thefederalregister.com

Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

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

TRICARE; Hospital Outpatient Prospective Payment System (OPPS)

AGENCY: Office of the Secretary, DoD.
ACTION: Final rule.
SUMMARY: This final rule implements a prospective payment system for hospital outpatient services similar to that furnished to Medicare beneficiaries, as set forth in Section 1833(t) of the Social Security Act. The rule also recognizes applicable statutory requirements and changes arising from Medicare's continuing experience with this system including certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The Department is publishing this rule to implement an existing statutory requirement for adoption of Medicare payment methods for institutional care which will ultimately provide incentives for hospitals to furnish outpatient services in an efficient and effective manner.
DATES: Effective Date:February 9, 2009.
FOR FURTHER INFORMATION CONTACT: David E. Bennett or Martha M. Maxey, TRICARE Management Activity, Medical Benefits and Reimbursement Branch, telephone (303) 676-3494 or (303) 676-3627.
SUPPLEMENTARY INFORMATION: I. Introduction and Background

The Medicare OPPS evolved out of Congressional mandates for replacement of Medicare's cost-based payment methodology with a prospective payment system (PPS). Medicare implemented OPPS for services furnished on or after August 1, 2000, with temporary transitional provisions to buffer the financial impact of the new prospective payment system (e.g.,incorporating transitional pass-through adjustments and proportional reductions in beneficiary cost-sharing to lessen potential payment reductions experienced under the new OPPS).

Congress likewise established enabling legislation under section 707 of the National Defense Authorization Act of Fiscal Year 2002 (NDAA-02), Public Law 107-107 (December 28, 2001) changing the statutory authorization [in 10 U.S.C. 1079(j)(2)] that TRICARE payment methods for institutional care shall be determined, to the extent practicable, in accordance with the same reimbursement rules used by Medicare. Similarly, under 10 U.S.C. 1079(h), the amount to be paid to healthcare professional and other non-institutional healthcare providers “shall be equal to an amount determined to be appropriate, to the extent practicable, in accordance with the same reimbursement rules used by Medicare”. Based on these statutory mandates, TRICARE is adopting Medicare's prospective payment system for reimbursement of hospital outpatient services currently in effect for the Medicare program as required under the Balanced Budget Act of 1997 (BBA 1997), (Pub. L. 105-33) which added section 1833(t) of the Social Security Act providing comprehensive provisions for establishment of a Medicare hospital OPPS. The Act required development of a classification system for covered outpatient services that consisted of groups arranged so that the services within each group were comparable clinically and with respect to the use of resources. The Act also described the method for determining the Medicare payment amount and beneficiary coinsurance amount for services covered under the outpatient PPS. This included the formula for calculating the conversion factor and data requirements for establishing relative payment weights.

Centers for Medicare Medicaid Services (CMS) published a proposed rule in theFederal Registeron September 8, 1998 (63 FR 47552) setting forth the proposed PPS for hospital outpatient services. On June 30, 1999, a correction notice was published (64 FR 35258) to correct a number of technical and typographical errors contained in the September 8, 1998 proposed rule.

Subsequent to publication of the proposed rule, the Medicare, Medicaid, and State Child Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA 1999) (Pub. L. 106-133) enacted on November 29, 1999, made major changes that affected the proposed Medicare OPPS. The following BBRA 1999 provisions were implemented in a final rule (65 FR 18434) published on April 7, 2000.

• Made adjustments for covered services whose costs exceed a given threshold (i.e., an outlier payment).

• Established transitional pass-through payments for certain medical devices, drugs, and biologicals.

• Placed limitations on judicial review for determining outlier payments and the determination of additional payments for certain medical devices, drugs, and biologicals.

• Included as covered outpatient services implantable prosthetics and durable medical equipment and diagnostic x-ray, laboratory, and other tests associated with those implantable items.

• Limited the variation of costs of services within each payment classification group.

• Required at least annual review of the groups, relative payment weights, and the wage and other adjustments to take into account changes in medical practice, the addition of new services, new cost data, and other relevant information or factors.

• Established transitional corridors that would limit payment reductions under the hospital outpatient PPS.

• Established hold harmless provisions for rural and cancer hospitals.

• Provided that the coinsurance amount for a procedure performed in a year could not exceed the hospital inpatient deductible for the year.

Section 1833(t) of the Social Security Act was subsequently amended by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) and the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-173) making additional changes in the OPPS.

As a prelude to implementation of the Medicare OPPS, Congress enacted the Omnibus Budget Reconciliation Act of 1986 (OBRA) (Pub. L. 99-509) which paved the way for development of a PPS for hospital outpatient services by prohibiting payment for non-physician services furnished to hospital patients (inpatients and outpatients), unless the services were furnished either directly or under arrangement with the hospital, except for services of physician assistants, nurse practitioners and clinical nurse specialists. Exceptions were also made for clinical diagnostic procedures, the payment of which may only be made to the person or entity that performed, or supervised the performance of, the test; and for exceptionally intensive hospital outpatient services provided to Skilled Nursing Facility (SNF) residents that lie well beyond the scope of the care that SNFs would ordinarily furnish, and thus beyond the ordinary scope of the SNF care plan. Consolidated billing facilitated the payment of services included within the scope of each ambulatory payment classification (APC). The OBRA also mandated hospitals to report claims for services under the Healthcare Common Procedure Coding System (HCPCS) which enabled the identification of specific procedures and services used in the development of outpatient PPS rates.

Ongoing changes and refinement to the Medicare OPPS have been accomplished through annual proposed and final rulemaking, along with interim transmittals and program memoranda taking into consideration changes in medical practice, addition of new services, new cost data, and other relevant information and factors. TRICARE will recognize to the extent practicable all applicable statutory requirements and changes arising from Medicare's continuing experience with this prospective payment system, including changes to the amounts and factors used to determine the payment rates for hospital outpatient services paid under the prospective payment system [e.g., annual recalibration (updating) of group weights and conversion factors and adjustments for area wage differences (wage index updates)]. The Department of Defense (DoD), otherwise referred to as the agency for purposes of this rule, will adopt all of Medicare's CY 2008 OPPS changes published in theFederal Registeron November 27, 2007, (72 FR 66580); e.g., extending the current packaging to include guidance services, image processing services, intraoperative services, imaging supervision and interpretation services, diagnostic radiopharmaceuticals, contrast agents, and observation services; and reduction of payments in cases where a hospital receives a substantial partial credit from the manufacturer toward the cost of a replacement device implanted in a procedure.

While TRICARE intends to remain as true as possible to Medicare's basic OPPS methodology (i.e., adoption and updating of the Medicare data elements used to calculate the prospective payment amounts), there will be some deviations required to accommodate the uniqueness of the TRICARE program. These deviations have been designed to accommodate existing TRICARE benefit structure and claims processing procedures/systems implemented underthe TRICARE Next Generation Contracts (T-NEX), while at the same time eliminating any undue financial burden to TRICARE Prime, Extra, and Standard beneficiary populations. Following is a brief discussion of each of these deviations:

Outpatient Code Editor (OCE)—The Medicare Outpatient Code Editor with APC program edits data to help identify possible errors in coding and assigns Ambulatory Payment Classification numbers based on HCPCS codes for payment under the OPPS. The Medicare OPPS APC is an outpatient equivalent of the inpatient Diagnosis Related Group (DRG)-based PPS. Like the inpatient system based on DRGs, each APC has a pre-established prospective payment amount associated with it. However, unlike the inpatient system that assigns a patient to a single DRG, multiple APCs can be assigned to one outpatient claim. If a patient has multiple outpatient services during a single visit, the total payment for the visit is computed as the sum of the individual payments for each service. Medicare provides updated versions of the OCE, along with installation and user manuals, to its fiscal intermediaries on a quarterly basis. The updated OCE reflects all new coding and editing changes during that quarter.

It was found upon initial testing of the OCE that it could not be used in its present form given the fact that the extensive editing embedded in its software program was specific to Medicare's benefit structure and internal claims processing requirements. As a result, the Agency has developed a TRICARE-specific OCE which will better accommodate the benefit structure and claims processing systems currently in place under the T-NEX contracts. This modified software package will edit claims data for errors and indicate actions to be taken and reasons why the actions are necessary. This expanded functionality will facilitate the linkage between the action being taken, the reasons for the action, and the information on the claim that caused the action. The edits will be specific for TRICARE, ensuring compliance with current claims processing criteria. The OCE will also assign an APC number for each service covered under the TRICARE OPPS and return information to be used as input to the TRICARE PRICER program.

Like Medicare's OCE, the TRICARE-specific OCE will be updated on a quarterly basis incorporating, to the extent practicable, all Medicare changes/updates (i.e., those changes initiated through rulemaking and transmittals/program memoranda). Periodic updating of the TRICARE-specific OCE will ensure consistency and accuracy of claims processing and payment under the TRICARE OPPS.

Deductible and Cost Sharing—Medicare's OPPS coinsurance was initially frozen at 20 percent of the national median charge for the services within each APC (wage adjusted for the provider's geographic area) or 20 percent of the APC payment rate, whichever was greater (i.e., the coinsurance for an APC could not fall below 20 percent of the APC payment rate). This was designed so that, as the total payment to the provider increased each year based on market basket updates, the present or frozen coinsurance amount would become a smaller portion of the total payment until the coinsurance represented 20 percent of the total. Once the coinsurance became 20 percent of the payment amount, annual updates would be applied to the coinsurance so that it would continue to account for 20 percent of the total charge. Wage adjusted coinsurance amounts were further limited by the Medicare inpatient deductible. Subsequent legislation has accelerated the reduction of beneficiary copayment amounts by imposing prescribed percentage limitations off of the APC payment rate. For example, for all services paid under the Medicare OPPS in CY 2005, the national unadjusted copayment amount cannot exceed 45 percent of the APC rate. Accelerated reductions were imposed specifically for those APC groups for which coinsurance represented a relatively high proportion of the total payment.

A program payment percentage is calculated for each APC by subtracting the unadjusted national coinsurance amount for the APC from the unadjusted payment rate and dividing the result by the unadjusted payment rate. The payment rate for each APC group is the basis for determining the total payment (subject to wage-index adjustment) that a hospital will receive from the beneficiary and the Medicare program.

Since imposition of Medicare's unadjusted national coinsurance amounts would have an adverse financial impact on TRICARE beneficiaries (i.e., imposition of significantly higher cost-sharing for Prime beneficiaries), the Agency has opted to use the following hospital outpatient deductible and cost-sharing/copayments currently being applied in Tables 1 and 2 below for Prime, Extra, and Standard TRICARE programs for hospital outpatient services:

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

    Hold-Harmless Protection—At the inception of the Medicare OPPS, providers were eligible to receive additional transitional outpatient payments (TOPs) if the payments they received under the OPPS were less than the payments they could have received for the same services under the payment system in effect before the OPPS. Prior to January 1, 2004, most hospitals that realized lower payments under OPPS received transitional corridor payments based on a percent of the decreased payments, with the exception of cancer hospitals, children's hospitals and rural hospitals having 100 or fewer beds, which were held harmless under this provision and paid the full amount of the decrease in payment under the OPPS. Since transitional corridor payments were intended to be temporary payments to ease the provider's transition from a prior cost-based payment system to a prospective payments system, they were terminated as of January 1, 2004, with the exception of cancer and children's hospitals, which were held harmless permanently under transitional corridor provisions of the statute (section 1833(t)(7) of the Social Security Act). The authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of the Act, as amended by section 411 Public Law 108-173, expired for rural hospitals having 100 or fewer beds, and sole community hospitals (SCHs) located in rural areas as of December 31, 2005. However, subsequent legislation (section 5105 of Pub. L. 109-171) reinstituted the hold-harmless transitional outpatient payments (TOPs) for covered OPD services furnished on or after January 1, 2006, and before January 1, 2010, for rural hospitals having 100 or fewer beds and SCHs. This provision provided an increased payment for such hospitals for outpatient services if the Medicare OPPS payment they received was less than the pre-BBA payment amount (i.e., the amount that was received prior to implementation of OPPS) that they would have received for the same covered service. When the OPPS payment is less than the payment the provider would have received prior to OPPS implementation, the amount of payment is increased by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of the difference for CY 2008. The amount of payment under section 1833(t)(13)(B) of the Act, as amended by section 411 of Pub. L. 108-73, also provided a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy seeds and services paid under pass-through payments effective January 1, 2006, if justified by a study of the difference in costs for rural SCHs, which include Medicare essential access community hospitals or EACHs.

    While the Agency adopted the hold-harmless TOPs for rural hospitals having 100 or fewer beds and SCHs, it opted to totally exempt cancer and children's hospitals from the TRICARE OPPS in lieu of imposing the hold-harmless provision, given the administrative complexity of capturing the data required for payment ofmonthly interim TOP amounts. TOPs would require a comparison of what would have been paid [i.e., billed charges and CHAMPUS Maximum Allowable Charge (CMAC) amounts] prior to implementation of the OPPS for hospital outpatient services to those amounts actually paid under the OPPS for the same services. A TOP would be allowed in addition to the OPPS amount if payment to a cancer or children's hospital was lower than the amount that would have been paid prior to implementation of the OPPS. Since transitional corridor payments were specifically designed to supplement the losses experienced under the OPPS (i.e., to pay for services at the full amount that would have been allowed prior to implementation of the OPPS), and most, if not all, outpatient services paid at billed charges or CMAC would exceed the OPPS amount, the program cannot justify the administrative burden/expense of maintaining the hold-harmless provisions for cancer and children's hospitals. As a result, TRICARE will continue to reimburse cancer and children's hospitals on a fee-for-services basis using billed charges and CMAC rates; i.e., they will be excluded altogether from the OPPS.

    Adoption of the Medicare OPPS has also highlighted other policy considerations which must be addressed in order to accommodate preexisting authorization criteria and reimbursement systems. Following are these identified policy considerations and prescribed resolutions:

    Partial Hospitalization Programs (PHP)—The TRICARE criteria under which PHP services may be rendered are different than Medicare's—both with regard to the need for PHP services and facility requirements. Currently, Medicare OPPS partial hospitalization services may be provided to patients in lieu of inpatient psychiatric care in hospital outpatient departments or Medicare-certified community mental health centers (CMHCs). The Agency has opted to retain the existing mental health review criteria under 32 CFR 199.4(b)(10) in order to ensure the continued level and quality of mental healthcare afforded under the basic program. Following are the TRICARE review criteria for determining the medical necessity of psychiatric partial hospitalization services:

    • The patient is suffering significant impairment from a mental disorder (as defined in § 199.2) which interferes with age appropriate functioning.

    • The patient is unable to maintain himself or herself in the community, with appropriate support, at a sufficient level of functioning to permit an adequate course of therapy exclusively on an outpatient basis (but is able, with appropriate support, to maintain a basic level of functioning to permit partial hospitalization services and presents no substantial imminent risk of harm to self or others).

    • The patient is in need of crisis stabilization, treatment of partially stabilized mental health disorders, or services as a transition from an inpatient program.

    • The admission into the partial hospitalization program is based on the development of an individualized diagnosis and treatment plan expected to be effective for the patient and permit treatment at a less intensive level.

    Based on existing mental health review criteria under 32 CFR 199.4(b)(10) and certification requirements prescribed under 32 CFR 199.6(b)(4)(xii)(A), including accreditation by the Joint Commission, under the current edition of the Standards for Behavioral Healthcare, not all hospital-based PHPs will be assured of receiving payment under the OPPS unless they meet the above prescribed certification requirements and enter into a participation agreement with TRICARE. CMHC PHPs have been excluded from payment under the TRICARE OPPS since CMHCs are not recognized as authorized providers under the TRICARE program.

    While the authorization standards under 32 CFR 199.6(b)(4)(xii)(A) through (D) will be retained/applied for both hospital-based and freestanding PHPs currently recognized under the Program, including the requirement for a written participation agreement with TRICARE, freestanding PHPs will be exempt from TRICARE OPPS and will continue to be reimbursed under the existing TRICARE PHP per diem system as prescribed under 32 CFR 199.14(a)(2)(ix), subject to their own unique mental health copayment/cost-sharing provisions.

    ➢ Ambulatory Surgery Procedures—Currently, ambulatory surgery procedures provided in both freestanding ambulatory surgery centers (ASCs) and hospital outpatient departments or emergency rooms are paid using prospectively determined rates established on a cost basis and divided into eleven groups as prescribed under 32 CFR 199.14(d). These payment groups are further adjusted for area labor costs based on Metropolitan Statistical Areas (MSAs). The payment rates established under this system apply only to facility charges for ambulatory surgery (e.g., standard overhead amounts that include, but are not limited to, nursing and technician services, use of the facility and supplies and equipment directly related to the surgical procedure) and do not include such items as physician's fees, laboratory, X-rays or diagnostic procedures (other than those directly related to the performance of the surgical procedure), prosthetics and durable medical equipment for use in the patient's home. Ambulatory surgery procedures (both provided in hospital-based and freestanding ambulatory surgery centers) are subject to their own unique copayment/cost-sharing provisions under the current TRICARE ambulatory surgery benefit.

    With implementation of the TRICARE OPPS, hospital-based ambulatory surgery procedures will no longer be reimbursed under the original eleven tier payment system, but will instead be paid on a rate-per-service basis that varies according to the APC group to which the surgical procedure is assigned. The relative weight of the APC group will represent the median hospital cost of the services included in the APC relative to the median cost of services included in APC 0606, Level 3 Clinic Visit. The prospective payment rate for each APC will be calculated by multiplying the APC's relative weight by a nationally established conversion factor and adjusting it for geographic wage differences. The APC payment will be subject to the deductible and cost-sharing/copayment amounts currently being applied under Prime, Extra, and Standard TRICARE programs for hospital outpatient services. Denial of Medicare inpatient procedures will also be adhered to under the TRICARE OPPS (i.e., denial of inpatient surgical procedures performed in a hospital outpatient setting) except for those inpatient procedures, which upon medical review, could be safely and efficaciously rendered in an outpatient setting due to TRICARE's younger, healthier beneficiary population. Exceptions to Medicare's inpatient surgical procedure listing were based on major part to standardized utilization management review criteria, (i.e., Interqual and Milliman), used by TRICARE Managed Care Support Contractors' medical review staff. TRICARE-specific APCs will be developed for these designated inpatient procedures based on median costs from the most recent 12 months of claims history. TRICARE OPPS reimbursement will also be extended for an inpatient procedure performed to resuscitate or stabilize a patient with an emergent, life-threatening condition who dies before being admitted as a patient,which in this case, will be paid under a new technology APC.

    Freestanding ASCs will be exempt from TRICARE OPPS and will continue to be paid under the existing eleven tier payment system. ASC procedures will be placed into one of ten groups by their median per procedure cost, starting with $0 to $299 for Group 1, and ending with $1,000 to $1,299 for Group 9 and $1,300 and above for Group 10, subject to their own unique copayment/cost-sharing provisions under the TRICARE freestanding ambulatory surgery benefit. The eleventh payment tier/group was added to the ASC reimbursement system as of November 1, 1998, for extracorporeal shock wave lithotripsy, with a rate established off of the inpatient Diagnostic Related Group (DRG) 323 which is currently $3,289.

    ➢ Birthing Centers—As described in 32 CFR 199.6(b)(4)(xi), a birthing center is a freestanding or institution-affiliated outpatient maternity care program which principally provides a planned course of outpatient prenatal care and outpatient childbirth services limited to low-risk pregnancies. These all-inclusive maternity and childbirth services are currently being reimbursed in accordance with 32 CFR 199.14(e) at the lower of the TRICARE established all-inclusive rate or the billed charge. The all-inclusive rate includes laboratory studies, prenatal management, labor management, delivery, post-partum management, newborn care, birth assistant, certified nurse-midwife professional services, physician professional services, and the use of the facility to the extent that they are usually associated with a normal pregnancy and childbirth. Since institutional-affiliated maternity centers will continue to be reimbursed under the TRICARE maximum allowable birthing center all-inclusive rate methodology as prescribed under 32 CFR 199.14(e), payment will be equal to the sum of the Class 3 CMAC for total obstetrical care for a normal pregnancy and delivery (CPT code 59400) and the TMA supplied non-professional component amount, which includes both the technical and professional components of tests usually associated with a normal pregnancy and childbirth. As a result, hospital-based birthing centers will continue to be reimbursed the same as freestanding birthing centers except that updating of the hospital-based all inclusive rate, consisting of the CMAC for procedure code 59400 (Birthing Center, all-inclusive charge, complete) and the state specific non-professional component, will lag two months behind the freestanding birthing center all-inclusive update; i.e., the freestanding birthing center all-inclusive rate components will usually be updated on February 1 of each year to coincide with the annual CMAC file update, followed by the hospital-based birthing center all-inclusive rate component updates on April 1 of the same year.

    Observation Stays—Observation Services are those services furnished on a hospital's premises, including the use of a bed and periodic monitoring by a hospital's staff, which are reasonable and necessary to evaluate an outpatient's condition or to determine the need for a possible admission to the hospital as an inpatient. While observation services reported with HCPCS code G0378 (hospital observation service, per hour) have been packaged into other independent separately payable hospital outpatient services since January 1, 2008, maternity observation claims that have a maternity diagnosis, a minimum of four hours per observation stay and not primary surgical procedure on the day of observation will still be identified using HCPCS code G0378 and reimbursed separately under APC T0002. Under the TRICARE OPPS, additional hospital services (e.g., separate emergency room visit or clinic visit) will not be required on a claim with a maternity diagnosis in order to receive separate payment for an observation stay.

    End-Stage Renal Disease (ESRD) Dialysis Services—In accordance with sections 1881(b)(2) and (b)(7) of the Social Security Act, a facility that furnishes dialysis services to Medicare patients with ESRD is paid a prospectively determined rate for each dialysis treatment furnished. The rate is a composite that includes all costs associated with furnishing dialysis services except for the costs of physician services and certain laboratory tests and drugs that are billed separately. CMS has exercised the authority granted under section 1833(t)(1)(B)(i) to exclude from the outpatient PPS those services for patients with ESRD that are paid under the ESRD composite rate. Since TRICARE does not have a comparable composite rate in effect for payment of ESRD services, they will be reimbursed under TRICARE's OPPS.

    II. Treatment Settings Subject to Outpatient Prospective Payment System

    The outpatient prospective payment system applies to any hospital participating in the Medicare program in the 50 United States, the District of Columbia, and Puerto Rico, except for Critical Access Hospitals (CAHs), Indian Health Service hospitals, certain hospitals in Maryland that qualify for payment under the state's cost containment waiver, and specialty care providers which include: (1) Cancer and children's hospitals; (2) freestanding ASCs; (3) freestanding Partial Hospitalization Programs (PHPs); (4) freestanding psychiatric and Substance Use Disorder Rehabilitation Facilities (SUDRFs); (5) Home Health Agencies (HHAs); (6) hospice programs; (7) other corporate services providers (e.g., comprehensive outpatient rehab facilities, freestanding cardiac catheterization centers, freestanding sleep diagnostic centers, and freestanding hyperbaric oxygen treatment centers); (8) freestanding birthing centers; (9) Veterans Administration (VA) hospitals; and (10) freestanding ESRD centers. Due to their inability to meet the more stringent requirements imposed for hospital-based and freestanding PHPs under the Program, CMHCs have also been excluded from payment under TRICARE's OPPS for partial hospitalization program (PHP) services since they are not recognized as authorized providers under the TRICARE program.

    An outpatient department, remote location hospital, satellite facility, or other provider-based entity must also be either created by, or acquired by, a main provider (hospital qualifying for payment under TRICARE OPPS) for the purpose of furnishing healthcare services of the same type as those furnished by the main provider under the name, ownership, and financial administrative control of the main provider, in accordance with the following requirements under 42 CFR 413.65 (Medicare Regulation) in order to qualify for payment under the OPPS:

    Licensure—The outpatient department, remote location hospital, or the satellite facility and the main hospital are operated under the same license, except in areas where the State requires a separate license for the department of the provider.

    Clinical Integration—Professional staff of the outpatient department, remote location hospital or satellite facility are monitored by, and have clinical privileges at the main hospital. The medical director of the outpatient facility must also maintain a reporting relationship with the chief medical officer at the main hospital that has the same frequency, intensity and level of accountability that exists in the relationship between other departmental medical directors and the chief medical officer of the main hospital. Medical records for patientstreated in the facility or organization must be integrated into a unified retrieval system (or cross reference) of the main hospital and there must be full access to all services provided at the main hospital for patients treated in the outpatient facility requiring further care.

    Financial integration.The financial operation of the outpatient facility must be fully integrated within the financial system of the main hospital, as evidenced by shared income and expenses between the main hospital and outpatient facility.

    Public awareness.The outpatient department, remote location hospital, or a satellite facility is held out to the public and other payers as part of the main provider. When patients enter the outpatient facility they are aware that they are entering the main provider and are billed accordingly.

    Having clear criteria for provider-based status is important because this designation can result in additional TRICARE payments for services at the provider-based facility (i.e., the incorporation of additional facility costs for covered outpatient services/procedures). TRICARE will accept the providers' determination on whether they meet the regulatory criteria for provider-based status for purposes of seeking reimbursement under the TRICARE OPPS.

    III. Application of Ambulatory Payment Classification (APC) Model

    Payment for services under the TRICARE OPPS is based on grouping outpatient services into APC groups in accordance with provisions outlined in section 1833(t) of the Social Security Act and its implementing regulation 42 CFR Part 419. This grouping is accommodated through the reporting of HCPCS codes and descriptors that are used to group homogenous services (both clinically and in terms of resource consumption) into their respective APC groups.

    During the development of the TRICARE hospital OPPS it was recognized that certain hospital outpatient services were being paid based on fee schedules or other prospectively determined rates that were being applied across other ambulatory care settings. As a result, the following services were excluded from the OPPS in order to achieve consistency of payment across different service delivery sites: (1) Physician services; (2) nurse practitioner and clinical nurse specialist services; (3) physician assistant services; (4) certified nurse-midwife services; (5) services of a qualified psychologist; (6) clinical social worker services, except under half- and full-day partial hospitalization programs in which the services are included within the per diem payment amount; (7) services of an anesthetist; (8) screening and diagnostic mammographies; (9) clinical diagnostic services; (10) non-implantable durable medical equipment (DME), orthotics, prosthetics, and prosthetic devices and supplies; (11) hospital outpatient services furnished to SNF inpatients as part of their comprehensive care plan; (12) physical therapy; (13) speech-language pathology; (14) occupational therapy; (15) influenza and pneumococcal pneumonia vaccines; (16) take-home surgical dressings; (17) services and procedures designated as requiring inpatient care; and (18) ambulance services. These services will continue to be reimbursed under the current CMAC fee schedule or other TRICARE-recognized allowable charge methodology (e.g., statewide prevailings).

    The remaining outpatient procedures which were not being paid under current fee schedules or other prospectively determined rates were grouped under an APC based on the following criteria:

    Resource Homogeneity—The amount and type of facility resources (for example, operating room, medical supplies, and equipment) that are used to furnish or perform the individual procedures or services within each APC group should be homogeneous. That is, the resources used are relatively constant across all procedures or services even though resources used may vary somewhat among individual patients.

    Clinical Homogeneity—The definition of each APC should be “clinically meaningful.” That is, the procedures or services included within the APC group relate generally to a common organ system or etiology, have the same degree of extensiveness, and utilize the same method of treatment.

    Provider Concentration—The degree of provider concentration associated with the individual services that comprise the APC is considered. If a particular service is offered only in a limited number of hospitals, then the impact of payment for the services is concentrated in a subset of hospitals. Therefore, it is important to have an accurate payment level for services with a high degree of provider concentration. Conversely, the accuracy of payment levels for services that are routinely offered by most hospitals does not bias the payment system against any subset of hospitals.

    Frequency of Service—Unless there is a high degree of provider concentration, creating separate APC groups for services that are infrequently performed is avoided. Since it is difficult to establish reliable payment rates for low-volume groups, HCPCS codes are assigned to an APC that is most similar in terms of resource use and clinical coherence.

    Minimal Opportunities for Upcoding and Code Fragmentation—The APC system is intended to discourage using a code in a higher paying group to define the care. That is, putting two related codes such as the codes for excising a lesion for 1.1 cm and one of 1.0 cm, in different APC groups may create an incentive to exaggerate the size of the lesions in order to justify the incrementally higher payment. APC groups based on subtle distinctions would be susceptible to this kind of coding. Therefore, APC groups were kept as broad and inclusive as possible without sacrificing resource or clinical homogeneity.

    These procedures, along with their specific HCPCS coding and descriptors, were used to identify and group services within each established APC group. They included: (1) Surgical procedures (including hospital-based ASC procedures currently being paid under the eleven tier ASC payment methodology); (2) radiology, including radiation therapy; (3) clinic visits; (4) emergency department visits; (5) diagnostic services and other diagnostic tests; 6) partial hospitalization for the mentally ill; (7) surgical pathology; (8) cancer therapy; (9) implantable medical items (e.g., prosthetic implants, implantable DME and implantable items used in performing diagnostic x-rays and laboratory tests); (10) specific hospital outpatient services furnished to a beneficiary who is admitted to a SNF, but in which case the services are beyond the scope of SNF comprehensive care plans; (11) certain preventive services, such as colorectal cancer screening; (12) acute dialysis (e.g., dialysis for poisoning); and (13) ESRD services. These hospital outpatient procedures will be paid on a rate-per-service basis that varies according to the APC group to which they are assigned.

    In accordance with section 1833(t)(2) of the Social Security Act, services and items within an APC group cannot be considered comparable with respect to the use of resources in the APC group if the highest median cost is more than 2 times the lowest median cost for an item or service within the same group (referred to a the “2 times rule”). Exceptions may be granted in unusual cases, such as low-volume items and services.

    IV. Public Comments

    The TRICARE OPPS proposed rule (72 FR 17271) was published on April 1, 2008, providing a 60-day public comment period. Ten timely items of correspondence were received containing multiple comments on the proposed rule which resulted in a substantive change in hospital-based PHP reimbursement (i.e., reimbursement of a single per diem based on a minimum of three service units and payment of PHP professional services outside the per diem) and provided clarification regarding the temporary transitional payment adjustment (TTPA) and temporary military contingency payment adjustment (TMCPA) available under the TRICARE OPPS which will provide hospitals sufficient time to adjust and budget for potential revenue reductions and to ensure network adequacy deemed essential for military readiness and support during contingency operations. Following is a summary of the public comments and our responses:

    Comment:Several commentors expressed support for the first option outlined in the proposed rule to provide an implementation plan involving three-year transitional payment adjustments for TRICARE network hospitals, but took exception to the proposal that the transitional adjustments only apply to hospitals that are in close proximity to military bases and treat a disproportionate share of military family members and/or hospitals that provide essential network specialty care. The commentors further supported the three-year transition to set higher payment percentages for the ten APCs (five clinic visits and five emergency room (ER) visits) during the first year, with reductions in each of the transition years. Several commentors also recommended a stop-loss system such as the one used in the implementation of the Medicare OPPS.

    Response:We appreciate the commentor's concerns regarding the temporary transitional payment process and have modified it to include all hospitals, both network and non-network. For network hospitals, the temporary transitional payment adjustments (TTPAs) will cover a four-year period. The four-year transition will set higher payment percentages for the ten Ambulatory Payment Classification (APC) codes 604-609 and 613-616, with reductions in each of the transition years. For non-network hospitals, the adjustments will cover a three-year period, with reductions in each of the transition years.

    For network hospitals, under the TTPAs, the APC payment level for the five clinic visit APCs would be set at 175 percent of the Medicare APC level, while the five ER visit APCs would be increased by 200 percent in the first year of TRICARE OPPS implementation. In the second year, the APC payment levels would be set at 150 percent of the Medicare APC level for clinic visits and 175 percent for ER APCs. In the third year, the APC visit amounts would be set at 130 percent of the Medicare APC level for clinic visits and 150 percent for ER APCs. In the fourth year, the APC visit amounts would be set at 115 percent of the Medicare APC level for clinic visits and 130 per cent for ER APCs. In the fifth year, the TRICARE and Medicare payment levels for the 10 APC visit codes would be identical.

    For non-network hospitals, under the TTPAs, the APC payment level for the five clinic and ER visit APCs would be set at 140 percent of the Medicare APC level in the first year of TRICARE OPPS implementation. In the second year, the APC payment levels would be set at 125 percent of the Medicare APC level for clinic and ER visits. In the third year, the APC visit amounts would be set at 110 percent of the Medicare APC level for clinic and ER visits. In the fourth year, the TRICARE and Medicare payment levels for the 10 APC visit codes would be identical.

    The transitional payment adjustments have been increased from those percentage amounts appearing in the proposed rule (73 FR 17271) to further buffer the decrease in revenues that hospitals will be experiencing during initial implementation of TRICARE OPPS. TTPA adjustments will also be extended to non-network providers, although they will be lower than for network hospitals to provide incentives for network participation. TRICARE will not utilize a stop-loss system such as the one used in the implementation of Medicare OPPS as it is not administratively feasible to adopt this type of transition under TRICARE. As stated in the proposed rule, these TTPAs will buffer the initial revenue reductions which will be experienced upon implementation of TRICARE's OPPS, providing hospitals with sufficient time to adjust and budget for potential revenue reductions for hospitals most vulnerable to implementation of OPPS.

    Based on our discussions with the TRICARE Regional Offices (TROs), in regard to the second option to adopt, modify, and/or extend temporary adjustments to TRICARE's OPPS payments for TRICARE network hospitals deemed essential for military readiness and support during contingency operations, it was decided the policy for determining network waivers under the CHAMPUS Maximum Allowable Charge (CMAC) methodology should be used as a model to determine whether a temporary military contingency payment adjustment (TMCPA) under OPPS is warranted. This does not mean that network hospitals will be exempt from OPPS or that the 115% locality based waiver ceiling applies. Under the TMCPAs, this final rule will allow the reimbursement of higher payment rates for hospital-based outpatient healthcare services, if it is determined necessary to ensure adequate Preferred Provider networks. It might be determined that the initial TTPA of 200% for ER visits in a particular network hospital is not sufficient to ensure network adequacy and as a result, an additional TMCPA of 25 percent, (i.e., 225 percent of the OPPS rate for ER visits) would be necessary to support military contingency operations. The higher rate will be authorized only if all reasonable efforts have been exhausted in attempting to create an adequate network and that it is cost-effective and appropriate to pay the higher rate to ensure an appropriate mix of primary care and specialists in the network. For this purpose, such evidence may include consideration of the number of providers in the locality who provide the affected services, the mix of primary/specialty providers needed to meet patient access standards, the number of TRICARE beneficiaries in the locality, and the availability of Military Treatment Facility providers and any other factors the TMA Director, or designee determines relevant. If it is determined that the availability of an adequate number and mix of qualified healthcare providers in a network is not found, the Director TRO (DTRO) shall conduct a thorough analysis and forward recommendations with a cost estimate for approval to the TMA Director or designee through the TMA Contracting Officer (CO) for coordination. Those who can apply for the TMCPAs are: The DTRO; providers through the DTRO; Managed Care Support Contractors (MCSCs) through the DTRO; and Military Treatment Facilities (MTFs) through the DTRO. The TMA Director or designee is the final approval authority for TMCPAs. The procedures that are to be followed when submitting a TMCPA request will be outlined in the TRICARE Reimbursement Manual.

    Comment:One commentor recommended the final rule include adefinition of the term “close proximity” and what constitutes a “disproportionate share of military family members” and “essential network specialty care” for future reference.

    Response:Since these terms will not be used in determining whether TMCPAs will be authorized, there is no need to add a definition for “close proximity” and explain what constitutes a “disproportionate share of military family members” and “essential network specialty care.”

    Comment:Another commentor expressed concern that certain TRICARE dependent hospitals will be negatively impacted to the point that ongoing service capability to military personnel and their families will be severely limited. This commentor states a reasonable solution would be to create criteria for alternative reimbursement methodologies that would reflect an institution's dependence upon TRICARE. These provisions would include an exemption for network hospitals serving a disproportionate number of TRICARE patients and the continuation of TRICARE Maximum Allowable Charge rates for network hospitals entitled to an exemption.

    Response:Under the governing statutory provisions implementing TRICARE's OPPS, TMA cannot exempt hospitals from TRICARE's OPPS on a case-by-case basis; however, see above response on the establishment of higher rates under TRICARE's OPPS using the TTPAs and TMCPAs.

    Comment:Another commentor requested the requirement of “military readiness or contingency operations” be clarified or interpreted to allow exceptions at any time, to assure the military is prepared to perform its mission at any time and not only at times of ongoing operations. The commentor also believes the Director should be allowed to grant not just a “temporary deviation” but also be allowed to grant a more permanent exclusion from OPPS, if it is determined that a hospital's participation in TRICARE is required to support military readiness. The commentor further states that it is a major financial commitment for a hospital to participate in TRICARE and if the participation is only allowed on a temporary basis, this makes it problematic for the hospital to participate. They feel that allowing a more permanent exclusion from OPPS would be helpful in allowing a hospital to remain a part of the TRICARE network.

    Response:As stated above, the statutory provisions implementing TRICARE's OPPS, does not allow TMA to permanently exclude hospitals from TRICARE's OPPS; however, there is latitude under these statutory provisions for the adoption of temporary transitional payment adjustments (TTPAs). These TTPAs will buffer the initial revenue reductions which will be experienced upon implementation of TRICARE's OPPS, providing hospitals with sufficient time to adjust and budget for potential revenue reductions for hospitals most vulnerable to implementation of OPPS. In addition, OPPS will ensure consistency of hospital outpatient payments throughout the United States, thus reducing the denial and return of claims to providers for coding errors. Providers will have access to OCE/Pricer software that will facilitate the filing and payment of outpatient claims with their TRICARE claims processors. This will reduce overall administrative costs for both providers and TRICARE contractors. Also, there are additional transitional adjustments, (i.e., TMCPAs) that will ensure network adequacy during military contingency operations. A change in troop deployment, the mix of primary/specialty providers needed to meet patient access standards, and base realignment and/or closures could impact whether a military contingency payment adjustment is warranted. Therefore, it would not be fiscally responsible to make these adjustments permanent.

    Comment:Another commentor suggests that if DoD adopts a fully Medicare-based OPPS system for TRICARE, it will have a substantially negative effect upon the financial conditions of community hospitals closest to military installations that military personnel, retirees and their families depend upon for important medical services. The commentor further states that if DoD pegs outpatient hospital reimbursement rates to insufficient Medicare reimbursement, they believe that hospitals in California and elsewhere would consider not performing outpatient procedures on TRICARE members, or withdrawing from TRICARE contracts due to poor reimbursement. This could, in turn, harm access to enrollee outpatient care. This commentor recommends that: (1) DoD should, apart from the congressionally altered market basket update factor, separately calculate TRICARE OPPS rates based on the actual market basket update factor, which they believe more accurately reflects hospitals' costs. Doing so would ensure that more TRICARE network hospitals would retain their affiliation with the program and that hospitals closest to large military installations would not be adversely affected; (2) DoD should adopt a 15 percent “glide path” methodology that is similar to its prior rate adjustment methodologies enshrined at 32 CFR 199.14. Under this methodology, TRICARE-participating hospitals may not have their TRICARE outpatient rate reduced by more than 15 percent per year. For example, under this proposal, for the first year of the TRICARE transition OPPS period, TRICARE-contracting facilities would receive the TRICARE outpatient contracted rate, reduced by the lesser of: (a) The amount the contract rate exceeds the TRICARE OPPS rate for the same service or procedure; or (b) 15 percent off the contract rate. This amount becomes the contract rate for each subsequent year's calculation, until the difference between the TRICARE outpatient contracted amount and the TRICARE OPPS amount have equilibrated.

    Response:In section 707 of NDAA-02, Congress changed the statutory authorization (in 10 U.S.C. 1079(j)(2)) that TRICARE payment methods for institutional care “may be” determined to the extent practicable in accordance with Medicare payment rules to a mandate that TRICARE payment methods “shall be” determined in accordance with Medicare payment rules. Based on this statutory mandate, TRICARE is adopting Medicare's prospective payment system for reimbursement of hospital outpatient services currently in effect for the Medicare program. As stated above, to minimize the potential negative impact OPPS may have on hospitals (both network and non-network), TRICARE has developed the TTPAs and TMCPAs.

    Comment:One commentor requested clarification on whether there were other hospital outpatient services that were excluded from the TRICARE OPPS other than the eighteen (18) listed in 63 FR Pages 17276 and 27277.

    Response:There are no other hospital outpatient services that are excluded under TRICARE's OPPS other than those listed in the proposed rule.

    Comment:One commentor strongly recommended that the Final Rule establish an implementation date that is at least 90 days from the date of the publication of the Final Rule to allow adequate time for education and system changes to ensure a smooth transition to this new payment methodology.

    Response:The agency will attempt to provide as much time as possible to ensure a smooth transition to this new payment methodology.

    Comment:This same commentor urges TRICARE to release the updatedTRICARE specific OCE each quarter at the same time the updated Medicare OCE is released.

    Response:TRICARE will release its updated OCE each quarter to coincide with Medicare's release of its OCE.

    Comment:This same commentor seeks clarification of the statement “upon medical review” for those inpatient procedures that the Agency believes can be safely and efficaciously rendered in an outpatient setting due to TRICARE's younger, healthier beneficiary population. The commenter also seeks clarification on how the medical review process will take place, specifically if the medical review process will be conducted for an individual beneficiary claim based upon the review criteria or on advantages to a methodology that applies criteria to an individual beneficiary claim because of the diversity of the population which TRICARE serves.

    Response:The current TRICARE exceptions to Medicare's inpatient surgical procedure listing was a result of a review of those inpatient procedures that the Agency determined could be safely and efficaciously rendered in an outpatient setting for TRICARE beneficiaries, based on standardized utilization management review criteria used by the TRICARE Managed Care Support Contractors' medical review staff. TRICARE's determination of whether a procedure is removed from Medicare's inpatient only list is not based on medical review of individual beneficiary claims but on generally accepted medical standards of practice as substantiated by standardized utilization management review criteria.

    Comment:This same commentor suggests clarifying the payment rate of “TRICARE standard allowable charge methodology” for nonpass-through drugs, biologicals and radiopharmaceuticals with HCPCS codes, but without claims data, to be “the same as the payment methodology under Medicare OPPS, i.e., separate payment based upon the payment rate for nonpass-through drugs and biologicals, in accordance with the ASP methodology.”

    Response:TRICARE is adopting the same payment methodology as the Medicare OPPS effective January 1, 2008, in that the updated payment rates for drugs and biologicals will be based on average sale prices.

    Comment:One commentor states the statement in the proposed rule appears vague on whether the Trauma Activation HCPCS G code will be paid in addition to the Critical Care CPT codes reported on the same date of service. The commentor is requesting that TRICARE clarify in the final rule that HCPCS code G0390 will be paid in addition to CPT critical care codes 99291 and 99292 when reported on the same date of service.

    Response:TRICARE confirms if trauma activation occurs, HCPCS code G0390 will be paid in addition to CPT critical care codes 99291 or 99292 when reported on the same date of service.

    Comment:One commentor had concerns about the requirement that hospitals must use procedure code 58260, which will be assigned to APC 0202, when billing for vaginal hysterectomies. The commentor states that while CPT code 58260 is appropriate for vaginal hysterectomies for uterus 250g or less, it would be inappropriate if performed in conjunction with other procedures such as with removal of tube(s) and or ovarie(s) and other combinations of vaginal hysterectomies because a more specific CPT code (58262) describes these services. The commentor states that proposing to submit a specific code for all vaginal hysterectomies when another CPT code is more appropriate conflicts with the standard set forth by the Department of Health and Human Services and HIPAA. The commentor recommends that TRICARE instruct providers to report the appropriate CPT code representative of the procedure being performed from the CPT code range of 58260-58294, rather than to report CPT code 58260 for all vaginal hysterectomies.

    Response:TRICARE will instruct providers to report the appropriate CPT code for vaginal hysterectomies rather than to report CPT code 58260 for all vaginal hysterectomies.

    Comment:We received multiple comments expressing concern over the differences in Medicare's PHP reimbursement under OPPS and TRICARE's proposed PHP reimbursement.

    Response:Upon further review, TRICARE has decided to adopt Medicare's PHP reimbursement methodology for hospital-based PHPs. For CY 2009, we are adopting CMS' two separate APC payment rates for PHP: One for days with three services (APC 0172) and one for days with four or more services (APC 0173). In addition, TRICARE will allow services of physicians, clinical psychologists, Clinical Nurse Specialists (CNS's), Nurse Practitioners (NPs) and Physician Assistants (PAs) to bill separately for their professional services delivered in a PHP. The only professional services which will be included in the per diem are those furnished by Clinical Social Workers (CSWs), Occupational Therapists (OTs), and alcohol and addiction counselors.

    Comment:This commentor also states the Medicare PHP reimbursement methodology does not have a provision for recognizing the costs for proving such specialized partial hospitalization services to children. They believe the use of a Medicare methodology, without accounting for the additional costs of providing care for children in these programs is not reasonable and will further weaken already limited access to commu