[Federal Register Volume 82, Number 249 (Friday, December 29, 2017)]
[Rules and Regulations]
[Pages 61678-61694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28022]


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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: Final rule.

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SUMMARY: This final rule establishes reimbursement rates for Long Term 
Care Hospitals (LTCHs) and Inpatient Rehabilitation Facilities (IRFs) 
in accordance with the statutory requirement that TRICARE inpatient 
care ``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.'' This final 
rule adopts Medicare's reimbursement methodologies for inpatient 
services provided by LTCHs and IRFs. Each reimbursement methodology 
will be phased in over a 3-year period. This final rule also removes 
the definitions for ``hospital, long-term (tuberculosis, chronic care, 
or rehabilitation)'' and ``long-term hospital care,'' and creates 
separate definitions for ``Long Term Care Hospital'' and ``Inpatient 
Rehabilitation Facility'' adopting Centers for Medicare & Medicaid 
Services (CMS) classification criteria. This final rule also includes 
authority for a year-end, discretionary General Temporary Military 
Contingency Payment Adjustment (GTMCPA) for inpatient services in 
TRICARE network IRFs when deemed essential to meet military contingency 
requirements.

DATES: This rule is effective March 5, 2018.
    Applicability Date: The regulations setting forth the revised 
reimbursement systems shall be applicable for all admissions to Long 
Term Care Hospitals and Inpatient Rehabilitation Facilities, 
respectively, commencing on or after the first day of the month which 
is at least 120 days after the date of publication of this rule in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Sharon Seelmeyer, Defense Health 
Agency (DHA), Medical Benefits and Reimbursement Branch, telephone 
(303) 676-3690.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

A. Purpose of the Final Rule

1. Long Term Care Hospitals (LTCHs)
    The purpose of this final rule is to establish a reimbursement 
system for LTCHs in accordance with the statutory provision at title 
10, United States Code (U.S.C.), section 1079(i)(2). This statute 
requires that TRICARE payment for institutional care be determined, to 
the extent practicable, in accordance with the same rules as those that 
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

[[Page 61679]]

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 Center for Medicare and Medicaid Service's (CMS') 
reimbursement system for LTCHs, with the exception of not adopting 
Medicare's LTCH 25 percent rule. This TRICARE proposed rule was 
subsequently withdrawn and replaced by the proposed rule published 
August 31, 2016 [81 FR 59934]. We refer the reader to the August 31, 
2016, proposed rule for additional information.
    TRICARE pays for most hospital care under the TRICARE DRG-based 
payment system, which is similar to Medicare's, but some hospitals are 
exempt by current regulation from the TRICARE DRG-based payment system. 
LTCHs were exempted from the TRICARE DRG-based payment system and were 
paid by TRICARE at the lower of a negotiated rate or billed charges. 
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. The final rule creates a 
gradual transition from TRICARE's current policy of authorizing LTCHs 
100 percent of allowable charges (which is either the billed charge or 
a voluntarily negotiated rate) by phasing-in Medicare's LTCH 
reimbursement rates as follows: Allowing 135 percent of Medicare LTCH 
PPS amounts in the first 12-month period after implementation, 115 
percent in the second 12-month period after implementation, and 100 
percent in the third 12-month period after implementation and follows 
Medicare policies during subsequent Fiscal Years (FY). Our legal 
authority for this portion of the final rule is 10 U.S.C. 1079(i)(2).
2. Inpatient Rehabilitation Facilities (IRFs)
    The purpose of this rule is to also adopt Medicare's reimbursement 
system for inpatient care for IRFs in accordance with the statutory 
requirement at 10 U.S.C. 1079 (i)(2) that TRICARE ``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).
    Similar to LTCHs, IRFs (both freestanding rehabilitation hospitals 
and rehabilitation hospital units) are currently exempted from the 
TRICARE DRG-based payment system and paid by TRICARE at the lower of a 
negotiated rate or billed charges. 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. The final rule creates a 
gradual transition from TRICARE's current policy of authorizing IRFs 
100 percent of allowable charges (which is either the billed charge or 
a voluntarily negotiated rate) by phasing-in Medicare's IRF PPS as 
follows: Allowing 135 percent of Medicare IRF PPS amounts in the first 
12-month period after implementation, 115 percent in the second 12-
month period after implementation, and 100 percent in the third 12-
month period after implementation and follow Medicare's policies during 
subsequent FYs. Our legal authority for this portion of the final rule 
is 10 U.S.C. 1079(i)(2).

B. Summary of the Major Provisions of the Final Rule

1. Payment Method for LTCHs
    TRICARE shall reimburse LTCHs for inpatient care using Medicare's 
LTCH PPS using Medicare's MS-LTC-DRGs. TRICARE is creating a 3-year 
transition period as described below. Payment for a TRICARE patient 
will be made at a predetermined, per-discharge amount for each Medicare 
Severity (MS)-LTC-DRG under the TRICARE LTCH PPS reimbursement 
methodology. The TRICARE LTCH PPS reimbursement methodology includes 
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 hospital day limit is 
exhausted for TRICARE beneficiaries, who are also eligible for Medicare 
(i.e., TRICARE For Life (TFL) beneficiaries), TRICARE is the primary 
payer for medically necessary services, the beneficiary will be 
responsible for the appropriate TRICARE inpatient cost share. The 
beneficiary's out-of-pocket costs will be limited by the respective 
statutory catastrophic cap.
2. LTCH Transition Period
    In response to public comments, we agree that a transition period 
is appropriate in order to prepare LTCHs for changes in reimbursement. 
TRICARE will allow LTCHs 135 percent of the Medicare LTCH PPS amounts 
in the first 12-month period after implementation, 115 percent in the 
second 12-month period after implementation, and 100 percent in the 
third 12-month period after implementation and follow Medicare's 
policies during subsequent fiscal years.
    CMS has established two different types of LTCH PPS payment rates 
based on the Pathway for Sustainable Growth Rate Reform Act of 2013: 
(1) Standard LTCH PPS payment rates; and (2) lower site-neutral LTCH 
PPS payment rates that are paid at the lower of the IPPS comparable per 
diem amount, or the estimated cost of the case. 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. 
Medicare transitioned to the site-neutral payment rate reductions in FY 
2016 and FY 2017 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 those years. Beginning at the individual hospital's 
cost reporting period beginning in FY 2018, all Medicare LTCH payments 
for site-neutral patients are calculated using the site-neutral payment 
methodology (without a 50/50 blend in payments).
    TRICARE will adopt the Medicare LTCH PPS in its entirety except for 
the Medicare 25 percent threshold rule, including both the full LTCH 
PPS Standard Federal Payment Rate and site-neutral LTCH PPS methodology 
for qualifying LTCH cases. TRICARE will have a 3-year transition period 
which will start at the applicability date of this final rule. We will 
apply the FY 2019 LTCH PPS for the purposes of the 12-month period 
beginning on October 1, 2018, and follow any changes adopted by 
Medicare LTCH PPS for subsequent years. For example, if FY 2019 is the 
first year of the TRICARE transition period, TRICARE would follow 
Medicare and all TRICARE LTCHs would receive 135 percent of the full 
site-neutral payment for TRICARE site-neutral patients. TRICARE will 
also consider military treatment facilities (MTF) and Veterans 
Administration (VA) hospitals as Subsection (d)

[[Page 61680]]

hospitals for the purposes of the site-neutral policy.
3. Children's Hospitals and Pediatric Patients in LTCHs
    Children's hospitals will be exempt from the TRICARE LTCH PPS and 
will be paid under the TRICARE DRG-based payment system. Pediatric 
patients who receive care in TRICARE authorized LTCHs will be paid 
under the TRICARE LTCH PPS. This final rule edits the regulatory 
language to include this provision.
4. Payment Method for IRFs
    TRICARE shall reimburse IRFs for inpatient care using Medicare's 
IRF PPS. TRICARE is creating a 3-year transition period as described 
below. Payment for a TRICARE patient will be made at a prospectively-
set, fixed payment per discharge based on a patient's classification 
into one of 92 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 will cover all inpatient operating and capital costs that IRFs 
are expected to incur in furnishing inpatient rehabilitation services. 
When the Medicare hospital day limit is exhausted for TRICARE 
beneficiaries who are also eligible for Medicare (i.e., TRICARE For 
Life (TFL) beneficiaries), TRICARE will then be the primary payer for 
medically necessary services and the beneficiary will be responsible 
for the appropriate TRICARE inpatient cost share. The beneficiary's 
out-of-pocket costs will be limited by the respective statutory 
catastrophic cap.
5. IRF Transition Period
    In response to public comments, we agree that a transition period 
is appropriate in order to prepare IRFs for changes in reimbursement. 
To protect IRFs from sudden significant reductions, the final rule 
creates a gradual transition from TRICARE's current policy of allowing 
100 percent of allowable charges (which is either the billed charge or 
a voluntarily negotiated rate) by phasing-in the Medicare IRF PPS rates 
as follows: allowing 135 percent of Medicare IRF PPS amounts in the 
first 12-month period after implementation, 115 percent in the second 
12-month period after implementation, and 100 percent in the third 12-
month period after implementation. We will apply the FY 2019 IRF PPS 
for purposes of the 12-month period beginning on October 1, 2018, and 
follow any changes adopted by the Medicare IRF PPS for subsequent 
years.
6. Children's Hospitals and Pediatric Patients in IRFs
    As stated in the supplementary language of the proposed rule 
published on August 31, 2016, Children's hospitals will be exempt from 
the TRICARE IRF PPS and will be paid under the TRICARE DRG-based 
payment system. Pediatric patients who receive care in TRICARE 
authorized IRFs will be paid under the TRICARE IRF PPS.
7. IRF Low Income Payment (LIP) Adjustment
    TRICARE is including the LIP adjustment in the TRICARE IRF PPS.
8. Removal of Outdated Terms
    This final rule removes outdated definitions in Title 32, Code of 
Federal Regulations (CFR), Part 199.2 for ``[h]ospital, long-term 
(tuberculosis, chronic care, or rehabilitation)'' and ``[l]ong-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 adopt CMS' LTCH 
and IRF classifications. The TRICARE requirements for both LTCHs and 
IRFs to be authorized institutional providers have been added to 32 CFR 
199.6.
9. General Temporary Military Contingency Payment Adjustment (GTMCPA) 
For IRFs
    One of the purposes of the TRICARE program is to support military 
members and their families during periods of war or contingency 
operations, when military facility capability may be diverted or 
insufficient to meet military readiness priorities. To preserve the 
availability of IRFs during such periods, the final rule includes 
authority for a year-end discretionary, temporary adjustment that the 
Director, DHA may approve in extraordinary economic circumstances for a 
network IRF that serves a disproportionate share of Active Duty Service 
members (ADSMs) and Active Duty dependents (ADDs). TRICARE is in the 
process of developing policy and procedural instructions for exercising 
the discretionary authority under the qualifying criteria for the 
GTMCPAs for inpatient services provided in IRFs. The policy and 
procedural instructions will be available within three to six months 
following the applicability date of the new inpatient reimbursement 
methodology for IRFs. Network IRFs will be able to request a GTMCPA 
approximately 14 months from the applicability date of the new 
reimbursement method as any GTMCPA will be based on twelve months of 
claims payment data under the new method. Once finalized, the policy 
and procedural instructions will be available in the TRICARE 
Reimbursement Manual at http://manuals.tricare.osd.mil. As with any 
discretionary authority exercised under the regulation, a determination 
approving or denying a GTMCPA for an IRF is not subject to the appeal 
and hearing procedures set forth in 32 CFR 199.10, and Section 
199.14(a)(10) of this final rule has been revised to clarify this 
point.

C. Costs and Benefits

    Consistent with OMB Circular A-4, the effect of this rule is a 
transfer caused by a Federal budget action; it does not impose costs, 
including private expenditures. The final rule is anticipated to reduce 
DoD allowed amounts to LTCHs by approximately $73M in the first year of 
the transition, if implemented in FY 2019 when TRICARE site-neutral 
LTCH cases will be paid at the full applicable LTCH PPS payment amount 
(see Table 1). DoD allowed amounts to LTCHs would be reduced by $86M in 
the second year, and $98M in the third and final year of the 
transition.
    This final rule is also anticipated to reduce DoD allowed amounts 
to IRFs by approximately $24M in FY 2019, which is anticipated to be 
the first year of the transition period, $41M in the second year, and 
$57M in the final year of transition.

[[Page 61681]]

[GRAPHIC] [TIFF OMITTED] TR29DE17.000

II. Discussion of Final Rule

A. Introduction and Background

    In the Federal Register of August 31, 2016 [81 FR 59934], DoD 
published for public comment a rule proposing to revise its 
reimbursement methodologies for LTCHs and IRFs. 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.''

B. TRICARE LTCH PPS Reimbursement Methodology

    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 425 under Medicare), which treat a critically ill 
population with complex needs and long lengths of stay. Per 32 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 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 or 
billed charges, which is usually substantially greater than what would 
be paid using the TRICARE DRG method.
    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 FY 2016, Medicare began its 
adoption of a site-neutral payment system for LTCHs. Beginning in FY 
2016 and continuing in FY 2017 and 2018, CMS has been phasing in the 
site-neutral payment methodology; during that time, 50 percent of the 
allowed amount for site-neutral patients was calculated using the site-
neutral payment methodology (IPPS comparable amount) and 50 percent was 
calculated using the current full LTCH PPS standard federal payment 
rate methodology. Beginning in cost reporting periods that start in FY 
2018, all Medicare payments for qualifying LTCH site-neutral patients 
are calculated using the Medicare site-neutral payment methodology. All 
other LTCH patients meeting the Medicare criteria for a full LTCH PPS 
Standard Payment will be paid using the standard LTCH PPS payment 
methodology. 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 10 U.S.C. 1079(i)(2), TRICARE is adopting Medicare's LTCH PPS, 
to include Medicare's MS-LTC-DRG weights and rates, and Medicare's 
site-neutral payment methodology for TRICARE authorized LTCHs. TRICARE 
will adopt the Medicare payment methodology that is in place at the 
time of TRICARE's implementation and TRICARE will adopt any additional 
updates or changes to Medicare's LTCH PPS payment methodology as they 
are adopted by Medicare. TRICARE is also adopting Medicare's 
adjustments for short-stay outliers, site-neutral payments, interrupted 
stay policy, the method of payment for preadmission services, and high-
cost outlier payments. TRICARE is not adopting Medicare's 25 percent 
rule because there are too few TRICARE discharges at individual LTCHs 
to have a threshold policy based on TRICARE admissions. In FY15, only 
15 of the 200 LTCHs with TRICARE discharges had 10 or more TRICARE 
admissions and over 70 percent of the 200 LTCH discharges were from 
LTCHs with 1-3 TRICARE discharges. As a result, TRICARE has too few 
discharges at all but a very small number of LTCHs to calculate and 
apply the 25 percent test using TRICARE discharges. TRICARE could not 
apply the results of the Medicare 25 percent rule to TRICARE LTCH 
discharges

[[Page 61682]]

because the results of Medicare's test are not known until the LTCH's 
Medicare cost report is settled after the end of the year. Even if DHA 
knew which LTCHs had failed the 25 percent rule and could identify the 
specific acute care hospitals that had exceeded the 25 percent rule, it 
would not be appropriate to apply an adjustment to the TRICARE LTCH 
discharges from that acute care hospital because DHA would not know 
which specific TRICARE LTCH discharges from that acute care hospital 
should have payment reductions and it would be inconsistent with 
Medicare's policy to reduce the payments for all TRICARE LTCH 
discharges from that hospital. As a result, DoD is not adopting 
Medicare's 25 percent rule. TRICARE will also incorporate Medicare's 
LTCH Quality Reporting (QR) payment adjustments for TRICARE LTCHs that 
are reflected 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 LTCH QR Program. Please see Medicare's final rule published 
on August 22, 2016 [81 FR 56761] for more detail about that program.
    TRICARE will have a three-year phase-in period to prepare LTCHs for 
these changes in TRICARE reimbursement. TRICARE will allow LTCHs 135 
percent of the Medicare LTCH PPS amounts in the first 12-month period 
after implementation, 115 percent in the second 12-month period after 
implementation, and 100 percent in the third 12-month period after 
implementation and follow Medicare's LTCH PPS policies during 
subsequent FYs.

C. TRICARE IRF PPS Reimbursement Methodology

    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)(3), an inpatient 
rehabilitation hospital or rehabilitation unit of an acute care 
hospital must meet the requirement for classification as an IRF 
stipulated in 42 CFR 412.604. In order to qualify as a Medicare-
certified IRF, Medicare requires that a certain percentage (currently 
60 percent) of the IRF'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, or billed 
charges. We are adopting Medicare's 60 percent requirement for IRFs.
    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.
    TRICARE will also have a three-year phase-in to protect IRFs from 
sudden significant reductions. The final rule creates a gradual 
transition to full implementation of the Medicare IRF PPS by allowing 
135 percent of Medicare IRF PPS amounts in the first 12-month period 
after implementation, 115 percent in the second 12-month period after 
implementation, and 100 percent in the third 12-month period after 
implementation and follow Medicare's IRF PPS policies during subsequent 
FYs.
    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 10 U.S.C. 
1079(i)(2), TRICARE is adopting Medicare's IRF reimbursement 
methodology for TRICARE authorized IRFs.
    TRICARE is also adopting Medicare's IRF adjustments for interrupted 
stays, short stays of less than three days, short-stay transfers 
(defined as transfers to another institutional setting with an IRF 
length of stay less than the average length for the CMG), high-cost 
outliers, and the LIP adjustment. Further, TRICARE is adopting 
Medicare's Inpatient Rehabilitation Hospital Quality Reporting (IRFQR) 
payment adjustments for TRICARE authorized 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.

D. Pediatric Cases in TRICARE Authorized LTCHs and IRFs

1. LTCH
    Our analysis found that in FY 2015, there were five pediatric 
TRICARE patients treated at TRICARE LTCHs. We found that TRICARE LTCH 
patients had similar diagnoses as Medicare LTCH patients and that the 
few pediatric LTCH patients had similar diagnoses as TRICARE patients. 
Therefore, we are also adopting Medicare's LTCH PPS methodology for 
pediatric patients treated in TRICARE authorized LTCHs. Some TRICARE 
patients are treated at Children's hospitals and these hospitals will 
be exempt from the LTCH PPS and will be paid under the TRICARE DRG-
based payment system.
2. IRF
    Approximately 50 TRICARE beneficiaries under the age of 17 received 
treatment at TRICARE IRFs in FY 2015. We are adopting Medicare's IRF 
PPS for pediatric patients treated at TRICARE authorized IRFs. Some 
TRICARE patients are treated at Children's hospitals and these 
hospitals will be exempt from the IRF PPS, and will be paid under the 
TRICARE DRG-based payment system.

E. Veterans Administration (VA) Hospitals

    VA hospitals specialize in treating injured veterans and provide 
access to rehabilitative care.
1. LTCH
    VA hospitals are not Medicare-authorized LTCHs (because they are 
Federal hospitals) and they are not reimbursed using Medicare's LTCH 
PPS method.
2. IRF
    VA hospitals are not Medicare-authorized IRFs (because they are 
Federal hospitals) and they are not reimbursed using 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

[[Page 61683]]

ADSMs). VA hospitals will continue to be paid under existing payment 
methodologies.

F. IRF General Temporary Military Contingency Payment Adjustment 
(GTMCPA)

    In response to the public comments, the final rule includes 
authority for a year-end, discretionary, GTMCPA that the Director, DHA, 
may approve in extraordinary economic circumstances for inpatient 
services from TRICARE network IRFs deemed to be essential for military 
readiness and support during contingency operations. The Director, DHA, 
or designee, may approve a GTMCPA for network IRFs that serve a 
disproportionate share of ADSMs and ADDs. Specific procedures for 
requesting an IRF GTMCPA will be outlined in the TRICARE Reimbursement 
Manual.

G. Additional Revisions to the Regulations

    In reviewing the proposed rule, we realized that the current 
regulation regarding the reimbursement of facilities and services that 
exempt from the DRG-based payment system (32 CFR 199.14(a)(1)(ii)(C)) 
contains an incorrect cross-reference to paragraph (a)(3) vice (a)(4). 
The new paragraph (a)(3) was added as part of TRICARE; Reimbursement of 
Critical Access Hospitals final rule (74 FR 44752, August 31, 2009). 
The old paragraph (a)(3) regarding billed charges and set rates was 
renumbered as (a)(4), which is now the correct reference. Consequently, 
we have included this correction in the final rule,

III. Public Comments

    The TRICARE LTCH and IRF proposed rule [81 FR 59934] published on 
August 31, 2016, provided a 60-day comment period. Following is a 
summary of the public comments and our responses.

A. LTCH

    Comment: One commenter stated that DHA should have a transition 
period for the LTCH rule because LTCHs are already experiencing 
financial instability due to the implementation of Medicare's site-
neutral payments. The commenter further stated that because of this 
instability, LTCHs may temporarily suspend all care to TRICARE 
beneficiaries upon implementation of the LTCH-PPS. The commenter 
believes this would be less likely to occur if DHA implements a two-
year transition period.
    Response: In response to this comment, we have considered whether 
we should modify our approach to include a transition period. We 
analyzed our options and as a result, we are including a 3-year phase 
in to full adoption of Medicare's LTCH PPS rates. TRICARE LTCHs will be 
allowed 135 percent of Medicare LTCH PPS amounts in the first 12-month 
period after implementation, 115 percent in the second 12-month period 
after implementation, and 100 percent in the third 12-month period 
after implementation and subsequent FYs.
    Comment: Two commenters stated that DHA should do additional 
analysis on TRICARE LTCH beneficiaries to understand whether the LTCH 
payment reform will limit beneficiary access to needed care. These 
commenters believe that analyses should be done to ensure that the 
LTCH-PPS rates would adequately cover the cost of care for the TRICARE 
population. They opined that DHA should delay implementation of the 
LTCH-PPS to do these analyses.
    Response: DHA analyzed FY 2015 TRICARE LTCH claims data to 
understand the differences between the LTCH payment rates for TRICARE 
patients under the current TRICARE method and proposed adoption of 
Medicare methods. We note that: (1) TRICARE's proposed LTCH payment 
rates would be no less than Medicare rates; (2) Medicare LTCH rates are 
higher than LTCH costs; (3) during the transition period the TRICARE 
rates would be much higher than the Medicare rates; and (4) that in 
studying Medicare beneficiary access to LTCHs, Medicare Payment 
Advisory Commission (MedPAC) has found that LTCH access has been 
maintained for Medicare beneficiaries (MedPAC, 2016 Report to Congress, 
Chapter 10). Thus, for the reasons stated above, DHA believes it is 
reasonable to assume that TRICARE beneficiaries will not have access 
problems for LTCH care.
    Comment: One commenter stated DHA should not implement a TRICARE-
specific 25-percent policy for LTCHs because the 25-percent rule would 
penalize many TRICARE LTCHs that admit less than four TRICARE patients 
annually. If implemented, the 25-percent rule would reduce TRICARE 
payments by far more than 67 percent.
    Response: We agree with the commenter that DHA should not include a 
TRICARE-specific 25-percent policy for LTCHs. Our intent was not to 
have a TRICARE-specific 25-percent policy for LTCHs. We have also 
decided it is not practicable for TRICARE to adopt Medicare's 25-
percent policy adjustments for TRICARE LTCHs because there are too few 
TRICARE discharges to have a threshold policy based on TRICARE 
admissions, and it would be unfair to adjust all of an LTCH's payments 
if the LTCH failed the Medicare threshold (and this would also be 
inconsistent with Medicare's policy).
    Comment: One commenter stated that DHA should modify its LTCH-PPS 
short stay outlier policy for LTCHs to cap payments at the cost of the 
case. The commenter believed the Medicare Short Stay Outlier (SSO) 
policy would encourage perverse incentives for LTCHs who may discharge 
patients at certain points of their stay based on what outlier payment 
they would receive. A capped policy would also be easier to implement.
    Response: We disagree that the Medicare LTCH SSO policy should be 
modified for TRICARE. DHA aims to follow Medicare policy as closely as 
possible, and for this reason, using Medicare's exact outlier 
methodology is appropriate.
    Comment: Two commenters stated that TRICARE should treat military 
treatment facilities and VA hospitals as ``subsection (d)'' hospitals 
for the purposes of determining whether a case meets the clinical 
patient-level criteria used to determine eligibility for the LTCH-PPS 
standard reimbursement rate.
    Response: We thank the commenters for bringing to our attention 
that due to the site neutral criteria, patients may potentially be 
rejected from admission to Long Term Care Hospitals because the 
preceding stay was not at a subsection (d) hospital. In order to 
eliminate a potential rejection, DHA agrees that TRICARE should treat 
military treatment facilities and VA hospitals as ``subsection (d)'' 
hospitals for the purposes of LTCH admission and qualification for the 
LTCH-PPS payment. It is important to ensure that Military Treatment 
Facility (MTF) and VA discharged TRICARE beneficiaries do not have LTCH 
access issues. We would also note that this approach is consistent with 
the guidance issued by CMS. Specifically, for patients who may have 
used their VA benefit or received inpatient care at a MTF that 
qualified as an ``immediately preceding'' stay, applicable criteria for 
exclusion from the site neutral payment rate are met. (See MLN 
Matters[supreg] Number: SE1627 released October 18, 2016.)
    Comment: One commenter stated that few TRICARE patients go to LTCHs 
so the TRICARE LTCH payment change is irrelevant.
    Response: We disagree with the commenter on their statement that 
few TRICARE patients go to LTCHs, and that changes to the TRICARE LTCH 
payment system would be irrelevant. In FY 2015,

[[Page 61684]]

over 700 TRICARE patients were admitted to approximately 200 LTCHs, 
with allowed amounts of over $90M. As a result, LTCH payment changes 
would not be irrelevant.
    Comment: One commenter stated the SSO policy proposed would be 
different than Medicare's reimbursement system.
    Response: This comment was in response to the withdrawn TRICARE 
proposed rule published in the Federal Register on January 26, 2015 [79 
FR 51127]. The proposed rule has since been withdrawn. We published a 
new proposed rule in the Federal Register on August 31, 2016 [81 FR 
59934], stating we would adopt Medicare's short stay outlier policy in 
its entirety.
    Comment: One commenter agreed with our proposed definition changes.
    Response: We thank the commenter for their review and observations.

B. IRF

    Comment: One commenter stated the proposed timeline date of the 
beginning FY 2017 for implementation was incorrect.
    Response: We agree that the timeline cannot begin at the beginning 
of FY 2017 and have modified the projected implementation date to FY 
2019 for both LTCHs and IRFs.
    Comment: One commenter stated that DHA should reduce IRF 
administrative burdens such as the repetitive authorization process.
    Response: This comment does not appear to be contingent on the 
proposed rule, and is instead commenting on TRICARE IRF current 
practice. We invite the commenter to contact their regional Managed 
Care Support Contractor to work with them and make them aware of the 
issue.
    Comment: Two commenters stated that TRICARE should have a 
transition period for the IRF rule. Providers should be given adequate 
advance notice of any changes to their reimbursement and should have 
the flexibility to transition to the new system.
    Response: In response to this comment, we have considered whether 
we should modify our approach to include a transition period. We are 
including a 3-year transition period for adopting Medicare's IRF PPS 
rates. TRICARE will allow 135 percent of Medicare IRF PPS amounts in 
the first 12-month period after implementation, 115 percent in the 
second 12-month period after implementation, and 100 percent in the 
third 12-month period after implementation, and follow Medicare's IRF 
PPS policies during subsequent FYs.
    Comment: One commenter, noting that TRICARE beneficiaries are 
substantially younger than Medicare beneficiaries, stated Medicare's 
CMG system and weights are not appropriate for TRICARE patients because 
TRICARE IRF patient characteristics are much different than Medicare 
IRF patient characteristics. This commenter also suggested that TRICARE 
should increase CMG weights for key TRICARE categories in order to 
account for TRICARE patients' different needs.
    Response: We believe that the Medicare CMG system and weight 
structure is appropriate for TRICARE patients because although TRICARE 
may have a different case mix of IRF patients than Medicare, TRICARE 
IRF patients require similar rehabilitation services in IRFs as 
Medicare patients. Although in aggregate TRICARE patients do stay 
longer in the IRF setting (15 days in FY 2015, in comparison to the 
Medicare average length-of-stay of 13 days in FY 2014 (MedPAC, March 
2016 Report to Congress, Table 9-5, Chapter 9)), we think the factors 
that are built into the Medicare CMGs are appropriate for TRICARE 
patients because they require similar rehabilitation services. IRF 
patients are grouped into one of 92 CMGs based on a number of 
characteristics such as the diagnosis requiring rehabilitation, 
functional status, cognitive status, age, and comorbidities. We think 
CMGs are appropriate for both Medicare and TRICARE patients. With 
respect to the age difference between Medicare and TRICARE 
beneficiaries, the Medicare CMG system is also currently used for the 
reimbursement of patients under the age of 65 who are entitled to 
Medicare. Further, in examining FY 2015 TRICARE IRF claims, three-
quarters of IRF claims and about half of all allowed amounts were for 
retirees and their dependents.
    Comment: One commenter suggested that a closer review of the 
legislative history shows that Congress did not intend to require DoD 
to adopt Medicare reimbursement rules for IRF care.
    Response: We disagree. The pertinent statutory provision (10 U.S.C. 
1079(i)(2)) states, ``payments may 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 Title XVIII of 
the Social Security Act.'' The commenter argues that it was not 
Congress' intent to adopt Medicare rates to TRICARE IRF beneficiaries 
because the above statutory language was enacted before Medicare's PPS 
reimbursement system for IRFs went into effect. The commenter would 
like to read this statutory authority as being limited to only those 
types of care for which Medicare had a reimbursement methodology in 
place at the time of enactment of the statute. We see no justification 
that allows DoD to disregard the unambiguous requirement in the statute 
to adopt Medicare reimbursement methodologies to the extent 
practicable. We believe for the reasons stated in the proposed rule 
that using the IRF-PPS for TRICARE patients is practicable, and 
therefore, is in accordance with DoD's statutory obligation.
    Comment: One commenter stated that if TRICARE implements the 
Medicare IRF-PPS, more TRICARE patients will be discharged from IRFs to 
other post-acute care settings (like Skilled Nursing Facilities 
(SNFs)). Because TRICARE does not have a limit on the number of 
medically necessary SNF days, the commenter opines that TRICARE 
patients may stay indefinitely at SNFs. The commenter asserted that 
TRICARE's projected savings from adopting the Medicare IRF PPS would be 
reduced because of the increased use of post-acute care.
    Response: First, we would note that the commenter assumes there 
will be a reduction in the amount of care provided in an IRF setting 
which will then cause TRICARE beneficiaries to take greater advantage 
of other post-acute care. We do not believe this will occur. We agree 
with the commenter that if there is an increase in the number of 
TRICARE patients who are discharged from IRFs and then admitted to 
SNFs, it would reduce the estimated level of TRICARE savings. However, 
we think that the impact of this effect would be small. For example, 
even under the very unrealistic assumption that every TRICARE patient 
discharged from an IRF would have an additional 7-day stay at a SNF 
that otherwise would not occur, it would increase TRICARE costs by less 
than $10M, which is much less than the anticipated TRICARE payment 
reduction of almost $60M in FY 2020. Further, we disagree with the 
commenter that TRICARE patients who transfer to SNFs would stay at SNFs 
indefinitely. Only patients who require medically necessary care will 
be admitted to SNFs, and the stays must continue to be medically 
necessary. Based upon the experience of other TRICARE SNF patients who 
have an average length of stay of 22 days, we do not think that TRICARE 
SNF stays will be indefinite.
    Comment: One commenter stated that TRICARE can retain contractual 
relationships with in-network providers, and negotiate with out-of-
network providers on a case by case basis.

[[Page 61685]]

    Response: The managed care support contractors are responsible for 
negotiating discounts from providers, and have strong incentives to do 
this today. We found that about 37 percent of out-of-network TRICARE 
IRFs were reimbursed at a discount off of billed charges in FY 2015 and 
that over 60 percent were paid at 100 percent of billed charges. 
Relying on the managed care support contractors to negotiate rates with 
network providers, however, is not a substitute for establishing an 
applicable reimbursement methodology. Further, negotiating rates with 
out-of-network providers on a case-by-case basis does not ensure 
compliance with statutory obligations not to pay more than Medicare 
rates when practicable.
    Comment: One commenter stated that TRICARE could adopt Medicare 
rules for certain TRICARE patients like retirees who may have more 
similar characteristics to Medicare beneficiaries, and maintain current 
payment policy for other family members and active duty service 
members. This will ensure that ADSMs and their families will continue 
to receive the full scope of IRF services.
    Response: We have reviewed the beneficiary population data, and we 
agree that a discretionary adjustment should be considered to ensure 
that there is sufficient access for ADSMs and their families. Those 
network IRFs with a high proportion of ADSM/ADD admissions may be 
eligible to receive a GTMCPA.
    Comment: One commenter stated that TRICARE should make outlier 
payments based on a marginal cost factor equal to 100% of the costs in 
excess of the fixed-loss threshold, rather than 80% as provided by 
Medicare, since this practice is inconsistent with the ordinary 
practices of the insurance industry. TRICARE should use individual 
hospital cost-to-charge ratios rather than a national cost-to-charge 
ratio. This will help ensure payment for care provided to Service 
members and their families.
    Response: We disagree that using Medicare's outlier methodology 
would be inappropriate for TRICARE 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].'' Given the statutory language, TRICARE 
is adopting Medicare's IRF PPS reimbursement method for our 
beneficiaries. Medicare does use facility-specific cost-to-charge 
ratios (please see Medicare's final rule published on August 6, 2015 
[80 FR 47036]), and DHA plans on doing the same.
    Comment: One commenter stated that DHA should do additional 
analysis on TRICARE IRF beneficiaries to understand whether the IRF 
payment reform will limit beneficiary access to needed care. 
Additionally, analyses should be done to ensure that the IRF-PPS rates 
would adequately cover the cost of care for the TRICARE population.
    Response: DHA disagrees that there will be access problems because 
TRICARE will pay no less than Medicare does for IRF care and because 
MedPAC has found that there do not appear to be capacity constraints on 
IRF care for Medicare patients (MedPAC, 2016 Report to Congress, 
Chapter 9). MedPAC has also found that Medicare IRF payments exceed IRF 
costs.
    Comment: One commenter stated that they do not agree that the 
agency is compelled to adopt the Medicare IRF PPS.
    Response: 10 U.S.C. 1079(i)(2) states that ``payments may 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 Title XVIII of the Social Security Act.'' We 
believe that it is practicable to adopt the Medicare system, and that 
adopting the IRF-PPS more closely aligns TRICARE to Medicare payment 
methods and rules.
    Comment: One commenter stated that DHA should implement the LIP 
adjustment in IRF-PPS method, and revert back to policy from the 
original proposed rule because it is a fundamental part of the Medicare 
program and critical to providers serving vulnerable populations, and 
should not be excluded from the TRICARE rate.
    Response: We agree with the commenter that the LIP adjustment 
should be included in the TRICARE IRF PPS. This will allow for the same 
payment to LIP adjusted hospitals as Medicare, and will also provide 
additional reimbursement to IRFs serving vulnerable TRICARE 
populations.
    Comment: One commenter stated that TRICARE patients to IRFs should 
not complicate the compliance methodology for satisfying the 60 Percent 
Rule and that the 60 Percent Rule is not a component of payment policy.
    Response: We believe that the statement in the proposed rule has 
confused the commenter regarding TRICARE and Medicare's 60 percent 
rule. It was the intent of the policy to note that TRICARE would honor 
the Medicare adjustments based on fulfilling the criteria of the 60 
percent rule with Medicare patients, and not that TRICARE would require 
a 60 percent rule for its own patients. In other words, if Medicare 
penalizes an IRF because the IRF did not meet the 60 percent rule 
criteria with Medicare patients, TRICARE would also penalize the 
hospital. This is because TRICARE would use the same grouping software 
as Medicare, which already includes the 60-percent rule adjustments.
    Comment: One commenter requested that we confirm that the majority 
of out-of-network IRF reimbursement is being reimbursed at 100 percent 
of billed charges.
    Response: Using FY 2015 data, we found that about 63 percent of 
TRICARE non-network IRFs were reimbursed at 100 percent of billed 
charges. On average, out-of-network providers were reimbursed at 87 
percent of billed charges.

IV. Regulatory Impact Analyses for LTCHs and IRFs

A. Overall Impact

    DoD has examined the impacts of this final 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), the Congressional Review Act (5 U.S.C. 804(2)), and E.O. 
13771, Reducing Regulation and Controlling Regulatory Costs (January 
30, 2017).
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 ($100M 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

[[Page 61686]]

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 a Regulatory Impact Analyses that, to the best of our ability, 
presents the costs and benefits of the rulemaking. This final rule is 
anticipated to reduce DoD allowed amounts to LTCHs by $73M and to IRFs 
by $24M in FY 2019 during the first year of transition.
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 $100M or more or have certain other impacts. 
This final rule 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) identification of a small business 
(having revenues of $34.5M or less in any one year). For purposes of 
the RFA, we have determined that the majority of LTCHs and 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.
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 
$100M in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $140M. This final 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.
7. Executive Order (E.O.) 13771, ``Reducing Regulation and Controlling 
Regulatory Costs''
    E.O. 13771 seeks to control costs associated with the government 
imposition of private expenditures required to comply with Federal 
regulations and to reduce regulations that impose such costs. This rule 
is not subject to the requirements of E.O. 13771 because this rule 
results in no more than de minimis costs.

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 Civilian Health and Medical Program of the Uniformed 
Services (CHAMPUS) DRG-based payment system, respectively. Neoplastic 
Disease Care Hospitals would also be exempt from the TRICARE LTCH PPS, 
while Veterans Administration (VA) hospitals would be exempt from the 
TRICARE IRF PPS. Children's hospitals would be exempt from the TRICARE 
LTCH PPS and IRF PPS.

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 50-80 percent for most LTCHs once the LTCH 
PPS rates were adopted. 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 
initially 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 not be used.
    As stated in our proposed rule, we believed this transition 
approach was not appropriate for four main reasons: (1) Medicare-based 
payments for TRICARE patients would have a minimal impact on overall 
LTCH payments, (2) LTCHs admit few TRICARE patients each year, (3) 
TRICARE payments would be equal to Medicare payments, and (4) there are 
not likely to be access issues as a result of the reimbursement change 
(MedPAC, 2015 Report to Congress, Chapter 11).
    After careful review of the comments on the proposed rule, however, 
we agree that TRICARE should adopt a transition. During the transition, 
TRICARE would pay more than Medicare (135 percent of Medicare LTCH PPS 
payments in year 1 and 115 percent of Medicare LTCH PPS payments in 
year 2), and 100 percent of Medicare LTCH PPS payments in the final 
year of the transition. This transition will offer a gradual transition 
to full Medicare rates. Given that the TRICARE LTCH rates will equal 
Medicare LTCH rates in the final year of the transition, and because 
TRICARE payments will have a limited impact on overall LTCH payments, 
we do not anticipate access problems for TRICARE beneficiaries under 
this transition. Further, by statute, hospitals that

[[Page 61687]]

participate under Medicare are required to agree to accept TRICARE 
reimbursement.
2. Alternatives Considered for Addressing Reduction in IRF Payments
    Under the method discussed here, TRICARE's IRF payments per 
discharge would decrease by almost 30 percent for the median TRICARE 
IRF and about one-third of TRICARE IRFs would have a reduction of 50 
percent or more in allowed amounts. 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 
while 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 not 
be used.
    As stated in our proposed rule, we believed this transition 
approach was not appropriate for four main reasons: (1) Medicare 
payments for TRICARE patients would have a minimal impact on overall 
IRF payments, (2) IRFs admit few TRICARE patients each year, (3) 
TRICARE payments will be equal to Medicare payments, and (4) access 
issues as a result of the reimbursement change are unlikely because 
MedPAC reports IRFs paid by Medicare have positive margins (MedPAC, 
2015 Report to Congress, Chapter 10).
    After careful review of the comments on the proposed rule, however, 
we agree that TRICARE should adopt a transition that allows a 
percentage of Medicare payments in the first two years (135 percent of 
Medicare IRF PPS payments in year 1 and 115 percent of Medicare IRF PPS 
payments in year 2), and 100 percent of Medicare IRF PPS payments in 
the final year of the transition. This transition will protect IRFs 
from sudden significant reductions, offering a gradual transition to 
full Medicare rates. Given that the TRICARE IRF rates will equal 
Medicare IRF rates in the final year of the transition and will have a 
limited impact on overall IRF payments, we do not anticipate access 
problems for TRICARE beneficiaries using the 3-year transition period. 
Further, by statute, hospitals that participate under Medicare are 
required to agree to accept TRICARE reimbursement.

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

1. LTCH Methodology
    We analyzed the impact of TRICARE implementing a new method of 
payment for LTCHs. The proposed method is Medicare's LTCH PPS 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 FY 2018, the Medicare IPPS MS-DRG system for all non-
standard payment (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 2014 to 
September 2015. We drew upon various sources for the data used to 
categorize hospitals in Table 2, below. We attempted to construct these 
variables using information from Medicare's FY 2015 Impact file to 
verify that each provider was in fact a Medicare LTCH. One limitation 
is that for individual hospitals, some mis-categorizations are 
possible. We were unable to match 3 LTCHs with 4 hospital claims to the 
FY 2015 Impact file, and as a result, these 4 claims were excluded from 
the analysis. We also excluded 32 hospital claims where the DRG on the 
claim was unclassifiable. All Neoplastic Disease Care Hospitals (1 
hospital, 1 claim) and Children's Hospital claims (2 hospitals, 46 
claims) were also excluded from the analysis, and there were no TRICARE 
beneficiaries who were treated in Maryland LTCHs in FY 2015. After we 
removed the excluded claims for which we could not assign charge and 
hospital classification variables, we used the remaining hospitals and 
claims as the basis for our analysis. 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.
    Using allowed charge data from FY 2015, the FY 2015 Medicare MS-
LTC-DRG and MS-DRG weights, the FY 2015 Medicare LTCH and IPPS national 
base payment rates, the FY 2015 Medicare high cost outlier fixed 
thresholds, and the FY 2015 wage index adjustment factors, we simulated 
TRICARE allowed amounts in FY 2015 using the proposed LTCH prospective 
payment method. Under ``current policy'' we assumed that TRICARE LTCH 
costs would increase by 7 percent per year from FY 2015 to FY 2020 to 
reflect increases in billed charges. We then projected the costs under 
the proposed policy, assuming that under the Medicare LTCH-PPS, costs 
would increase by 3 percent per year from FY 2015 to FY 2020. Under the 
Medicare LTCH-PPS, the percentage annual increase of 3 percent in 
TRICARE allowed amounts is less than the percentage increase under 
current policy due to slower increases in Medicare LTCH reimbursement 
rates (in comparison to TRICARE billed charges). The difference between 
the current and the proposed policy assuming full implementation of the 
transition period would have been $65M if fully implemented in FY 2015.
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 2014 to 
September 2015. We drew upon various sources for the data used to 
categorize hospitals in Table 3, below. We attempted to construct these 
variables using information from Medicare's FY 2016 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 mis-categorizations are possible. We were 
unable to match 8 IRF claims from 4 IRFs to Medicare provider numbers 
within the FY 2016 IRF rate setting file, and therefore had to exclude 
them from the analysis, even though these 4 IRFs were confirmed to be 
Medicare-certified IRFs in the October 2016 Medicare IRF Provider 
Specific file. We also excluded all Children's Hospital (2 hospitals, 
11 discharges) and all Veterans hospital (12 hospitals, 239 discharges) 
claims because these hospitals are not paid under the Medicare IRF PPS. 
After we removed the excluded claims for which we could not assign 
charge and hospital classification variables, we used the remaining 
hospitals and claims as the

[[Page 61688]]

basis for our analysis. 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.
    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 FY 2015 TRICARE billed charges at that IRF and the 2015 
Medicare cost-to-charge ratio (CCR) for that IRF. We then used Medicare 
payment and cost data from the FY 2016 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 FY 2015 to FY 2020 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 FY 2015 to FY 2020. 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).
    As a result, this approach allows us to estimate the change in 
allowed amounts under the Medicare method without having CMG data on 
TRICARE patients. The difference between the current and the proposed 
policy, assuming full implementation of the transition period would 
have been $33M if fully implemented in FY 2015.
3. Effect of Payment Policy Change on LTCHs
    Table 2, Impact of TRICARE LTCH Rule in FY 2015, presents the 
results of our analysis of FY 2015 TRICARE claims data. This table 
categorizes LTCHs which had TRICARE inpatient stays in FY 2015 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 FY 2015 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 
FY 2015. The fourth column shows the simulated average allowed amount 
per discharge under the Medicare LTCH payment method, assuming full 
implementation of both the TRICARE transition and 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 2 shows the overall impact on the 207 LTCHs 
included in the analysis. The next three rows of the table contain 
hospitals categorized according to their urban/rural status in FY 2015 
(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.
    Upon full implementation of the Medicare site-neutral payment 
policy and after the TRICARE transition is complete, TRICARE allowed 
amounts to LTCHs would have decreased by 70 percent in comparison to 
allowed amounts paid to LTCHs under the current TRICARE policy (in FY 
2015 dollars). For all the LTCH groups shown in Table 2, allowed 
amounts under the proposed payment methodology would be reduced.
    The following discussion highlights some of the changes in allowed 
amounts among LTCH classifications. 99 percent of all TRICARE LTCH 
admissions were to urban LTCHs. Allowed amounts would have decreased by 
69 percent for large urban, 71 percent for other urban and 67 percent 
for rural LTCHs.
    Very small LTCHs (1-24 beds) would have had the least impact; 
allowed amounts would have been reduced by 53 percent. The change in 
payment methodology would have had the greatest impacts on large LTCHs 
(125 or more beds), where allowed amounts would have been reduced by 
about 73 percent.
    The change in LTCH payment methodology would have a larger impact 
on TRICARE non-network LTCHs than network LTCHs because almost all 
network LTCHs currently offer a discount off billed charges while the 
majority of non-network LTCHs do not. Allowed charges to non-network 
LTCHs would have declined by 74 percent, in comparison to 67 percent 
for in-network hospitals. We found that network hospitals on average 
provide a 32 percent discount off billed charges for non-TFL TRICARE 
beneficiaries and that 70 percent of all TRICARE LTCH discharges were 
in-network in FY 2015.
    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 69 and 71 
percent in allowed charges respectively, which are very similar to the 
overall average of 70 percent. LTCHs in the New England and West North 
Central regions would have had the lowest reductions in allowed 
charges: 39 and 50 percent, respectively.
    77 percent of all TRICARE LTCH discharges in FY 2015 were in 
proprietary (for-profit) LTCHs, and these facilities would have had 
their allowed amounts reduced by approximately 71 percent. The decline 
in allowed amounts for voluntary (not-for-profit) LTCHs would have been 
less than for-profit hospitals (61 percent).
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4. Effect of Payment Policy Change on IRFs
    Table 3, Impact of TRICARE IRF Rule in FY 2015, presents the 
results of our analysis of FY 2015 TRICARE claims data. This table 
categorizes IRFs which had TRICARE inpatient stays in FY 2015 by 
various geographic and special payment consideration groups to 
illustrate the varying impacts of different types of IRFs. The first 
column represents the number of IRFs in FY 2015 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 FY 2015. The fourth column shows the average allowed 
amount per discharge under the Medicare IRF payment method, assuming 
full implementation of the TRICARE transition, and including 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 3 shows the overall impact on the 493 IRFs 
included in the analysis. The next two rows of the table categorize 
hospitals according to their geographic location in FY 2015 (urban and 
rural). The second major grouping is by IRF bed-size category, followed 
by whether the IRF is a freestanding facility or a part of a hospital 
unit. The fourth grouping shows IRFs by TRICARE network status and 
fifth by teaching status. The sixth grouping is by regional divisions 
and the final grouping is by IRF ownership status.
    The following discussion highlights some of the changes in allowed 
amounts among IRF classifications. 96 percent of all TRICARE IRF 
admissions were to urban IRFs. Allowed amounts would have decreased by 
36 percent for urban IRFs and 11 percent for rural IRFs.
    Very small IRFs (1-24 beds) would have had the most impact; allowed 
amounts would have been reduced by 50 percent. The change in payment 
methodology would have had the least impact on medium to large IRFs (75 
to 124 beds), where allowed amounts would have been reduced by about 8 
percent.
    The change in IRF payment methodology would have resulted in a 49 
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 18 percent. The change in IRF payment methodology would have 
also had 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 typically do not. Allowed charges to non-network 
IRFs would have declined by 55 percent, in comparison to 30 percent for 
in-network hospitals. We found that network hospitals on average 
provide a 34 percent discount off billed charges for TRICARE 
beneficiaries without other health insurance, and that 85 percent of 
all TRICARE IRF discharges were in-network in FY 2015.
    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 41 percent, in comparison to non-teaching hospitals, where 
payments would have been reduced by 34 percent. Approximately 81 
percent of all TRICARE IRF discharges were from non-teaching IRF 
facilities.
    IRFs in various geographic areas will be affected differently by 
this change in payment methodology. The two regions with the largest 
number of TRICARE IRF claims, the South Atlantic (803 discharges) and 
West South Central (668 discharges), would have had an average decrease 
of 35 and 33 percent in allowed charges respectively. IRFs in New 
England and the Middle Atlantic would have had the lowest reductions in 
allowed charges of 13 percent. The Mountain, West South Central, and 
Pacific regions would have had the highest reductions (between 33 and 
49 percent).
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    46 percent of all TRICARE IRF discharges in FY 2015 were in 
proprietary (for-profit) IRFs, and these facilities would have had 
their allowed amounts reduced by approximately 29 percent. The decline 
in allowed amounts for voluntary (not-for-profit) and government-owned 
IRFs would have been slightly more than proprietary hospitals (41 and 
38 percent).

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 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 definition of ``Hospital, long-term (tuberculosis, 
chronic care, or rehabilitation).''
0
b. Adding the definition of ``Inpatient Rehabilitation Facility (IRF)'' 
in alphabetical order.
0
c. Adding the definition of ``Long Term Care Hospital (LTCH)'' in 
alphabetical order.
0
d. Removing the definition of ``Long-term hospital care.''
    The additions read as follows:


Sec.  199.2  Definitions.

* * * * *
    (b) * * *
    Inpatient Rehabilitation Facility (IRF). A facility classified by 
CMS as an IRF and meets the applicable requirements established by 
Sec.  199.6(b)(4)(xx) (which includes the requirement to be a Medicare 
participating provider).
* * * * *
    Long Term Care Hospital (LTCH). A hospital that is classified by 
the Centers for Medicare and Medicaid Services (CMS) as an LTCH and 
meets the applicable requirements established by Sec.  199.6(b)(4)(v) 
(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 (b)(4)(xx) 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 hospitals 
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 Sec.  
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.
* * * * *
    (xx) 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 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 paragraph (a)(1)(ii)(C) introductory text;
0
b. Revising paragraphs (a)(1)(ii)(D)(2), (3) and (4), and 
(a)(1)(ii)(E);
0
c. Revising paragraph (a)(3)(i);
0
d. Revising paragraph (a)(4) introductory text; and
0
e. Adding paragraphs (a)(9) and (10).
    The revisions read as follows:


Sec.  199.14  Provider reimbursement methods.

    (a) * * *
    (1) * * *
    (ii) * * *
    (C) Services exempt from the DRG-based payment system. The 
following hospital services, even when provided in a hospital subject 
to the CHAMPUS DRG-based payment system, are exempt from the CHAMPUS 
DRG-based payment system. The services in paragraphs (a)(1)(ii)(C)(1) 
through (a)(1)(ii)(C)(4) and (a)(1)(ii)(C)(7) through (a)(1)(ii)(C)(9) 
of this section shall be reimbursed under the procedures in paragraph 
(a)(4) of this section, and the services in paragraphs (a)(1)(ii)(C)(5) 
and (a)(1)(ii)(C)(6) of this section shall be reimbursed under the 
procedures in paragraph (j) of this section.
* * * * *
    (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

[[Page 61693]]

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. 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 Director, DHA, 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 paragraph (a)(10) of this section.
* * * * *
    (4) The allowable cost for authorized care in all hospitals not 
subject to the TRICARE DRG-based payment system, the TRICARE mental 
health per-diem system, the TRICARE reasonable cost method for CAHs, 
the TRICARE reimbursement rules for SCHs, the TRICARE LTCH-PPS, or the 
TRICARE IRF PPS shall be determined on the basis of billed charges or 
set rates.
* * * * *
    (9) Reimbursement for inpatient services provided by a Long Term 
Care Hospital (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, 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. TRICARE will not be adopting Medicare's 25 
percent threshold payment adjustment.
    (ii) Implementation of the TRICARE LTCH PPS will include a gradual 
transition to full implementation of the Medicare LTCH PPS rates as 
follows:
    (A) For the first 12 months following implementation, the TRICARE 
LTCH PPS allowable cost will be 135 percent of Medicare LTCH PPS 
amounts.
    (B) For the second 12 months of implementation, TRICARE LTCH PPS 
allowable cost will be 115 percent of the Medicare LTCH PPS amounts.
    (C) For the third 12 months of implementation, and subsequent 
years, TRICARE LTCH PPS allowable cost will be 100 percent of the 
Medicare LTCH PPS amounts.
    (iii) 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, to Children's Hospitals, or to Neoplastic Disease Care 
Hospitals, respectively.
    (10) Reimbursement for inpatient services provided by Inpatient 
Rehabilitation Facilities (IRF). (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 42 CFR 412.604 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 part 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. 1079(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 the 60 percent compliance threshold, teaching 
adjustment, rural adjustment, high-cost outlier payments, low income 
payment adjustment, payment adjustments associated with the quality 
reporting program, and updates to the system.
    (ii) Implementation of the TRICARE IRF PPS will include a gradual 
transition to full implementation of the Medicare IRF PPS rates as 
follows:

[[Page 61694]]

    (A) For the first 12 months of implementation, the TRICARE IRF PPS 
allowable cost will be 135 percent of Medicare IRF PPS amounts.
    (B) For the second 12 months of implementation, the TRICARE IRF PPS 
allowable cost will be 115 percent of the Medicare IRF PPS amounts.
    (C) For the third 12 months of implementation, and subsequent 
years, the TRICARE IRF PPS allowable cost will be 100 percent of the 
Medicare IRF PPS amounts.
    (iii) The IRF PPS allowable cost in paragraph (a)(10)(ii) of this 
section may be supplemented by an inpatient general temporary military 
contingency payment adjustment (GTMCPA) for TRICARE authorized IRFs.
    (A) This is a year-end discretionary, temporary adjustment that the 
Director, DHA (or designee) may approve based on the following 
criteria:
    (1) The IRF serves a disproportionate share of ADSMs and ADDs;
    (2) The IRF is a TRICARE network hospital;
    (3) The IRF's actual costs for inpatient services exceed TRICARE 
payments or other extraordinary economic circumstance exists; and
    (4) Without the GTMCPA, DoD's ability to meet military contingency 
mission requirements will be significantly compromised.
    (B) Policy and procedural instructions implementing the GTMCPA will 
be issued as deemed appropriate by the Director, DHA (or designee). As 
with other discretionary authority under this part, a decision to allow 
or deny a GTMCPA to an IRF is not subject to the appeal and hearing 
procedures of Sec.  199.10.
    (iv) 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, to Children's hospitals, or to VA hospitals, respectively.
* * * * *

    Dated: December 22, 2017.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2017-28022 Filed 12-28-17; 8:45 am]
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