[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Proposed Rules]
[Pages 59934-59945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20660]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

[Docket ID: DOD-2012-HA-0146]
RIN 0720-AB47


TRICARE; Reimbursement of Long Term Care Hospitals and Inpatient 
Rehabilitation Facilities

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

ACTION: Proposed rule.

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SUMMARY: The Department of Defense, Defense Health Agency, is proposing 
to revise its reimbursement of Long Term Care Hospitals (LTCHs) and 
Inpatient Rehabilitation Facilities (IRFs). Proposed revisions are in 
accordance with the statutory provision at title 10, United States Code 
(U.S.C.), section 1079(i)(2) that requires TRICARE payment methods for 
institutional care 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. Our regulation 
includes a definition for ``Hospital, long-term (tuberculosis, chronic 
care, or rehabilitation).'' This rule proposes to delete this 
definition and create separate definitions for ``Long Term Care 
Hospital'' and ``Inpatient Rehabilitation Facility'' in accordance with 
Centers for Medicare & Medicaid Services (CMS) classification criteria. 
Under TRICARE, LTCHs and IRFs (both freestanding rehabilitation 
hospitals and rehabilitation hospital units) are currently paid the 
lower of a negotiated rate (if they are a network provider) or billed 
charges (if they are a non-network provider). Although Medicare's 
reimbursement methods for LTCHs and IRFs are different, it is prudent 
to propose adopting both the Medicare LTCH and IRF Prospective Payment 
System (PPS) methods simultaneously to align with our statutory 
requirement to utilize the same reimbursement system as Medicare. This 
proposed rule sets forth the proposed regulation modifications 
necessary for TRICARE to adopt Medicare's LTCH and IRF Prospective 
Payment Systems and rates applicable for inpatient services provided by 
LTCHs and IRFs to TRICARE beneficiaries.

DATES: Written comments received at the address indicated below by 
October 31, 2016 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: Department of Defense, Deputy Chief Management Officer, 
Directorate for Oversight and Compliance, 4800 Mark Center Drive, ATTN: 
Box 24, Alexandria, VA 22350-1700.
    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: Sharon Seelmeyer, Defense Health 
Agency (DHA), Medical Benefits and Reimbursement Section, telephone 
(303) 676-3690.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

A. Purpose of the Proposed Rule

1. Long Term Care Hospitals (LTCHs)
    This rule publishes TRICARE's proposed modifications to our 
regulation that are necessary to adopt the Medicare LTCH Prospective 
Payment System and rates. This is in accordance with the statutory 
requirement that for TRICARE institutional services ``payments 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 pays LTCHs using a LTCH 
Prospective Payment System (PPS) which classifies LTCH patients into 
distinct Diagnosis-Related Groups (DRGs). The patient classification 
system groupings are called Medicare Severity Long Term Care Diagnosis 
Related Groups (MS-LTC-DRGs), which are the same DRG groupings used 
under the Medicare acute hospital inpatient prospective payment system 
(IPPS), but that have been weighted to reflect the resources required 
to treat the medically complex patients treated at LTCHs.
    On January 26, 2015, a TRICARE proposed rule was published in the 
Federal Register [79 FR 51127], proposing to adopt a TRICARE LTCH PPS 
similar to the CMS' reimbursement system for LTCHs, with the exception 
of not adopting Medicare's LTCH 25 percent rule. However, that proposed 
rule acknowledged that the Department of Health and Human Services 
intended to address implementation of Section 1206(a) of the Pathway 
for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67) 
in their FY 2016 rulemaking process. As a result, the TRICARE proposed 
rule included a statement that DoD would ``defer action on this issue 
pending review of the final Medicare policy.'' This review has been 
completed and we have changed our approach regarding implementation of 
the TRICARE LTCH PPS. Consequently, we are withdrawing the proposed 
rule published in the Federal Register on January 26, 2015, and 
publishing this new proposed rule to inform the public of our intent to 
adopt the CMS LTCH PPS system with no modifications or exceptions. We 
have determined that it is practicable to adopt Medicare's LTCH

[[Page 59935]]

PPS reimbursement methodology in its entirety without deviations.
    On August 22, 2014, the CMS final rule on updating the annual 
payment rates for the Medicare PPS for inpatient hospital services 
provided by LTCHs was published in the Federal Register [79 FR 49853]. 
As part of its final rule, CMS discussed the need for future policy 
changes that would be required to carry out the provisions under 
section 1206 of the Pathway for SGR Reform Act of 2013, to include 
section 1206(a), which provides for the establishment of an alternate 
``site-neutral'' payment rate for Medicare LTCH patients that fail to 
meet certain statutorily defined criteria, such as having been 
discharged by an IPPS hospital immediately preceding the LTCH 
admission, having 3 or more days in an ICU during the immediately 
preceding IPPS stay or having received at least 96 hours of respiratory 
ventilation services. If the above statutorily defined criteria is not 
met, the LTCH will receive a ``site-neutral'' payment rate. As 
mentioned earlier, as a result of the unspecified potential changes 
that might be required to Medicare's LTCH reimbursement system, a 
statement was added to TRICARE's proposed rule that DoD would defer 
action on adopting Medicare's potential changes relating to ``site-
neutral'' payments until DoD could review the final Medicare policy. 
Upon review of Medicare's final rule published on August 17, 2015, we 
learned that significant changes had been made to Medicare's previous 
LTCH reimbursement system, specifically the precise details about the 
creation of Medicare's ``site-neutral'' payments beginning in FY 2016. 
This proposed rule explains our new reimbursement approach for LTCHs 
based on CMS' changes.
    TRICARE pays for most hospital care under the TRICARE DRG-based 
payment system, which is similar to Medicare's, but some hospitals are 
exempt from the TRICARE DRG-based payment system. LTCHs are currently 
exempt from the TRICARE DRG-based payment system and are paid by 
TRICARE at the lower of a negotiated rate (if they are a network 
provider) or billed charges (if they are a non-network provider). 
Paying billed charges is fiscally imprudent and inconsistent with 
TRICARE's governing statute. Paying LTCHs under Medicare's methods is 
prudent, because it reduces government costs without affecting 
beneficiary access to services or quality; it is practicable, because 
it can be implemented without major costs; and it is harmonious with 
the statute because the statute states that TRICARE shall determine its 
payments for institutional services to the extent practicable in 
accordance with Medicare's payment rates. Our legal authority for this 
portion of the proposed rule is 10 U.S.C. 1079(i)(2).

2. Inpatient Rehabilitation Facilities (IRFs)

    This rule also publishes proposed TRICARE regulation modifications 
necessary to adopt the Medicare IRF Prospective Payment System (PPS) 
and rates. This is in accordance with the statutory requirement that 
for TRICARE institutional services ``payments 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 pays IRFs using an IRF Prospective Payment 
System (PPS) which classifies IRF patients into one of 92 case-mix 
groups (CMGs).
    Similarly to LTCHs, IRFs, (both freestanding rehabilitation 
hospital and rehabilitation hospital units) are currently exempt from 
the TRICARE DRG-based payment system and are paid by TRICARE at the 
lower of a negotiated rate (if they are a network provider) or billed 
charges (if they are a non-network provider). As discussed earlier, 
paying billed charges is fiscally imprudent and inconsistent with 
TRICARE's governing statute. Paying IRFs under a method similar to 
Medicare's is prudent, practicable, and harmonious with the statute. 
Our legal authority for this portion of the proposed rule is 10 U.S.C. 
1079(i)(2).

B. Summary of the Major Provisions of the Proposed Rule

1. Adoption of Medicare's Prospective Payment System Methodology for 
LTCHs
    TRICARE proposes to reimburse LTCHs for inpatient care using 
Medicare's LTCH PPS using Medicare's MS-LTC-DRGs. Under the proposed 
TRICARE LTCH PPS reimbursement methodology, payment for a TRICARE 
patient will be made at a predetermined, per-discharge amount for each 
MS-LTC-DRG. The TRICARE LTCH PPS reimbursement methodology would 
include payment for all inpatient operating and capital costs of 
furnishing covered services (including routine and ancillary services), 
but not certain pass-through costs (e.g., bad debts, direct medical 
education, and blood clotting factors). When the Medicare day limit is 
exhausted for TRICARE beneficiaries who are also eligible for Medicare 
(i.e., TRICARE For Life (TFL) beneficiaries), TRICARE will be the 
primary payer for medically necessary services and the beneficiary will 
be responsible for the appropriate TRICARE inpatient cost share. We 
anticipate the beneficiary's out-of-pocket costs will be limited by the 
statutory catastrophic cap of $1,000 per family, per fiscal year for 
active duty family members and reserve select beneficiaries and $3,000 
cap per family, per fiscal year for all other beneficiaries.
2. Transition Period
    The Pathway for SGR Reform Act of 2013 directed CMS to make 
significant changes to the payment system for LTCHs. The law directs 
CMS to establish two different types of LTCH PPS payment rates 
depending on whether or not the patient meets certain clinical 
criteria: (1) Standard LTCH PPS payment rates; and (2) lower site-
neutral LTCH PPS payment rates that are generally based on the Medicare 
acute hospital IPPS rates. Site-neutral patients include LTCH patients 
who do not use prolonged mechanical ventilation during their LTCH stay 
or who did not spend three or more days in the intensive care unit 
(ICU) during their prior acute care hospital stay. The law transitions 
the payment reductions in FY16 and FY17 by requiring payment based on a 
50/50 blend of the standard LTCH PPS rate and the site-neutral LTCH PPS 
rate for site-neutral patients. In FY17, when we anticipate 
implementing the TRICARE LTCH PPS payment changes, we propose that 
TRICARE adopt Medicare's FY17 LTCH PPS payment policies, which will 
include Medicare's payment of site-neutral cases with Medicare's 50/50 
blended payment for site-neutral patients. Medicare has not yet set the 
payment for site neutral cases for FY 2018, however, we will follow 
that payment rate once it is determined. For example, if the blended 
payment rate ends by FY18, we would also follow Medicare and all 
TRICARE site-neutral LTCH patients would receive the site-neutral 
payment (without a blend with the standard LTCH PPS rate). If 
implementation of the TRICARE LTCH PPS is delayed beyond FY17, there 
will be no transition period for site-neutral patients. Rather, TRICARE 
will adopt the Medicare LTCH PPS methodology applicable at the time of 
TRICARE implementation.
3. Adoption of Medicare's Prospective Payment System Methodology for 
IRFs
    TRICARE proposes to reimburse IRFs for inpatient care using 
Medicare's IRF PPS which pays a prospectively-set, fixed payment per 
discharge based on a patient's classification into one of 92

[[Page 59936]]

case-mix groups (CMGs). Each CMG has a national relative weight 
reflecting the expected relative costliness of treatment for patients 
in that category compared with that for the average Medicare inpatient 
rehabilitation patient. The relative weight for each CMG is multiplied 
by a standardized Medicare IRF base payment amount to calculate the 
case-mix adjusted prospective payment rate. The TRICARE IRF PPS payment 
rates would cover all inpatient operating and capital costs that IRFs 
are expected to incur in furnishing intensive rehabilitation services. 
When the Medicare day limit is exhausted for TRICARE beneficiaries who 
are also eligible for Medicare (i.e., TFL beneficiaries), TRICARE will 
be the primary payer for medically necessary services and the 
beneficiary will be responsible for the appropriate TRICARE inpatient 
cost share. We anticipate the beneficiary's out-of-pocket costs will be 
limited by the statutory catastrophic cap of $1,000 per family, per 
fiscal year for active duty family members and reserve select 
beneficiaries and $3,000 cap per family, per fiscal year for all other 
beneficiaries.
4. Removal of Outdated Terms
    This proposed rule removes outdated definitions in 32 CFR 199.2 for 
``Hospital, long-term (tuberculosis, chronic care, or rehabilitation)'' 
and ``Long-term hospital care'' and adds a new definition for ``Long-
Term Care Hospital (LTCH)'' as well as adding a new definition for 
``Inpatient Rehabilitation Facility (IRF).'' The new definitions are 
based on CMS' LTCH and IRF classifications. Our review of the data 
shows that there were no facilities reimbursed under our existing LTCH 
or IRF reimbursement methodologies that will not meet the new proposed 
definitions. The TRICARE requirements for both LTCHs and IRFs to be 
authorized institutional providers have been added to 32 CFR 199.6.

C. Costs and Benefits

    The economic impact of the proposed rule is anticipated to reduce 
DoD allowed amounts to LTCHs by approximately $77 million during 
implementation if that occurs as planned in FY17, when TRICARE site-
neutral cases will be paid based on a transitional 50/50 blended 
payment and $87 million if implemented in FY18 when site-neutral 
payments are fully phased-in. If implementation is delayed beyond FY17, 
TRICARE will use the Medicare fully phased in site-neutral payments for 
site-neutral patients. This proposed rule is also anticipated to reduce 
DoD allowed amounts to IRFs by approximately $53 million in FY17.

II. Introduction and Background

A. Reimbursement

1. TRICARE LTCH PPS Reimbursement
    Patients with clinically complex problems, such as multiple acute 
or chronic conditions, may need hospital care for an extended period of 
time. LTCHs represent a relatively small number of hospitals 
(approximately 424 under Medicare), which treat a critically ill 
population with complex needs and long lengths of stay. Per 32 Code of 
Federal Regulations (CFR) 199.14(a)(1)(ii)(D)(4), LTCHs are currently 
exempt from the TRICARE DRG-based payment system, just as they were 
exempt from Medicare's Inpatient Prospective Payment System (IPPS) when 
the CMS initially implemented its DRG-based payment system. Because 
there is no alternate TRICARE reimbursement mechanism in 32 CFR part 
199 at this time, LTCH inpatient care provided to TRICARE beneficiaries 
is currently paid the lower of a negotiated rate if a network LTCH, 
which is usually substantially greater than what would be paid using 
the TRICARE DRG method, or billed charges if a non-network LTCH.
    Medicare created a PPS for LTCHs effective with the cost reporting 
period beginning on or after October 1, 2002. The MS-LTC-DRG system 
under Medicare's LTCH PPS classifies patients into distinct diagnostic 
groups based on their clinical characteristics and expected resource 
needs. The patient classification groupings, which are the same 
groupings used under the inpatient acute care hospital groupings (i.e., 
MS-DRGs) are weighted to reflect the resources required to treat the 
medically complex patients who are treated in LTCHs. By their nature, 
LTCHs treat patients with comorbidities requiring long-stay, hospital-
level care.
    TRICARE often adopts Medicare's reimbursement methods but delays 
implementation generally until any transition phase is complete for the 
Medicare program. CMS included a 5-year transition period when it 
adopted LTCH PPS for Medicare, under which LTCHs could elect to be paid 
a blended rate for a set period of time. This transition period ended 
in 2006. Following the transition phase, in 2008 Medicare adopted an 
LTCH-specific DRG system, which uses MS-LTC-DRGs, as the patient 
classification method for LTCHs. In FY16, Medicare will begin its 
adoption of a site-neutral payment system for LTCHs. Beginning in FY16 
and continuing in FY17, CMS is phasing in a site-neutral payment 
methodology; during the transition period in FY16 and FY17, for site-
neutral patients, 50 percent of the allowed amount will be calculated 
using the site-neutral payment methodology and 50 percent will be 
calculated using the current full LTCH PPS standard federal payment 
rate methodology. Beginning in FY18, all Medicare payments for site-
neutral patients will be calculated using the site-neutral payment 
methodology. Given TRICARE's statutory requirement to adopt Medicare's 
reimbursement methods when practicable, TRICARE is proposing to adopt 
Medicare's LTCH PPS reimbursement method for our beneficiaries, 
including the Medicare site-neutral payment methodology. TRICARE will 
adopt the Medicare payment methodology that is in place at the time of 
TRICARE's implementation. For example, for an FY17 implementation, we 
will follow Medicare and use a 50/50 blend of the site-neutral method 
and the full LTCH PPS payments for site-neutral patients use a 50/50 
blend. If implementation is delayed beyond FY17, TRICARE will use the 
Medicare site-neutral payments for site-neutral patients.
    Under 10 U.S.C. 1079(i)(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].'' Based on 1079(i)(2), 
TRICARE is proposing to adopt Medicare's LTCH PPS as the methodology to 
reimburse TRICARE authorized LTCHs. A change is needed to conform to 
the statute.
    For TRICARE, we were able to identify complete claims information 
for 678 patients who were Active Duty Service Members (ADSMs), their 
dependents, or retirees and their dependents who were not eligible for 
the TRICARE For Life program (referred to as non-TFL), and 56 TFL LTCH 
admissions in FY14, for which TRICARE was the primary payer for 
patients with no other health insurance (referred to as non-Other 
Health Insurance (OHI)). We also identified 27 non-TFL and 3 TFL non-
OHI LTCH admissions in FY14 with incomplete claims data, and excluded 
these claims from the analysis. TRICARE allowed charges for non-TFL 
beneficiaries were approximately $73 million in FY14. We found that the 
average TRICARE allowed amount for non-TFL beneficiaries was 
approximately $107,000 in FY14, which is significantly

[[Page 59937]]

more than the estimated amount that Medicare would have paid for these 
discharges (the average Medicare LTCH PPS payment would have been 
approximately $42,000). Using the Medicare LTCH PPS system would have 
reduced TRICARE-allowed amounts by almost $45 million in FY14 for non-
TFL beneficiaries.
    For TFL beneficiaries for whom TRICARE was the primary payer, 
TRICARE paid approximately $19 million in allowed charges in FY14. In 
cases where TRICARE is the primary payer for LTCH care of TFL 
beneficiaries, such as when a Medicare beneficiary exhausts his/her day 
limits, TRICARE is paying billed charges. Reimbursing using methods 
similar to the Medicare LTCH PPS methodology would have reduced TRICARE 
allowed charges for TFL beneficiaries by approximately $15 million in 
FY14.
    Shifting to methods similar to the Medicare LTCH PPS methodology 
would have reduced TRICARE allowed charges to LTCHs for non-TFL and TFL 
beneficiaries by $60 million in FY14 and is expected to reduce allowed 
charges by $77 million in FY17, assuming that site-neutral payments 
will be based on a 50/50 blend of the standard LTCH PPS rate and the 
site-neutral LTCH PPS rate. We projected savings in FY17 by first 
projecting costs under TRICARE's current policy for reimbursing LTCHs. 
We assumed that the costs would increase by 7 percent per year from 
FY14 to 17 reflecting increases in both TRICARE admissions to LTCHs 
under current policy and increases in TRICARE billed charges. We then 
projected the costs under the proposed policy assuming that under the 
Medicare LTCH-PPS the combination of admissions and higher 
reimbursement rates would increase costs by 3 percent per year. This 
percentage annual increase in TRICARE allowed amounts using the LTCH-
PPS is less than the current policy percentage increase to reflect 
lower rates of increases in LTCH reimbursement rates under the LTCH-PPS 
(in comparison to TRICARE billed charges) and fewer LTCH admissions due 
to the phased in implementation of the Medicare LTCH site-neutral 
policy. The difference between the current policy and proposed policy 
amounts was equal to savings of $77 million in FY17, assuming partial 
phase-in of site-neutral payments.
    As discussed above, TRICARE's current payment method results in 
TRICARE reimbursing LTCHs substantially more than Medicare does for 
equivalent inpatient care. Adopting Medicare's LTCH PPS methodology is 
practicable. Even though the beneficiary populations differ between 
Medicare and TRICARE non-TFL beneficiaries, we have found that the 
distribution of LTCH cases by diagnosis groups is similar between the 
two populations. To adjust for the differences in use by the TRICARE 
and Medicare populations, we considered developing TRICARE-specific 
weights and rates. However, TRICARE has a low volume of admissions to 
LTCHs, so calculating weights and rates for TRICARE admissions to LTCHs 
is impracticable. We are able to calculate our own weights for 
admissions to general hospitals on an annual basis because of the 
volume of TRICARE admissions to general hospitals; however, it would be 
difficult to determine a new set of TRICARE LTCH weights because of the 
small number of TRICARE admissions. For example, there were only about 
700 TRICARE admissions in FY14 in the approximately 750 MS-LTC-DRG 
groups. Only four MS-LTC-DRGs had 25 or more TRICARE admissions in FY14 
and only 14 had ten or more TRICARE admissions in that year. 
Approximately 600 MS-LTC-DRGs had no TRICARE LTCH admissions. 
Consequently, we are proposing to adopt the weights and rates used 
currently in Medicare's MS-LTC-DRGs.
    Further, TRICARE proposes to adopt Medicare's LTCH PPS to include 
short-stay outliers, the 25 percent threshold payment adjustment, site-
neutral payments, interrupted stay policy, the method of payment for 
preadmission services, and high-cost outlier payments. TRICARE also 
proposes to incorporate Medicare's Long Term Care Hospital Quality 
Reporting (LTCHQR) payment adjustments for TRICARE LTCHs that reflect 
Medicare's annual payment update for that facility. TRICARE is not 
establishing a separate reporting requirement for hospitals, but will 
utilize Medicare's payment adjustments resulting from their LTCHQR 
Program. Please see Medicare's final rule [CMS-1632-F; CMS-1632-CN2] 
RIN 0938-AS41.
2. TRICARE IRF PPS Reimbursement
    IRFs are free standing rehabilitation hospitals and rehabilitation 
units in acute care hospitals that provide an intensive rehabilitation 
program. Per 32 CFR 199.14(a)(1)(ii)(D)(2) and (3), IRFs are currently 
exempt from the TRICARE DRG-based payment system, just as they were 
exempt from Medicare's IPPS when the CMS initially implemented its DRG-
based payment system. Per 42 CFR 412.1(a)(1), an inpatient 
rehabilitation hospital or rehabilitation unit of an acute care 
hospital must meet the requirement for classification as an IRF 
stipulated in subpart B of 42 CFR part 412. One criterion specified at 
42 CFR 412.29(b)(1) that Medicare uses for classifying a hospital or 
unit of a hospital as an IRF is that a minimum percentage (currently 60 
percent) of a facility's total inpatient population must meet at least 
one of 13 medical conditions listed in 42 CFR 412.29(b)(2). Because 
there is no alternate TRICARE reimbursement mechanism in 32 CFR part 
199 at this time, IRF care provided to TRICARE beneficiaries in this 
setting is currently paid the lower of a negotiated rate if a network 
IRF, or billed charges if a non-network IRF.
    Medicare created a PPS for IRFs effective with the cost reporting 
period beginning in January 2002. Section 4421 of the Balanced Budget 
Act of 1997 (Pub. L. 105-33) modified how Medicare payment for IRF 
services is to be made by creating Section 1886(j) of the Social 
Security Act, which authorized the implementation of a per-discharge 
prospective payment system for inpatient rehabilitation hospitals and 
rehabilitation units of acute care hospitals--referred to as IRFs. As 
required by Section 1886(j) of the Act, the Federal rates reflect all 
costs of furnishing IRF services (routine, ancillary, and capital 
related). CMS included a 9-month transition period when it adopted the 
IRF PPS for Medicare, under which IRFs could elect to be paid a blended 
rate. The transition period ended October 1, 2002. Following the 
transition period, payment to all IRFs was based entirely on the 
prospective payment.
    Under 10 U.S.C. 1079(i)(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].'' Based on 1079(i)(2), 
TRICARE is proposing to adopt Medicare's reimbursement methodology to 
reimburse TRICARE authorized IRFs. A change is needed to conform to the 
statute.
    For TRICARE, we were able to identify complete claims information 
for 2,929 TRICARE beneficiaries discharged from IRFs in FY14 where 
TRICARE was the primary payer. TRICARE allowed charges for these 
beneficiaries was approximately $121 million in FY14. These allowed 
amounts were equal to 74 percent of billed charges, indicating that 
there were significant discounts offered by IRFs. Excluding Children's 
and Veterans (VA) hospital claims, which are not paid under the IRF-
PPS,

[[Page 59938]]

TRICARE allowed amounts were $89 million in FY14. We found that the 
average allowed amount per IRF stay (excluding Children's and VA 
hospital claims) was $34,300 in FY14, which is significantly more than 
the estimated amount that Medicare would have paid for these discharges 
(the average Medicare IRF PPS payment was approximately $18,600 in 
2014). The 2014 Medicare payment amount per case was reported in the 
2016 Medicare Payment Advisory Commission (MedPAC) report. Using the 
Medicare IRF PPS system would have reduced TRICARE allowed amounts by 
approximately $41 million in FY14.
    Given TRICARE's statutory requirement to adopt Medicare's 
reimbursement methods when practicable, TRICARE is proposing to adopt 
Medicare's IRF PPS reimbursement method for its beneficiaries who 
receive rehabilitative care in IRFs. TRICARE proposes to adopt 
Medicare's IRF PPS and include Medicare's adjustments for interrupted 
stays, short stays of less than three days, short-stays transfers 
(defined as transfers to another institutional setting with an IRF 
length of stay less than the average length for the CMG), and high-cost 
outliers. TRICARE proposes to not adopt Medicare's low-income payment 
(LIP) adjustment for IRFs, because TRICARE does not adjust for 
Disproportionate Share in acute care hospitals under the TRICARE DRG 
system. TRICARE also proposes to incorporate Medicare's Inpatient 
Rehabilitation Hospital Quality Reporting (IRFQR) payment adjustments 
for TRICARE IRFs, that reflect Medicare's annual payment update for 
that facility. TRICARE is not establishing a separate reporting 
requirement for hospitals, but will utilize Medicare's payment 
adjustments resulting from their IRFQR Program. Please see Medicare's 
final rule [CMS-1632-F; CMS-1632-CN2] RIN 0938-AS41.

B. Pediatric Cases

1. LTCH
    Our analysis found that the TRICARE pediatric LTCH patients and 
Medicare populations have similar diagnoses and that the estimated 
TRICARE costs in each MS-LTC-DRG group are similar to those in 
Medicare. There are very few TRICARE LTCH cases for patients under age 
17; however, these pediatric cases have similar diagnoses as other 
TRICARE LTCH admissions. Therefore, we propose to adopt the same LTCH 
PPS methodology for pediatric patients in LTCHs as we are for all other 
TRICARE beneficiaries.
    We are inviting comments on this proposal and welcome feedback on 
whether the MS-LTC-DRG weights are appropriate for pediatric cases. We 
also welcome options and alternative approaches for consideration in 
establishing LTCH reimbursement for pediatric beneficiaries.
2. IRF
    In 2014, approximately 50 patients under the age of 17 received IRF 
care under TRICARE. Approximately 38 percent of those TRICARE pediatric 
IRF cases were treated at Children's hospitals, which are exempt from 
Medicare's IRF PPS. TRICARE is proposing that pediatric rehabilitation 
cases at Children's hospitals would also be exempt under the TRICARE 
IRF PPS and instead paid under the TRICARE DRG system. Pediatric cases 
treated at TRICARE IRFs would be paid under the TRICARE IRF PPS.

C. Veterans (VA) Hospitals

    VA hospitals specialize in treating injured veterans and provide 
access to rehabilitative care. VA hospitals are not Medicare authorized 
IRFs (because they are Federal hospitals) and they do not use 
Medicare's IRF PPS method. TRICARE allows VA hospitals to provide 
inpatient rehabilitation care to TRICARE beneficiaries, and VA 
hospitals provide care for over 200 TRICARE patients each year (mostly 
Active Duty Service Members (ADSMs)). VA hospitals will continue to be 
paid under existing methodologies.

III. Regulatory Impact Analyses for LTCHs and IRFs

A. Overall Impact

    DoD 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
    E.O.s 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 LTCH and IRF provisions that 
would be implemented by this rule would not result in LTCH or IRF 
revenue reductions exceeding $100 million in any one year individually; 
however, when combined, revenue reductions would exceed $100 million, 
making this rulemaking ``economically significant'' as measured by the 
$100 million threshold. We have prepared Regulatory Impact Analyses 
that, to the best of our ability, presents the costs and benefits of 
the rulemaking. This proposed rule is anticipated to reduce DoD allowed 
amounts to LTCHs by $77 million and to IRFs by $53 million in FY17.
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 is a major rule under the 
Congressional Review Act.
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 are considered to be small 
entities, either by being nonprofit organizations or by meeting the 
Small Business Administration (SBA) identification of a small business 
(having revenues of $34.5 million or less in any one year). For 
purposes of the RFA, we have determined that the majority of LTCHs and 
all IRFs 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, this Rule would have a significant impact on 
a substantial number of small entities. The Regulatory Impact Analyses, 
as well as the contents contained in the preamble, also serves as the 
Regulatory Flexibility Analysis.

[[Page 59939]]

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. Paperwork Reduction Act
    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 Proposed LTCH and IRF 
PPS Reimbursement Methodologies

    The TRICARE LTCH PPS and the TRICARE IRF PPS encompass all 
Medicare-classified LTCHs and IRFs that are also authorized by TRICARE 
and that have inpatient stays for TRICARE beneficiaries, except for 
hospitals in States that are paid by Medicare and TRICARE under a 
waiver that exempts them from Medicare's inpatient prospective payment 
system or the CHAMPUS DRG-based payment system, respectively. 
Currently, only Maryland hospitals operate under such a waiver.

C. Analysis of the Impact of Policy Changes on Payment for LTCH and IRF 
Alternatives Considered

    The alternatives that were considered, the changes that we are 
proposing, and the reasons that we have chosen these options are 
discussed below.
1. Alternatives Considered for Addressing Reduction in LTCH Payments
    Under the method discussed here, TRICARE's LTCH payments per 
discharge would decrease by an average of 45-75 percent for most LTCHs. 
Because the impact of moving from a charge-based reimbursement method 
to Medicare's method would produce such large reductions in the TRICARE 
allowed amounts for LTCH care, we considered a 4-year phase-in of this 
approach. Under this option, one portion of the payment would continue 
to be paid as the billed charge and the remaining portion would be paid 
under the Medicare approach. In the first year, 75 percent of the 
payment would be based on billed charges and in each subsequent year 
this portion would be reduced by 25 percentage points so that by the 
fourth year the billed charge portion would be zero points.
    For the following reasons, we have determined that a transition 
period is unnecessary because the Medicare-based payment amounts will 
have a minimal impact on overall LTCH payments and to any particular 
LTCH under TRICARE. First, the TRICARE payments to LTCHs will be equal 
to Medicare's LTCH payments. The Medicare Payment Advisory Committee 
(MedPAC) is an independent congressional agency which advises the U.S. 
Congress on issues affecting the Medicare program. MedPAC's most recent 
research indicates that Medicare LTCHs have a positive Medicare margin. 
Second, the number of TRICARE discharges from LTCHs is very small in 
comparison to the number of Medicare discharges in LTCHs each year. In 
FY14, there were 764 discharges to LTCHs in which TRICARE was the 
primary payer (including the 30 discharges with incomplete data). 
Medicare, in comparison, had approximately 138,000 discharges to LTCHs 
in 2013. Thus, in aggregate, the TRICARE LTCH claims are a very small 
percentage of the industry's claims (about one-half of one percent). 
Third, we found that in FY14 there were only 5 LTCHs with 15 or more 
TRICARE admissions. For all but two TRICARE LTCHs, we found that 
TRICARE admissions accounted for less than six percent of the number of 
Medicare discharges. Of the 212 LTCHs with TRICARE discharges, we found 
that 154 had 3 or fewer discharges in FY14 and that 208 Medicare LTCHs 
had no admissions in FY14 where TRICARE was the primary payer. Thus, 
the number of TRICARE discharges at any one LTCH is small and TRICARE 
is a small portion of LTCH revenues. Fourth, we do not think that there 
will be access problems for TRICARE beneficiaries. MedPAC has analyzed 
LTCH access for Medicare patients and concluded that Medicare 
beneficiaries have continued access to LTCHs under the Medicare payment 
methodology proposed here as evidenced by an increasing supply of 
providers and an increasing number of LTCH stays. Given that the 
TRICARE LTCH rates will equal Medicare LTCH rates and will have a 
limited impact on overall LTCH payments, we do not anticipate access 
problems for TRICARE beneficiaries. Further, by statute, hospitals that 
participate under Medicare are required to agree to accept TRICARE 
reimbursement. In summary, for these four reasons we do not think that 
a transition period is necessary, but we invite comments on this 
approach.

2. Alternatives Considered for Addressing Reduction in IRF Payments

    Under the method discussed here, TRICARE's IRF payments per 
discharge would decrease by 30-40 percent for most IRFs. Because the 
impact of moving from a charge-based reimbursement method to Medicare's 
method would produce such large reductions in the TRICARE allowed 
amounts for IRF care, we considered a 3-year phase-in of this approach. 
Under this option, one portion of the payment would continue to be paid 
as the billed charge and the remaining portion would be paid under the 
Medicare approach. In the first year, two-thirds of the payment would 
be based on billed charges and in each subsequent year this portion 
would be reduced by one-third so that by the third year the billed 
charge portion would be zero points.
    For the following reasons, we have determined that a transition 
period is unnecessary because the Medicare-based payment amounts will 
have a minimal impact on overall LTCH payments and to any particular 
LTCH under TRICARE. First, the TRICARE payments to IRFs will be equal 
to Medicare's IRF payments. The Medicare Payment Advisory Committee 
(MedPAC) is an independent congressional agency which advises the U.S. 
Congress on issues affecting the Medicare program. MedPAC's most recent 
research from March 2015 indicates that Medicare IRFs generally have 
positive Medicare margins. Thus, we think that IRFs will earn a 
positive margin from TRICARE. Second, the number of TRICARE discharges 
from IRFs is very small in comparison to the number of Medicare IRF 
discharges each year. In FY14, there were 2,681 IRF

[[Page 59940]]

discharges in which TRICARE was the primary payer (including the 78 
discharges with incomplete data and excluding discharges from 
Children's and VA hospitals). Medicare, in comparison, had 
approximately 376,000 IRF stays in 2014. Thus, in aggregate, the 
TRICARE IRF claims account for less than one percent of the industry's 
claims. Third, we found that in FY14 there were only 24 IRFs with 20 or 
more TRICARE admissions. For all but nine TRICARE IRFs, we found that 
TRICARE admissions accounted for less than ten percent of the number of 
Medicare discharges. Of the 591 IRFs with TRICARE discharges (including 
the 23 with incomplete data), we found that 408 had 3 or fewer 
discharges in FY14 and that 771 Medicare IRFs had no TRICARE admissions 
in FY14 where TRICARE was the primary payer. Thus, the number of 
TRICARE discharges at any one IRF is small and TRICARE accounts for a 
small portion of IRF revenues. Fourth, we do not think that there will 
be access problems for TRICARE beneficiaries. MedPAC has analyzed IRF 
access for Medicare patients and concluded that Medicare beneficiaries 
have continued access to IRFs. MedPAC reports the number of providers 
and volume of services in IRFs has remained stable between 2012 and 
2013. Because the TRICARE IRF rates will equal Medicare IRF rates and 
will have a limited impact on overall LTCH payments, we do not 
anticipate access problems for TRICARE beneficiaries. Further, by 
statute, hospitals that participate under Medicare are required to 
agree to accept TRICARE reimbursement. In summary, for these four 
reasons we do not think that a transition period is necessary, but we 
invite comments on this approach.

D. Analysis of the Impact of TRICARE LTCH and IRF Payment Reform on 
LTCHs and IRFs

1. LTCH Methodology
    We analyzed the impact of TRICARE implementing a new method of 
payment for LTCHs. The proposed method is Medicare's LTCH payment 
method, which uses the Medicare MS-LTC-DRG system for cases that meet 
specific clinical criteria to qualify for the standard LTCH PPS payment 
rates and, as of FY17, the Medicare IPPS MS-DRG system for all other 
(site-neutral) patients. Our analysis compares the impact on allowed 
charges of the new methodology compared to current TRICARE methodology 
(where TRICARE pays billed charges or discounts off of these billed 
charges for all LTCH claims).
    The data used in developing the quantitative analyses presented 
below are taken from TRICARE allowed charge data from October 2013 to 
September 2014. We drew upon various sources for the data used to 
categorize hospitals in Table 1, below. We attempted to construct these 
variables using information from Medicare's FY14 Impact file to verify 
that each provider was in fact a Medicare LTCH. One limitation is that 
for individual hospitals, some miscategorizations are possible. We were 
unable to match 30 hospital claims from 6 LTCHs to the FY14 Impact 
file, and as a result, these claims were excluded from the analysis. 
All Maryland LTCHs were also excluded from the analysis. After we 
removed the excluded claims which we could not assign charge and 
hospital classification variables for, we used the remaining hospitals 
and claims as the basis for our analysis.
    Using allowed charge data from 2014, the FY14 Medicare MS-LTC-DRG 
and MS-DRG weights, the FY14 Medicare LTCH and IPPS national base 
payment rates, the FY14 Medicare high cost outlier fixed thresholds, 
and the FY14 wage index adjustment factors, we simulated TRICARE 
allowed amounts in FY14 using the proposed LTCH prospective payment 
method. We focused the analysis on TRICARE claims where TRICARE was the 
primary payer because only these TRICARE payments will be affected by 
the proposed reforms.
2. IRF Methodology
    We analyzed the impact of TRICARE implementing a new method of 
payment for IRFs. The proposed method is Medicare's IRF prospective 
payment system (PPS) method, which pays a prospectively-set fixed 
payment per discharge based on a patient's classification into one of 
92 case-mix groups (CMGs). Our analysis compares the impact on allowed 
charges of the new methodology compared to current TRICARE methodology 
(where TRICARE pays billed charges or discounts off of these billed 
charges for all IRF claims).
    The data used in developing the quantitative analyses presented 
below are taken from TRICARE allowed charge data from October 2013 to 
September 2014. We drew upon various sources for the data used to 
categorize hospitals in Table 1, below. We attempted to construct these 
variables using information from Medicare's FY16 IRF rate setting file 
and the Medicare Provider file to verify that each TRICARE IRF provider 
was in fact a Medicare IRF. One limitation is that for individual 
hospitals, some miscategorizations are possible. We were unable to 
match 78 IRF claims from 23 IRFs to Medicare provider numbers within 
the FY16 IRF rate setting file or the October 2015 Medicare IRF PSF 
file, and as a result, these claims were excluded from the analysis. We 
also excluded all Children's Hospital (4 hospitals, 22 discharges) and 
all Veterans hospital (12 Veterans hospitals, 226 discharges) claims 
because these hospitals are not paid under the Medicare IRF-PPS. After 
we removed the excluded claims which we could not assign charge and 
hospital classification variables for, we used the remaining hospitals 
and claims as the basis for our analysis.
    The impact of adopting the Medicare IRF-PPS is difficult to 
estimate because there is insufficient diagnosis information on the 
TRICARE claims to classify TRICARE patients into a CMG. Because we were 
unable to classify TRICARE discharges into one of the 92 Medicare CMGs, 
we took an alternative approach to estimate the costs of adopting the 
Medicare IRF-PPS system. Our approach is based on first calculating the 
facility-specific ``Medicare'' costs for TRICARE IRF discharges at each 
IRF using the FY14 TRICARE billed charges at that IRF and the Medicare 
cost-to-charge ratio (CCR) for that IRF. We then used Medicare payment 
and cost data from the FY16 Medicare IRF rate setting file to calculate 
the Medicare margin at each IRF. In a third step of our approach we 
multiplied the estimated cost of each TRICARE discharge calculated in 
the first step by the IRF-specific margin to get an estimate of the 
allowed amount that would be paid by TRICARE under the Medicare IRF-PPS 
for each discharge. Under ``current policy'' we assumed that TRICARE 
IRF costs would increase by 6 percent per year from FY14 to FY17 to 
reflect increases in billed charges. We then projected the costs under 
the proposed policy, assuming that under the Medicare IRF-PPS, costs 
would increase by 2.5 percent per year from FY14 to FY17. Under the 
Medicare IRF-PPS, the percentage annual increase of 2.5 percent in 
TRICARE allowed amounts is less than the percentage increase under 
current policy due to slower increases in Medicare IRF reimbursement 
rates (in comparison to TRICARE billed charges). The difference between 
the current and the proposed policy was equal to $53 million in FY17. 
As a result, this approach allows us to estimate the change in allowed 
amounts under the Medicare method without having CMG

[[Page 59941]]

data on TRICARE patients. We focused the analysis on TRICARE claims 
where TRICARE was the primary payer because only these TRICARE payments 
will be affected by the proposed reforms.
3. Effect on Hospitals
    Table 1, Impact of TRICARE LTCH Rule in FY14, Assuming Full 
Implementation of the Medicare Site-Neutral Payment Policy, below, 
presents the results of our analysis of FY14 TRICARE claims data. This 
table categorizes LTCHs which had TRICARE inpatient stays in FY14 by 
various geographic and special payment consideration groups to 
illustrate the varying impacts on different types of LTCHs. The first 
column represents the number of LTCHs in FY14 in each category which 
had inpatient stays in which TRICARE was the primary payer. The second 
column shows the number of TRICARE discharges in each category. The 
third column shows the average TRICARE allowed amount per discharge in 
FY14. The fourth column shows the simulated average allowed amount per 
discharge under the Medicare LTCH payment method, assuming full 
implementation of the Medicare site-neutral payment policy. The fifth 
column shows the percentage reduction in the allowed amounts under the 
full implementation of the Medicare site-neutral method relative to the 
current allowed amounts.
    The first row in Table 1 shows the overall impact on the 222 LTCHs 
included in the analysis. The next three rows of the table contain 
hospitals categorized according to their urban/rural status in FY14 
(large urban, other urban, and rural). The second major grouping is by 
LTCH bed-size category, followed by TRICARE network status of the LTCH. 
The fourth grouping shows the LTCHs by regional divisions while the 
final grouping is by LTCH ownership status.
    We estimate that in FY14, assuming full implementation of the 
Medicare site-neutral payment policy, TRICARE allowed amounts to LTCHs 
would have decreased by 67 percent in comparison to allowed amounts 
paid to LTCHs under the current TRICARE policy. For all groups of 
LTCHs, allowed amounts under the proposed payment methodology would 
have been reduced.
    The following discussion highlights some of the changes in allowed 
amounts among LTCH classifications. Ninety-six percent of all TRICARE 
LTCH admissions were to urban LTCHs. Allowed amounts would have 
decreased by 69 percent for large urban, 64 percent for other urban, 
and 71 percent for rural LTCHs.
    Very small LTCHs (1-24 beds) would have had the least impact; 
allowed amounts would have been reduced by 49 percent. The change in 
payment methodology would have had the greatest impact on large LTCHs 
(125 or more beds), where allowed amounts would have been reduced by 
about 72 percent.
    The change in LTCH payment methodology would have a larger impact 
on TRICARE non-network LTCHs than network LTCHs because network LTCHs 
currently offer a discount off billed charges while non-network LTCHs 
do not. Allowed charges to non-network LTCHs would have declined by 74 
percent, in comparison to 64 percent for in-network hospitals. We found 
that network hospitals on average provide a 30 percent discount off 
billed charges for non-TFL TRICARE beneficiaries and that 79 percent of 
all TRICARE LTCH discharges were in-network in FY14.
    LTCHs in various geographic areas would have been affected 
differently due to this change in payment methodology. The two regions 
with the largest number of TRICARE claims, the South Atlantic and West 
South Central region, would have had an average decrease of 68 and 69 
percent in allowed charges respectively, which are very similar to the 
overall average of 67 percent. LTCHs in the East North Central and West 
North Central regions would have had the lowest reductions in allowed 
charges: 59 and 45 percent, respectively.
    Seventy-nine percent of all TRICARE LTCH discharges in FY14 were in 
proprietary (for-profit) LTCHs, and these facilities would have had 
their allowed amounts reduced by approximately 68 percent. The decline 
in allowed amounts for voluntary (not-for-profit) LTCHs would have been 
less than for-profit hospitals (63 percent).

 Table 1--Impact of TRICARE LTCH Rule in FY14, Assuming Full Implementation of the Medicare Site-Neutral Payment
                                                     Policy
----------------------------------------------------------------------------------------------------------------
                                                                    Allowed per     Allowed per       Percent
                                     Number of       Number of       discharge       discharge     reduction in
                                    LTCHs with        TRICARE        (current        (Medicare        allowed
                                   TRICARE stays    discharges        policy)         method)         amounts
----------------------------------------------------------------------------------------------------------------
All LTCHs.......................             222             734        $125,235         $41,071              67
    Large Urban.................             110             405         148,099          46,255              69
    Other Urban.................             103             312          96,193          34,787              64
    Rural.......................               9              17         113,576          32,880              71
Beds............................             222             734         125,235          41,071              67
    1-24........................               7              13          53,921          27,635              49
    25-34.......................              42             103         107,786          38,029              65
    35-49.......................              55             164         114,849          39,252              66
    50-74.......................              63             205         108,308          36,920              66
    75-124......................              35             151         137,763          44,779              67
    125+........................              20              98         186,523          52,064              72
Network Status..................             222             734         125,235          41,071              67
    Network.....................             160             580         110,147          39,461              64
    Non-Network.................              62             154         182,062          47,133              74
Region..........................             222             734         125,235          41,071              67
    New England.................               5              15          74,012          24,186              67
    Mid Atlantic................              11              22         121,182          29,631              76
    South Atlantic..............              39             238         131,922          41,939              68
    East North Central..........              32              71          93,975          38,786              59
    East South Central..........              19              54         146,180          46,381              68
    West North Central..........              13              27          87,161          48,098              45
    West South Central..........              68             214         104,033          31,831              69

[[Page 59942]]

 
    Mountain....................              18              56         166,254          60,533              64
    Pacific.....................              17              37         223,154          64,625              71
Ownership.......................             222             734         125,235          41,071              67
    Proprietary.................             175             567         127,929          40,763              68
    Government Owned............              10              29         108,139          32,452              70
    Voluntary...................              37             138         117,760          44,147              63
----------------------------------------------------------------------------------------------------------------
Source: FY14 TRICARE LTCH claims and FY14 Medicare Impact File. Excludes claims with other health insurance
  (OHI). Amounts adjusted for FY14 Wage Index and FY14 COLA.
Note: Excludes 30 claims from 6 TRICARE LTCHs that did not have a cost-to-charge ratio (CCR) in the FY14
  Medicare Impact File.

    Table 2, Impact of TRICARE IRF Rule in FY14, presents the results 
of our analysis of FY14 TRICARE claims data. This table categorizes 
IRFs which had TRICARE inpatient stays in FY14 by various geographic 
and special payment consideration groups to illustrate the varying 
impacts on different types of IRFs. The first column represents the 
number of IRFs in FY14 in each category which had inpatient stays in 
which TRICARE was the primary payer. The second column shows the 
simulated number of TRICARE discharges in each category. The third 
column shows the average TRICARE allowed amount per discharge in FY14. 
The fourth column shows the average allowed amount per discharge under 
the Medicare IRF payment method, excluding the LIP adjustment. The 
fifth column shows the percentage reduction in the allowed amounts 
under the Medicare payment method relative to the current TRICARE 
allowed amounts.
    The first row in Table 2 shows the overall impact on the 568 IRFs 
included in the analysis. The next two rows of the table categorize 
hospitals according to their geographic location in FY14 (urban and 
rural). The second major grouping is whether the IRF is a freestanding 
facility or a part of a hospital unit, followed by a grouping for 
TRICARE network status. The fourth grouping is whether the IRF is a 
teaching facility and the fifth groups IRFs by Census division. The 
final grouping is by IRF ownership status.
    The following discussion highlights some of the changes in allowed 
amounts among IRF classifications. Ninety-five percent of all TRICARE 
IRF admissions were to urban IRFs. Allowed amounts would have decreased 
by 45 percent for urban IRFs and 21 percent for rural IRFs.

                                   Table 2--Impact of TRICARE IRF Rule in FY14
----------------------------------------------------------------------------------------------------------------
                                                                                     Proposed
                                  Number of IRFs     Number of      Allowed per   policy allowed      Percent
                                   with TRICARE       TRICARE        discharge     per discharge   reduction in
                                       stays        discharges       (current        (medicare        allowed
                                                                      policy)         method)         amounts
----------------------------------------------------------------------------------------------------------------
All IRFs........................             568           2,603         $34,260         $19,129              44
    Urban.......................             523           2,473          34,944          19,257              45
    Rural.......................              45             130          21,248          16,687              21
Type............................             568           2,603          34,260          19,129              44
    Freestanding................             181           1,191          26,852          19,661              27
    Hospital Unit...............             387           1,412          40,508          18,680              54
Network Status..................             568           2,603          34,260          19,129              44
    Network.....................             433           2,323          32,806          19,169              42
    Non-Network.................             135             280          46,318          18,800              59
Teaching Status.................             568           2,603          34,260          19,129              44
    Teaching....................              56             444          43,861          22,195              49
    Non-Teaching................             512           2,159          32,285          18,498              43
Region..........................             568          2,603,          34,260          19,129              44
    North East and Middle                     78             184          27,964          22,299              20
     Atlantic...................
    South Atlantic..............              47             242          27,730          16,486              41
    East North Central..........             112             787          32,048          19,076              40
    East South Central..........              44             122          33,838          15,707              54
    West North Central..........              72             185          33,972          19,093              44
    West South Central..........             109             611          33,749          18,714              45
    Mountain....................              56             242          38,008          17,603              54
    Pacific.....................              50             230          51,600          24,108              53
Ownership.......................             568           2,603          34,260          19,129              44
    Proprietary.................             196           1,099          30,601          18,709              39
    Government Owned............              73             350          36,075          18,835              48
    Voluntary...................             299           1,154          37,193          19,618              47
----------------------------------------------------------------------------------------------------------------
Source: FY14 TRICARE IRF Claims and FY16 Medicare Rate Setting File. Excludes claims with other health insurance
  (OHI).
Note: Excludes claims from 12 VA Hospitals (226 discharges), 4 Children's Hospitals (22 discharges), and 28 IRFs
  where we were unable to identify Medicare certification or sufficient Medicare data (78 discharges). We have
  combined the North East and Middle Atlantic states for the purpose of this impact analysis due to small sample
  size in the North East region.


[[Page 59943]]

    The change in payment methodology would have resulted in a 54 
percent reduction in the allowed amounts for IRFs that are part of a 
hospital unit. In comparison, freestanding IRF payments would have been 
reduced by 27 percent.
    The change in IRF payment methodology would have a larger impact on 
TRICARE non-network IRFs than network IRFs because network IRFs 
currently offer a discount off billed charges while non-network IRFs do 
not. Allowed charges to non-network IRFs would have declined by 59 
percent, in comparison to 42 percent for in-network hospitals. We found 
that network hospitals on average provide a 32 percent discount off 
billed charges for non-OHI TRICARE beneficiaries and that 89 percent of 
all TRICARE IRF discharges were in-network in FY14.
    We also found that the change in IRF payment methodology would have 
a larger impact on teaching hospitals, where payments would have been 
reduced by 49 percent, in comparison to non-teaching hospitals, where 
payments would have been reduced by 43 percent. Approximately 83 
percent of all TRICARE IRF discharges were from non-teaching IRF 
facilities.
    IRFs in various geographic areas will be affected differently due 
to this change in payment methodology. The two regions with the largest 
number of TRICARE claims, the East North Central (787 discharges) and 
West South Central (611 discharges), would have had an average decrease 
of 40 and 45 percent in allowed charges respectively. IRFs in the North 
East and Middle Atlantic would have had the lowest reductions in 
allowed charges of 20 percent. The Mountain, East South Central, and 
Pacific regions would have had the highest reductions of between 53 and 
54 percent.
    Forty-two percent of all TRICARE IRF discharges in FY14 were in 
proprietary (for-profit) IRFs, and these facilities would have had 
their allowed amounts reduced by approximately 39 percent. The decline 
in allowed amounts for voluntary (not-for-profit) and government-owned 
IRFs would have been slightly more than proprietary hospitals (47 and 
48 percent respectively).

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--CIVILIAN HEALTH AND MEDICAL PROGRAM OF THE UNIFORMED 
SERVICES (CHAMPUS)

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. In Sec.  199.2, paragraph (b) is amended by:
0
a. Removing the definitions of ``Hospital, long-term (tuberculosis, 
chronic care, or rehabilitation)'' and ``Long-term hospital care''; and
0
b. Adding the definitions of ``Long Term Care Hospital (LTCH)'' and 
``Inpatient Rehabilitation Facility (IRF) '' in alphabetical order.
    The additions read as follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Long Term Care Hospital (LTCH). A hospital that is classified by 
the Centers for Medicare and Medicaid Services (CMS) as a LTCH and 
meets the applicable requirements established by Sec.  199.6(b)(4)(v) 
(which includes the requirement to be a Medicare participating 
provider).
* * * * *
    Inpatient Rehabilitation Facility (IRF). A facility classified by 
CMS as an IRF and meets the applicable requirements established by Sec 
199.6(b)(4)(xviii) (which includes the requirement to be a Medicare 
participating provider).
* * * * *
0
3. In Sec.  199.6, revise paragraphs (b)(4)(v) and (xvi), and add 
paragraph (xviii) to read as follows:


Sec.  199.6  TRICARE--authorized providers.

* * * * *
    (b) * * *
    (4) * * *
    (v) Long Term Care Hospital (LTCH). LTCHs must meet all the 
criteria for classification as an LTCH under 42 CFR part 412, subpart 
O, as well as all of the requirements of this Part in order to be 
considered an authorized LTCH under the TRICARE program.
    (A) In order for the services of LTCHs to be covered, the hospital 
must comply with the provisions outlined in paragraph (b)(4)(i) of this 
section. In addition, in order for services provided by such hospitals 
to be covered by TRICARE, they must be primarily for the treatment of 
the presenting illness.
    (B) Custodial or domiciliary care is not coverable under TRICARE, 
even if rendered in an otherwise authorized LTCH.
    (C) The controlling factor in determining whether a beneficiary's 
stay in a LTCH is coverable by TRICARE is the level of professional 
care, supervision, and skilled nursing care that the beneficiary 
requires, in addition to the diagnosis, type of condition, or degree of 
functional limitations. The type and level of medical services required 
or rendered is controlling for purposes of extending TRICARE benefits; 
not the type of provider or condition of the beneficiary.
* * * * *
    (xvi) Critical Access Hospitals (CAHs). CAHs must meet all 
conditions of participation under 42 CFR 485.601 through 485.645 in 
relation to TRICARE beneficiaries in order to receive payment under the 
TRICARE program. If a CAH provides inpatient psychiatric services or 
inpatient rehabilitation services in a distinct part unit, the distinct 
part unit must meet the conditions of participation in 42 CFR 485.647, 
with the exception of being paid under the inpatient prospective 
payment system for psychiatric facilities as specified in 42 CFR 
412.1(a)(2) or the inpatient prospective payment system for 
rehabilitation hospitals or rehabilitation units as specified in 42 CFR 
412.1(a)(3). Upon implementation of TRICARE's IRF PPS in 199.14(a)(10), 
if a CAH provides inpatient rehabilitation services in a distinct part 
unit, the distinct part unit shall be paid under TRICARE's IRF PPS.
* * * * *
    (xviii) Inpatient Rehabilitation Facility (IRF). IRFs must meet all 
the criteria for classification as an IRF under 42 CFR part 412, 
subpart B, and meet all applicable requirements established in this 
part in order to be considered an authorized IRF under the TRICARE 
program.
    (A) In order for the services of inpatient rehabilitation 
facilities to be covered, the facility must comply with the provisions 
outlined in paragraph (b)(4)(i) of this section. In addition, in order 
for services provided by these facilities to be covered by TRICARE, 
they must be primarily for the treatment of the presenting illness.
    (B) Custodial or domiciliary care is not coverable under TRICARE, 
even if rendered in an otherwise authorized inpatient rehabilitation 
facility.
    (C) The controlling factor in determining whether a beneficiary's 
stay in an inpatient rehabilitation facility is coverable by TRICARE is 
the level of professional care, supervision, and skilled nursing care 
that the beneficiary requires, in addition to the diagnosis, type of 
condition, or degree of functional limitations. The type and level of 
medical services required or

[[Page 59944]]

rendered is controlling for purposes of extending TRICARE benefits; not 
the type of provider or condition of the beneficiary.
* * * * *
0
4. Section 199.14 is amended by:
0
a. Revising paragraphs (a)(1)(ii)(D)(2), (3) and (4), and (ii)(E);
0
b. Revising paragraph (a)(3)(i) introductory text; and
0
c. Adding new paragraphs (a)(9) and (10).
    The revisions and additions read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (1) * * *
    (ii) * * *
    (D) * * *
    (2) Inpatient Rehabilitation Facilities (IRF). Prior to 
implementation of the IRF PPS methodology described in paragraph 
(a)(10) of this section, an inpatient rehabilitation facility which is 
exempt from the Medicare prospective payment system is also exempt from 
the TRICARE DRG-based payment system.
    (3) Psychiatric and rehabilitation units (distinct parts). Prior to 
implementation of the IRF PPS methodology described in paragraph 
(a)(10) of this section, a rehabilitation unit which is exempt from the 
Medicare prospective payment system is also exempt from the TRICARE 
DRG-based payment system. A psychiatric unit which is exempt from the 
Medicare prospective payment system is also exempt from the TRICARE 
DRG-based payment system.
    (4) Long Term Care Hospitals. Prior to implementation of the LTCH 
PPS methodology described in paragraph (a)(9) of this section, a long 
term care hospital which is exempt from the Medicare prospective 
payment system is also exempt from the CHAMPUS DRG-based payment 
system.
* * * * *
    (E) Hospitals which do not participate in Medicare. With the 
exceptions of CAHs, in addition to LTCHs and IRFs which must be 
Medicare-participating providers upon implementation of TRICARE's LTCH 
and IRF PPS, it is not required that a hospital be a Medicare-
participating provider in order to be an authorized TRICARE provider. 
However, any hospital which is subject to the CHAMPUS DRG-based payment 
system and which otherwise meets CHAMPUS requirements but which is not 
a Medicare-participating provider (having completed a form HCA-1514, 
Hospital Request for Certification in the Medicare/Medicaid Program and 
a form HCFA-1561, Health Insurance Benefit Agreement) must complete a 
participation agreement with TRICARE. By completing the participation 
agreement, the hospital agrees to participate on all CHAMPUS inpatient 
claims and to accept the CHAMPUS-determined allowable amount as payment 
in full for these claims. Any hospital which does not participate in 
Medicare and does not complete a participation agreement with TRICARE 
will not be authorized to provide services to TRICARE beneficiaries.
* * * * *
    (3) * * *
    (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 allowable 
cost (i.e., 101 percent of reasonable cost) under procedures, 
guidelines, and instructions issued by the DHA Director, or designee. 
This does not include any costs of physicians' services or other 
professional services provided to CAH inpatients. Inpatient services 
provided in psychiatric distinct part units would be subject to the 
TRICARE mental health payment system. Inpatient services provided in 
rehabilitation distinct part units would be subject to billed charges. 
Upon implementation of TRICARE's IRF PPS, inpatient services provided 
in rehabilitation distinct part units would be subject to the TRICARE 
IRF PPS methodology in (a)(10) of this section.
* * * * *
    (9) Reimbursement for inpatient services provided by an LTCH. (i) 
In accordance with 10 U.S.C. 1079(i)(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. The 
TRICARE-LTC-DRG reimbursement methodology shall be in accordance with 
Medicare's Medicare Severity Long Term Care Diagnosis Related Groups 
(MS-LTC-DRGs) as found in regulation at 42 CFR part 412, subpart O. 
Inpatient services provided in hospitals subject to the Medicare LTCH 
Prospective Payment System (PPS) and classified as LTCHs and also as 
specified in 42 CFR parts 412 and 413 will be paid in accordance with 
the provisions outlined in sections 1886(d)(1)(B)(IV) and 1886 (m)(6) 
of the Social Security Act and its implementing Medicare regulation (42 
CFR parts 412, 413, and 170) to the extent practicable. Under the above 
governing provisions, TRICARE will recognize, to the extent 
practicable, in accordance with 10 U.S.C. 1079(i)(2), Medicare's LTCH 
PPS methodology to include the relative weights, inpatient operating 
and capital costs of furnishing covered services (including routine and 
ancillary services), interrupted stay policy, short-stay and high cost 
outlier payments, the 25 percent threshold payment adjustment, site-
neutral payments, wage adjustments for variations in labor-related 
costs across geographical regions, cost-of-living adjustments, payment 
adjustments associated with the quality reporting program, method of 
payment for preadmission services, and updates to the system.
    (ii) Exemption. The TRICARE LTCH PPS methodology under this 
paragraph does not apply to hospitals in States that are reimbursed by 
Medicare and TRICARE under a waiver that exempts them from Medicare's 
inpatient prospective payment system or the TRICARE DRG-based payment 
system, respectively.
    (10) Reimbursement for inpatient services provided by Inpatient 
Rehabilitation Facilities. (i) In accordance with 10 U.S.C. 1079(i)(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. The TRICARE IRF PPS reimbursement methodology 
shall be in accordance with Medicare's IRF PPS as found in 42 CFR part 
412. Inpatient services provided in IRFs subject to the Medicare IRF 
prospective payment system (PPS) and classified as IRFs and also as 
specified in Subpart B of 42 CFR part 412 will be paid in accordance 
with the provisions outlined in section 1886(j) of the Social Security 
Act and its implementing Medicare regulation found at 42 CFR 412 
subpart P to the extent practicable. Under the above governing 
provisions, TRICARE will recognize, to the extent practicable, in 
accordance with 10 U.S.C. 1979(i)(2), Medicare's IRF PPS methodology to 
include the relative weights, payment rates covering all operating and 
capitals costs of furnishing rehabilitative services adjusted for wage 
variations in labor-related costs across geographical regions, 
adjustments for 60 percent compliance threshold, teaching adjustment, 
rural adjustment, high-cost outlier payments, payment adjustments 
associated with the quality reporting program, and updates to the 
system. TRICARE will not adopt Medicare's low-income payment adjustment 
under TRICARE's IRF PPS.

[[Page 59945]]

    (ii) Exemption. The TRICARE IRF PPS methodology under this 
paragraph does not apply to hospitals in States that are reimbursed by 
Medicare and TRICARE under a waiver that exempts them from Medicare's 
inpatient prospective payment system or the TRICARE DRG-based payment 
system, respectively.
* * * * *

    Dated: August 24, 2016.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2016-20660 Filed 8-30-16; 8:45 am]
 BILLING CODE 5001-06-P