCR approach at each SCH would be compared with the aggregate 
level of DRG-allowed amounts at the SCH and the SCH would be paid the 
greater of the two aggregate amounts. This type of transition ensures 
that there is a manageable reduction in the level of payments each year 
for each hospital. We selected this option.

[[Page 39046]]

2. Alternatives Considered for SCHs in the TRICARE Network
    We were concerned there might be access problems at some hospitals 
with a high concentration of TRICARE patients if their payments were 
decreased significantly. In particular, we were concerned that some 
hospitals might leave the TRICARE network if payments were reduced too 
quickly. This was a particular concern because 24 of the 25 SCHs with 
the highest levels of TRICARE-allowed amounts in the first 6 months of 
CY 2010 were in the TRICARE network. Thus, the SCHs that would face the 
largest reductions in the level of TRICARE-allowed amounts from 
TRICARE's SCH reform would be network hospitals.
    An option we considered, and the one we are proposing in this rule, 
is to provide a 10 percent-per-year reduction in the allowed amounts 
for SCHs in the TRICARE network. This option would modify the CCR 
portion of the approach. During the transition period, the billed 
charges on each claim at an SCH in the TRICARE network would be 
multiplied by a factor so that the ratio decreased by 10 percentage 
points each year from the starting point (in contrast to 15 percentage 
points for non-network hospitals). For example, if a TRICARE network 
SCH had allowed amounts equal to 92 percent of its billed charges prior 
to SCH reform, and it had a CCR of 0.35, then its billed charges would 
be multiplied by factors of 0.82, 0.72, 0.62, 0.52, and 0.42 in the 
first 5 years, respectively, to calculate the allowed amounts. Under 
this approach, each year the ratio for network SCHs would decline by 
ten percentage points. In the sixth year, the ratio would be set at 
0.35, the hospital's CCR (assuming that the hospital's CCR had remained 
at 0.35). In each year, the aggregate level of allowed amounts produced 
using the CCR approach at each SCH would be compared with the aggregate 
level of DRG-allowed amounts at the SCH, and the SCH would be paid the 
greater of the two aggregate amounts. This type of transition ensures 
that there is a manageable reduction in the level of payments each year 
for each hospital. We selected this option. Table 1 shows the results 
of this option.

D. Effects on Sole Community Hospitals

    Table 1 shows the impact of revised SCH inpatient reimbursement 
during FY 2012. Table 2 shows projected TRICARE reduction in 
reimbursement for top 20 hospitals. Table 3 shows full amount of 
reduction without a phase-in period and transitional payments.

 Table 1--Estimated Impact of SCH Reforms on TRICARE-Allowed Amounts at
   Sole Community Hospitals During the FY 2012--First Year of Phase-In
                       (With Transition Payments)
                             [In $ millions]
------------------------------------------------------------------------
                                                           SCH Reform
Estimated allowed                                       allowed amounts
   amount under     Allowed amounts    Reduction in     as a percentage
  current policy   under SCH reform   allowed amounts  of current policy
                                                        allowed amounts
------------------------------------------------------------------------
        $326               $295               $31                90
------------------------------------------------------------------------

    Notes:
    (1) This table presents the impact as modified by the transition 
mechanisms proposed in this NPRM (the 15 percent-per-year reduction 
for non-network hospitals and the 10 percent-per-year reduction for 
TRICARE network SCHs). This table includes the impact of transition 
payments to SCHs.
    (2) Maryland hospitals are excluded.

                     Table 2--Impact ($M) of First Year for Top 20 Sole Community Hospitals
----------------------------------------------------------------------------------------------------------------
                                                                                               Reduction ($M) in
                                                                                                FY2010 if phase-
             Hospital name                          City                      State              in started in
                                                                                                     FY2010
----------------------------------------------------------------------------------------------------------------
Fairbanks Memorial Hospital............  Fairbanks................  AK.......................                0.4
FLagstaff Medical Center...............  Flagstaff................  AZ.......................                0.5
Sierra Vista Regional Health Center....  Sierra Vista.............  AZ.......................                1.2
Yuma Regional Medical Center...........  Yuma.....................  AZ.......................                1.3
North Colorado Medical Center..........  Greeley..................  CO.......................                0.3
Southeast Georgia Health System Bru....  Brunswick................  GA.......................                0.3
Camden Medical Center..................  Saint Marys..............  GA.......................                0.4
Munson Medical Center..................  Traverse City............  MI.......................                0.3
Phelps Co Reg Med Ctr..................  Rolla....................  MO.......................                0.5
Western Missouri Medical Center........  Warrensburg..............  MO.......................                0.5
Benefis Healthcare.....................  Great Falls..............  MT.......................                1.1
Onslow Memorial Hospital Inc...........  Jacksonville.............  NC.......................                1.6
Carolinaeast Health System.............  New Bern.................  NC.......................                1.4
Altru Health System, dba Altru Hospital  Grand Forks..............  ND.......................                0.5
Trinity Hospitals......................  Minot....................  ND.......................                0.9
Gerald Champion Regional Medical Center  Alamogordo...............  NM.......................                0.6
Jackson County Memorial Hospital.......  Altus....................  OK.......................                0.3
Beaufort Memorial Hospital.............  Beaufort.................  SC.......................                1.5
Rapid City Regional Hospital--Hospital.  Rapid City...............  SD.......................                1.2
Cheyenne Regional Medical Center.......  Cheyenne.................  WY.......................                1.3
----------------------------------------------------------------------------------------------------------------
Note 1: Top 20 SCHs based on total amount reimbursed during FY2007-FY2010 where TRICARE was primary payer.
Note 2: Impact of reduction calculated using FY2010 reimbursed amount.
Note 3: Applied reduction of 10% for FY2010 if network provider; 15% for FY2010 if non-network provider until
  the hospital reaches their cost-to-charge ratio.
Note 4: Samaritan Medical Center, Watertown, NY gained SCH status in FY2011. Based on preliminary data,
  Samaritan Medical Center would most likely be included in the top 20 SCH list.
Note 5: Mary Washington Hospital, Fredericksburg, VA lost SCH status in January 2011.
Note 6: This data includes all claims received through February 2, 2011 for dates of care beginning in FY2010
  and not estimated to completion.
Note 7: CMS currently reviewing SCH status of North Colorado Medical Center, Greeley, CO.


[[Page 39047]]


Table 3--Estimated Impact of Cost-Based Reimbursement on TRICARE-Allowed
     Amounts at Sole Community Hospitals Without Transition Payments
                             [In $ millions]
------------------------------------------------------------------------
                                                         Allowed amounts
                                                        under cost-based
                       Cost-based       Reduction in      reimbursement
  Current policy     reimbursement     TRICARE-allowed  as  a percent of
                                           amounts      current  policy-
                                                        allowed  amounts
------------------------------------------------------------------------
           $369               $158               $211                43
------------------------------------------------------------------------

    Notes:
    (1) This table does not include any transition payments to SCHs.
    (2) Maryland hospitals are excluded.

List of Subjects in 32 CFR Part 199

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

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

PART 199--[AMENDED]

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

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

    2. In Sec.  199.2, paragraph (b) is amended by adding a definition 
for ``Sole Community Hospitals'' in alphabetical order to read as 
follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Sole community hospitals (SCHs). Urban or rural hospitals that are 
the sole source of care in their community and meet the applicable 
requirements established by Sec.  199.6 (b)(4)(xvii).
* * * * *
    3. Section 199.6 is amended by adding new paragraph (b)(4)(xvii) to 
read as follows:


Sec.  199.6  TRICARE--authorized providers.

* * * * *
    (b) * * *
    (4) * * *
    (xvii) Sole community hospitals (SCHs). SCHs must meet all the 
criteria for classification as a SCH under 42 CFR 412.92 in order to be 
considered a SCH under the TRICARE program.
* * * * *
    4. Section 199.14 is amended by:
    a. Revising paragraph (a)(1)(ii)(D)(6), paragraph (a)(2)(viii)(D), 
paragraph (a)(3), the first sentence of paragraph (a)(4), and the first 
sentence of paragraph (a)(6); and
    b. Adding new paragraph (a)(7).
    The revisions and additions read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (1) * * *
    (ii) * * *
    (D) * * *
    (6) Sole community hospitals. Prior to Fiscal Year 2012, any 
hospital that has qualified for special treatment under the Medicare 
prospective payment system as a SCH (see subpart G of 42 CFR part 412) 
and has not given up that classification is exempt from the CHAMPUS 
DRG-based payment system.
* * * * *
    (2) * * *
    (viii) * * *
    (D) Sole community hospitals. Prior to Fiscal Year 2012, any 
hospital that has qualified for special treatment under the Medicare 
prospective payment system as a SCH and has not given up that 
classification is exempt.
* * * * *
    (3) Reimbursement for inpatient services provided by a CAH. (i) For 
admissions on or after December 1, 2009, inpatient services provided by 
a CAH, other than services provided in psychiatric and rehabilitation 
distinct part units, shall be reimbursed at 101 percent of reasonable 
cost. This does not include any costs of physician services or other 
professional services provided to CAH inpatients. Inpatient services 
provided in psychiatric distinct part units would be subject to the 
CHAMPUS mental health payment system. Inpatient services provided in 
rehabilitation distinct part units would be subject to billed charges.
    (ii) The percentage amount stated in paragraph (a)(3)(i) of this 
section is subject to possible upward adjustment based on a temporary 
military contingency payment adjustment (TMCPA) for TRICARE network 
hospitals located within Military Treatment Facility Prime Service 
Areas and deemed essential for military readiness and support during 
contingency operations. The TMA Director may approve a CAH TMCPA for 
hospitals that serve a disproportionate share of active duty service 
members (ADSMs) and active duty dependents (ADDs). A TMCPA may be 
approved by the Director, TMA for a specified period based on a showing 
that without the TMCPA, DoD's ability to meet military contingency 
mission requirements will be significantly compromised.
    (4) Billed charges and set rates. The allowable costs for 
authorized care in all hospitals not subject to the CHAMPUS DRG-based 
payment system, the CHAMPUS mental health per-diem system, the 
reasonable cost method for CAHs, or the reimbursement rules for SCHs 
shall be determined on the basis of billed charges or set rates. * * *
* * * * *
    (6) Hospital outpatient services. This paragraph (a)(6) identifies 
and clarifies payment methods for certain outpatient services, 
including emergency services, provided by hospitals. * * *
    (7) Reimbursement for inpatient services provided by a SCH. (i) In 
accordance with 10 U.S.C. 1079(j)(2), TRICARE payment methods for 
institutional care shall be determined, to the extent practicable, in 
accordance with the same reimbursement rules as those that apply to 
payments to providers of services of the same type under Medicare. 
TRICARE's SCH reimbursements approximate Medicare's for SCHs. Inpatient 
services provided by a SCH, other than services provided in psychiatric 
and rehabilitation distinct part units, shall be reimbursed through a 
two-step process, with an initial payment as step one, and a year-end 
adjustment as step two.
    (ii) The initial payment for a SCH referred to in paragraph 
(a)(7)(i) of this section will be based on the applicable percentage of 
the TRICARE-allowed amount. The TRICARE-allowed amount is the lesser of 
billed charges or the negotiated amount accepted by a network SCH. The 
applicable percentage is the greater of the SCH's specific historical 
cost-to-charge ratio (as calculated by CMS), or the following 
percentage:

[[Page 39048]]

    (A) In FY 2012, 90 percent for network SCHs or 85 percent for non-
network SCHs.
    (B) In FY 2013, 80 percent for network SCHs or 70 percent for non-
network SCHs.
    (C) In FY 2014, 70 percent for network SCHs or 55 percent for non-
network SCHs.
    (D) In FY 2015, 60 percent for network SCHs or 40 percent for non-
network SCHs.
    (E) In FY 2016, 50 percent for network SCHs or 25 percent for non-
network SCHs.
    (F) In FY 2017, 40 percent for network SCHs or 10 percent for non-
network SCHs.
    (G) In FY 2018, 30 percent for network SCHs or 0 percent for non-
network SCHs.
    (H) In FY 2019, 20 percent for network SCHs or 0 percent for non-
network SCHs.
    (I) In FY 2020, 10 percent for network SCHs or 0 percent for non-
network SCHs.
    (J) In FY 2021, 0 percent for network SCHs or 0 percent for non-
network SCHs.
    (iii) The second step referred to in paragraph (a)(7)(i) of this 
section is a year-end adjustment. The year-end adjustment will compare 
the aggregate amount paid over a 12-month period under paragraph 
(a)(7)(ii) of this section to the aggregate amount that would have been 
paid for the same care using the TRICARE DRG-method (under paragraph 
(a)(1) of this section). In the event that the DRG method amount is the 
greater, the year-end adjustment will be the amount by which it exceeds 
the aggregate amount paid. In addition, the year-end adjustment also 
may incorporate a possible upward adjustment based on a TMCPA for 
TRICARE network hospitals located within MTF PSAs and deemed essential 
for military readiness and support during contingency operations. The 
TMA Director, or designee, may approve a SCH TMCPA for hospitals that 
serve a disproportionate share of ADSMs and ADDs. A TMCPA may be 
approved by the Director, TMA, for a specified period based on a 
showing that, without the TMCPA, DoD's ability to meet military 
contingency mission requirements will be significantly compromised.
    (iv) The SCH reimbursement provisions of paragraphs (a)(7)(i) 
through (iii) do not apply to any costs of physician services or other 
professional services provided to SCH inpatients (which are subject to 
individual provider payment provisions of this section), inpatient 
services provided in psychiatric distinct part units (which are subject 
to the CHAMPUS mental health per-diem payment system), or inpatient 
services provided in rehabilitation distinct part units (which are 
reimbursed on the basis of billed charges or set rates).
* * * * *

    Dated: June 23, 2011.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2011-16629 Filed 7-1-11; 8:45 am]
BILLING CODE 5001-06-P