TRICARE; Sub-Acute Care Program; Uniform Skilled Nursing Facility Benefit; Home Health Care Benefit; Adopting Medicare Payment Methods for Skilled Nursing Facilities and Home Health Care Providers, 61368-61379 [05-20415]

Agencies

• Office of the Secretary
• DEPARTMENT OF DEFENSE

[Federal Register Volume 70, Number 204 (Monday, October 24, 2005)]
[Rules and Regulations]
[Pages 61368-61379]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-20415]



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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 199

RIN 0720-AA73


TRICARE; Sub-Acute Care Program; Uniform Skilled Nursing Facility 
Benefit; Home Health Care Benefit; Adopting Medicare Payment Methods 
for Skilled Nursing Facilities and Home Health Care Providers

AGENCY: Office of the Secretary, DoD.

ACTION: Final rule.

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SUMMARY: This rule partially implements the TRICARE ``sub-acute and 
long-term care program reform'' enacted by Congress in the National 
Defense Authorization Act for Fiscal Year 2002, specifically: 
Establishment of ``an effective, efficient, and integrated sub-acute 
care benefits program,'' with skilled nursing facility (SNF) and home 
health care benefits modeled after those of the Medicare program; 
adoption of Medicare payment methods for skilled nursing facility, home 
health care, and certain other institutional health care providers; 
adoption of Medicare rules on balance billing of beneficiaries, 
prohibiting it by institutional providers and limiting it by non-
institutional providers; and change in the statutory exclusion of 
coverage for custodial and domiciliary care.

DATES: Effective Dates: This rule is effective August 1, 2003, except 
the amendments to Sec.  199.14(h), which are effective June 1, 2004.

ADDRESSES: Medical Benefits and Reimbursement Systems, TRICARE 
Management Activity, 16401 East Centretech Parkway, Aurora, Colorado 
80011-9066.

FOR FURTHER INFORMATION CONTACT: For payments to Skilled Nursing 
Facilities and Skilled Nursing Facility (SNF) services, Tariq Shahid, 
Medical Benefits and Reimbursement Systems, TRICARE Management 
Activity, telephone (303) 676-3801. For Home Health Care (HHC) benefits 
and payment methods, David E. Bennett, TRICARE Management Activity, 
Medical Benefits and Reimbursement Systems, telephone (303) 676-3494. 
For payments for clinical laboratory and certain other services in 
hospital outpatient departments and emergency departments and balance 
billing limits, Stan Regensberg, Medical Benefits and Reimbursement 
Systems, TRICARE Management Activity, telephone (303) 676-3742. For 
custodial care issues, Mike Kottyan, Medical Benefits and Reimbursement 
Systems, TRICARE Management Activity, telephone (303) 676-3520.

SUPPLEMENTARY INFORMATION:

I. Overview

    In the National Defense Authorization Act for Fiscal Year 2002 
(NDAA-02), Pub. L. 107-107 (December 28, 2001), Congress enacted 
several reforms relating to TRICARE coverage and payment methods for 
skilled nursing and home health care services. The statutory ``Sub-
Acute and Long-Term Care Program Reform'' under section 701 of this Act 
added a new 10 U.S.C. 1074j, which provides in pertinent part:


Sec.  1074j  Sub-acute care program.

    (a) Establishment.--The Secretary of Defense shall establish an 
effective, efficient, and integrated sub-acute care benefits program 
under this chapter. * * *
    (b) Benefits.--(1) The program shall include a uniform skilled 
nursing facility benefit that shall be provided in the same manner 
and under the conditions described in Section 1861(h) and (i) of the 
Social Security Act (42 U.S.C. 1395x(h) and (i)), except that the 
limitation on the number of days of coverage under Section 1812(a) 
and (b) of such Act (42 U.S.C. 1395d(a) and (b)) shall not be 
applicable under the program. Skilled nursing facility care for each 
spell of illness shall continue to be provided for as long as 
medically necessary and appropriate.
* * * * *
    (3) The program shall include a comprehensive, part-time or 
intermittent home health care benefit that shall be provided in the 
manner and under the conditions described in Section 1861(m) of the 
Social Security Act (42 U.S.C. 1395x(m)).

    In addition to these requirements that TRICARE establish an 
integrated sub-acute care program consisting of skilled nursing 
facility and home health care services modeled after the Medicare 
program, Congress also, in section 707 of NDAA-02, 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'' so determined. This amendment is 
effective 90 days after the date of enactment.
    A third Congressional action in NDAA-02, also in Section 707, is 
the statutory codification of existing TRICARE policy--modeled after 
Medicare--that institutional providers are not permitted to balance 
bill beneficiaries for charges above the TRICARE payment amount and 
that non-institutional providers may not balance bill in excess of 15 
percent over the TRICARE Maximum Allowable Charge.
    A fourth component of this reform program (in Section 701(c)) is 
the narrowing of the regulatory definition of custodial care, which 
previously was statutorily excluded but not defined, by the adoption of 
the new statutory definition of ``custodial care'' that has the effect 
of eliminating current program restrictions on paying for certain 
medically necessary custodial care. The new statutory definition of 
domiciliary care is consistent with the previous regulatory definition, 
and no changes are required.
    This final rule implements these statutory requirements. We are 
adopting for TRICARE a skilled nursing facility (SNF) benefit similar 
to Medicare's, but as specified in the statute, without Medicare's day 
limits. We are also adopting Medicare's prospective payment method for 
SNF care. Similarly, we are adopting the Medicare benefit structure and 
payment method for home health care (HHC) services. We are applying to 
SNF and HHC providers the statutory prohibition against balance 
billing. In addition, we are incorporating the new statutory 
definitions of ``custodial care'' and ``domiciliary care.'' Finally, 
this rule also provides clarification of existing payment policies for 
laboratory services including clinical laboratory; rehabilitation 
therapy services; radiology services; diagnostic services; ambulance 
services; durable medical equipment (DME) and supplies; oxygen and 
related supplies; drugs administered other than oral method; all 
professional provider services that are provided in an emergency room, 
clinic, hospital outpatient departments, etc.; and routine venipuncture 
in hospital outpatient and emergency departments that were adopted 
under the allowable charge methodology under 32 CFR 199.14.
    We note that the series of sub-acute and long-term care program 
reforms adopted by Congress in NDAA-02 included several parts that are 
not a part of implementation in this final rule. Most significant are: 
repeal of the Case Management Program under 10 U.S.C. 1079(a)(17) 
(repealed--along with several other related enactments--by Section 
701(g)(2) of NDAA-02); continuation of the Case Management Program for 
certain beneficiaries currently covered by it (Section 701(d)); and 
establishment of a new program of extended benefits for disabled family 
members of active duty service members (Section 701(b)). These and 
several other related statutory changes are being implemented through 
separate regulatory changes.

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    Finally, we note that Congress included as Section 8101 of the DoD 
2002 Appropriations Act, a general provision identical to a provision 
included in the 2000 (Section 8118) and 2001 (Section 8100) 
Appropriations Acts concerning implementation of the case management 
program under 10 U.S.C. 1079(a)(17). Although Sections 8118 and 8100 of 
the 2000 and 2001 Appropriations Acts were repealed by Section 
701(g)(1)(B) and (C) of NDAA-02, the same provision was reenacted in 
the 2002 Appropriations Act. By its terms, Section 8101 of the DoD 2002 
Appropriations Act, exclusively addresses implementation of a program 
(the case management program under 10 U.S.C. 1079(a)(17)) that has now 
been repealed. Thus, we consider Section 8101 as not affecting 
implementation of the sub-acute and long-term care reform program 
adopted by Congress in NDAA-02.
    The program reforms adopted by Congress and implemented in this 
final rule take major steps toward achieving the Congressional 
objective of an effective, efficient, and integrated sub-acute care 
benefits program.

II. Skilled Nursing Facility Benefits

    As noted above, 10 U.S.C. 1074j requires TRICARE to include a 
skilled nursing facility benefit that shall for the most part be 
provided in the manner and under the conditions described under 
Medicare. As a result, TRICARE is adopting Medicare's three-day prior-
hospitalization requirement for coverage of a SNF admission. 
Accordingly, for a SNF admission to be covered under TRICARE, the 
beneficiary must have a qualifying hospital stay (meaning an inpatient 
hospital stay), of not less than three consecutive days before the 
beneficiary is discharged from the hospital. The beneficiary must enter 
the SNF within 30 days after discharge from the hospital or within such 
time as it would be medically appropriate to begin an active course of 
treatment where the individual's condition is such that SNF care would 
not be medically appropriate within 30 days after discharge from a 
hospital. The skilled services must be for a medical condition that was 
either treated during the qualifying three-day hospital stay, or 
started while the beneficiary was already receiving covered SNF care. 
Additionally, an individual shall be deemed not to have been discharged 
from a SNF, if within 30 days after discharge from a SNF, the 
individual is again admitted to the same or a different SNF. These 
coverage requirements are the same as applied under Medicare. We are 
not, however, adopting Medicare's 100-day limit on SNF services. 
Consistent with the statute, SNF coverage for each spell of illness 
shall continue to be provided for as long as medically necessary and 
appropriate.

III. Payments for Skilled Nursing Facility Services

    TRICARE had not reformed payment methods applicable to SNFs due to 
the very small volume of SNF services paid for by TRICARE. The volume 
of such services is now expected to increase significantly because of 
the Congressional action in 2000 reinstating TRICARE coverage secondary 
to Medicare for Medicare-eligible DoD health care beneficiaries 
(Section 712 of the Floyd D. Spence National Defense Authorization Act 
for Fiscal Year 2001, Pub. L. 106-398). Coincident with Congressional 
action in directing adoption of Medicare payment methods for 
institutional providers, we have undertaken a review of the Medicare 
payment method and rates for SNF care under Section 1888(e) of the 
Social Security Act (42 U.S.C. 1395yy) and 42 CFR Part 413, subpart J. 
That review and assessment have convinced us that adoption of Medicare 
SNF payment methods and rates is not only required by law, but also 
fair, feasible, practicable, and appropriate.
    Medicare implemented its per diem Prospective Payment System (PPS) 
for SNF care covering all costs (routine, ancillary and capital) of 
Medicare-covered SNF services as of July 1, 1998. The Medicare payment 
rates are based upon resident assessments. All Medicare-certified SNFs 
are required to conduct assessments on residents using a standardized 
assessment tool, called the Minimum Data Set (MDS). Medicare then uses 
information from this assessment to categorize SNF patients into major 
categories, such as: (1) Rehabilitation; (2) Extensive Services; (3) 
Special Care; (4) Clinically Complex; (5) Impaired Cognition; (6) 
Behavior Problems; and (7) Reduced Physical Function. This is done 
using the Resource Utilization Group (RUG)-III grouper. The RUG-III 
grouper is a computer program that converts resident specific 
assessment data into a case-mix classification. In classifying patients 
into groups based upon their clinical and functional characteristics, 
the grouper further subdivides each of these major categories resulting 
in specific patient RUGs.
    For each RUG, the Medicare SNF per diem payment is calculated as 
the sum of three parts--the nursing component, the therapy component 
and the non-case-mix component. Under the nursing and therapy 
components of the payment rate, each of RUG carries a uniquely assigned 
relative weight factor. This relative weight factor, or case mix index, 
represents a relative index or resource consumption. Resource-intensive 
patients are assigned to a RUG that carries a higher relative weight 
factor. This RUG-specific relative weight factor is multiplied by the 
applicable nursing and therapy base rates (which vary depending on 
whether the SNF is urban or rural) to develop the nursing and therapy 
components of the per diem payment rate. These two components are then 
added to the non-case-mix adjusted component resulting in the PPS per 
diem payment rate.
    A key part of the Medicare SNF payment system is the use of the MDS 
to classify SNF residents into one of the RUG groups. An important 
issue is whether the RUG-III classification system used by Medicare to 
classify patients into the RUG groups would be practicable for the 
TRICARE SNF benefit. We think that it would be practicable. Much of the 
SNF care for which TRICARE will be paying is as second payer to 
Medicare for the same patient. Even for non-Medicare-eligible patients 
(e.g., most patients under age 65), the characteristics recognized by 
the RUG-III system would be equally applicable. In this regard, we note 
that more than ten states have decided to use the RUG-III system to 
classify Medicaid patients into RUGs and several other states are 
currently in the developmental stages of implementing the RUG-III 
system. This reflects a broad view that the MDS and RUGs are 
appropriate for non-Medicare SNF residents. In our review and 
discussions, we could not identify any significant barriers to the use 
of the RUG-III system to classify TRICARE patients.
    One implementation issue that we have identified related to 
classification concerns the timing of resident assessments. The 
Medicare SNF payment system requires periodic patient assessments. The 
Centers for Medicare and Medicaid Services (CMS) requires that SNF 
patients be assessed on days 5, 14, 30, 60, and 90, as well as to be 
reassessed if there are status changes between these periodic 
assessments. We have considered the level of assessment required after 
100 days when TRICARE becomes primary payer for patients whose SNF care 
must continue beyond the Medicare benefit limit. We believe continuing 
to assess patients every 30 days would be consistent with Medicare's 
practice of skilled authorization.
    A second implementation issue concerns the use of MDS for neonates

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and very young children. The MDS was not designed for very young 
children. As a result, we believe that children under ten should not be 
assessed using the MDS. We will review the methods used by Medicaid 
programs and may adopt one of their assessment methods at a later time. 
Until then, the allowed charge for children under age ten in a SNF will 
continue to be the billed charge or negotiated rates.
    We have also considered whether the Medicare SNF payment rates and 
weights are appropriate for TRICARE. We believe they are. For some of 
the payment methods TRICARE has adopted for non-SNF providers that are 
based on the Medicare's system, we have developed DoD-specific weights 
and rates. In some, such as for physician payments, we implemented our 
own phase-in process, but have now reached comparability with Medicare. 
In the case of SNF PPS, the Medicare weights and rates were developed 
to be used nationally--like TRICARE--thus, we have no special State 
considerations that some Medicaid programs would have. In addition, the 
TRICARE population group that will be the primary user of SNF services 
and the Medicare population group are quite similar. Thus, we believe 
that there is no reason why the Medicare weights and rates would not be 
appropriate to use. However, we will carefully monitor the TRICARE SNF 
patient characteristics to ensure that the weights and rates are 
appropriate. If necessary, the weights and rates could be modified 
after one or more years of experience.
    Based on all of these considerations and the statutory 
requirements, the Department is adopting for TRICARE the Medicare 
payment methods and rates, including MDS assessments, RUG-III 
classifications, and Medicare weights and per diem rates. For patient 
stays longer than 90 days, MDS assessments would be required every 30 
days.
    In adopting the Medicare's SNF payment methodology, we are also 
incorporating into our rule a provision that has been in the TRICARE 
Operations Manual requiring that TRICARE-eligible SNFs are required to 
be Medicare-certified institutions. We believe this policy facilitates 
assurance of quality of care and is consistent with the payment 
approach we are adopting. For pediatric SNFs, TRICARE will accept 
Medicaid certification in lieu of the Medicare certification as the 
pediatric SNFs might choose not to apply for Medicare certification and 
the Medicaid certification standards are quite similar to the Medicare 
certification standards.
    For overseas, the SNF PPS will be applicable to those areas as it 
applies under Medicare.
    On July 7, 2003, DoD published a notice (68 FR 40251) to announce 
the effective and implementation date for the new SNF benefit 
provisions and SNF PPS. The notice established that the new SNF benefit 
provisions and SNF PPS is effective for SNF admissions on or after 
August 1, 2003.

IV. Home Health Care Benefits

    Home health agencies (HHAs) are recognized as authorized providers 
under TRICARE, but payment only extended to services rendered by 
otherwise authorized TRICARE individual professional providers, such as 
registered nurses, physical and occupational therapists, and speech 
pathologists. Coverage of services provided by home health aides and 
medical social workers were not allowed except under case management 
and the hospice benefit. Payment is also extended under the TRICARE-
allowable charge methodology for medical supplies that are essential in 
enabling HHA professional staff to effectively carry out physician 
ordered treatment of the beneficiary's illness or injury. Unlike 
Medicare, TRICARE required HHAs to have either Community Health 
Accreditation Program or Joint Commission on the Accreditation of 
Healthcare Organizations accreditation to qualify as network providers. 
These certification requirements have been changed to make them 
consistent with those of Medicare in order to effectively accommodate 
adoption of the new HHA prospective payment system, i.e., to require 
Medicare certification/approval for provider authorization status under 
TRICARE.
    Medicare's home health benefit structure and conditions for 
coverage are being adopted coincident with implementation of the new 
prospective payment system including those provisions under Sections 
1861(m), 1861(o), and 1891 of the Social Security Act and 42 CFR part 
484. In general, coverage extends to part-time or intermittent skilled 
nursing care and home health aide services from qualified providers. 
The specific benefit structure and conditions for coverage are set 
forth in the new Section 199.4(e)(21) of the regulation.
    In adopting this new benefit structure for TRICARE, we note the 
potential need for some transition time or other accommodation for some 
patients currently receiving home health services under present program 
coverage rules. Our regulation (Section 199.1(n)) allows the 
recognition of special circumstance and authority of the Director to 
address them.

V. Payment Method for Home Health Care Services

    TRICARE is adopting Medicare's benefit structure and prospective 
payment system for reimbursement of HHAs that are currently in effect 
for the Medicare program under Section 4603 of the Balanced Budget Act 
of 1997, as amended by Section 5101 of the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act for Fiscal Year 1999, and by 
Sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999. This includes adoption of the 
comprehensive Outcome and Assessment Information Set (OASIS) and 
consolidated billing requirements.
    The adoption of the Medicare HHA prospective payment system 
replaces the retrospective physician-oriented fee-for-service model 
used for payment of home health services under TRICARE. Under the new 
prospective payment system, TRICARE will reimburse HHAs a fixed case-
mix and wage-adjusted 60-day episode payment amount for professional 
home health services, along with routine and non-routine medical 
supplies provided under the beneficiary's plan of care. Durable medical 
equipment and osteoporosis drugs receive a separate payment amount in 
addition to the prospective payment system amount for home health care 
services.
    The variation in reimbursement among beneficiaries receiving home 
health care under this newly adopted prospective payment system will be 
dependent on the severity of the beneficiary's condition and expected 
resource consumption over a 60-day episode-of-care, with special 
reimbursement provisions for major intervening events, significant 
changes in condition, and low or high resource utilization. The 
resource consumption of these beneficiaries will be assessed using 
OASIS selected data elements. The score values obtained from these 
selected data elements will be used to classify home health 
beneficiaries into one of 80 Home Health Resource Groups (HHRGs) based 
on their average expected resource costs relative to other home health 
care patients.
    The HHRG classification determines the cost weight, i.e., the 
appropriate case-mix weight adjustment factor that indicates the 
relative resources used and costliness of treating different patients. 
The cost weight for a particular HHRG is then multiplied by a standard 
average

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prospective payment amount for a 60-day episode of home health care. 
The case-mix adjusted standard prospective payment amount is then 
adjusted to reflect the geographic variation in wages to come up with 
the final HHA payment amount. As indicated above, the ordinary unit of 
payment is based on a 60-day episode of care. Payment covers the entire 
episode of care regardless of the number of days of care actually 
provided during the 60-day period. There are exceptions to this 
standard payment period under certain conditions that will result in 
reduced or additional amounts being paid. If the beneficiary is still 
in treatment at the end of the initial 60-day episode of care, a 
physician must re-certify the beneficiary's continuing need for home 
health services and the homebound status of the patient, and a new 
episode of care may begin. There is currently no limit on the number of 
medically necessary consecutive 60-day episodes that beneficiaries may 
receive under the HHA prospective payment system.
    As noted above, the variation in reimbursement among beneficiaries 
receiving HHC under this newly adopted prospective payment system will 
be dependent on the severity of the beneficiary's condition and 
expected resource consumption over a 60-day episode-of-care, with 
special reimbursement provisions for major intervening events, 
significant changes in condition, and low or high resource utilization. 
A case mix system has been developed to measure the severity and 
projected resource utilization of beneficiaries receiving home health 
services using selected data elements off of the OASIS assessment 
instrument (i.e., the assessment document submitted by HHAs for 
reimbursement) and an additional element measuring receipt of at least 
ten visits for therapy services. These key data elements are organized 
and assigned a score value in order to measure the impact of clinical, 
functional and services utilization dimensions on total resource use. 
The resulting summed scores are used to assign a beneficiary to a 
particular severity level within each of the following dimensions:
     Clinical Dimension--The clinical dimension has four 
severity levels (0-3) and takes into account the beneficiary's primary 
diagnosis and prevalent medical conditions.
     Functional Dimension--The functional dimension assesses 
the beneficiary's ability to perform various activities of daily living 
(e.g., the beneficiary's ability to dress and bathe) and consists of 
five severity levels (0-4).
     Services Utilization Dimension--The services utilization 
dimension has four severity levels (0-3) and indicates whether the 
beneficiary was discharged from a skilled nursing facility or 
rehabilitation hospital within the past 14 days and whether the patient 
is expected to receive ten or more occupational, physical and/or speech 
therapy visits.
    A case-mix grouper is used for assigning a severity level within 
each of the above dimensions and for classifying the beneficiary into 
one of 80 HHRGs. The HHRG indicates the extent and severity of the 
beneficiary's home health needs reflected in its relative case-mix 
weight (cost weight). The case-mix weight indicates the group's 
relative resource use and cost of treating different patients. The 
case-mix weights for Fiscal Year 2001 ranged from 0.5265 to 2.8113. The 
standardized prospective payment rate is multiplied by the 
beneficiary's assigned HHRG case-mix weight to come up with the 60-day 
episode payment.
    On March 30, 2004, DoD published a notice (69 FR 16531) to announce 
the phased-in implementation of the HHA prospective payment system with 
the start health care delivery date under each of the TRICARE Next 
Generation of Contracts (T-Nex). The implementation date for the 
regional groupings of states under each of the T-Nex contracts is 
provided in that notice. This implementation began on June 1, 2004, and 
was fully phased-in on November 1, 2004.

VI. Balance Billing Limitations

    Consistent with the Congressional action discussed above, we are 
revising Section 199.6 of the regulation to specify that institutional 
providers, including SNFs and HHAs, are required, in order to be 
TRICARE-authorized providers, to be participating providers on all 
claims. They must accept, except for any required beneficiary 
deductible and co-payment amounts, the TRICARE payment as payment in 
full. Medicare and TRICARE payment rates are designed to fully 
reimburse the institutions and are required by Medicare and TRICARE to 
be accepted as full reimbursement. TRICARE eligible hospitals, SNFs, 
and HHAs must enter into a participation agreement.

VII. Definitions of ``Custodial Care'' and ``Domiciliary Care''

    As noted above, Congress adopted definitions of ``custodial care'' 
and ``domiciliary care'' that we are incorporating into the TRICARE 
regulation. Custodial and domiciliary care continue to be excluded by 
the statute and regulation. However, the new definition for custodial 
care narrows the exclusion, resulting in increasing coverage of 
medically necessary custodial care. This is also consistent with the 
Congressional effort largely to standardize TRICARE and Medicare sub-
acute care coverage and payment policies. As a corollary to these 
definitions, we are also adopting a definition of the term ``activities 
of daily living.''

VIII. Payment Methods for Hospital Outpatient Services

    Medicare implemented a new Outpatient Prospective Payment System 
(OPPS) on August 1, 2000, as a payment methodology for facility charges 
in hospital outpatient departments and emergency departments. This 
system replaced Medicare's prior payment methodology for such services, 
which was largely based on provider cost reports, but included some fee 
schedules. The Medicare OPPS is in process of being phased in, with a 
series of transitional payment adjustments that were based partly upon 
the prior Medicare cost reports and Medicare's prior cost-based 
methodology. Consistent with the TRICARE payment reform statutory 
authority and general policy, we plan to follow the Medicare approach. 
However, because of complexities of the Medicare transition process and 
the lack of TRICARE cost report data comparable to Medicare's, it is 
not practicable for the Department to adopt Medicare OPPS for hospital 
outpatient services at this time. A separate regulatory initiative will 
address hospital outpatient services not covered by this regulation. We 
anticipate eventual adoption of the Medicare OPPS for most TRICARE 
hospital outpatient services covered by the Medicare OPPS.
    This rule clarifies payments for hospital based outpatient services 
that have established allowable TRICARE charges. These services would 
include laboratory services including clinical laboratory; 
rehabilitation therapy services; radiology services; diagnostic 
services; ambulance services; durable medical equipment (DME) and 
supplies; oxygen and related supplies; drugs administered other than 
oral method; all professional provider services that are provided in an 
emergency room, clinic, or hospital outpatient department, etc.; and 
routine venipuncture. For these services, payments are based on the 
TRICARE-allowable cost method in effect for professional providers or 
the CHAMPUS Maximum Allowable Charge (CMAC). Some services have a 
professional and a technical component

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such as laboratory, radiology, and diagnostic services. If only the 
technical component is billed by the hospital, the technical component 
of the TRICARE allowable charge will be applied to the TRICARE payment. 
If the professional outpatient hospital services are billed by a 
professional provider group, not by the hospital, no payment shall be 
made to the hospital for these services. All other outpatient hospital 
services, except for ambulatory surgery services, shall be paid as 
billed such as facility charges. Ambulatory surgery services shall be 
paid in accordance with Section 199.14(d) of the regulation.

IX. Public Comments

    We published the interim final rule on June 13, 2002, and provided 
a 60-day comment period. We received public comments from several 
commentors. These comments and the Department's responses are 
summarized below.
    Comment. One commentor felt that it would be preferable to adopt 
Medicare standards for coverage and payment through references to 
applicable Medicare statutory and regulatory provisions rather than 
incorporating the actual regulatory language itself. The commentor felt 
that inclusion of language beyond these references could result in the 
loss of uniformity; i.e., that the Department may not be able to keep 
current with changes in Medicare standards.
    Response. The Department believes that incorporation of actual 
regulatory language, in addition to applicable cross references to 
Medicare statutes and regulations, will only tend to strengthen the 
uniformity between the programs. The conditions for participation, 
along with a general overview of the prospective payment methodology, 
will ensure a basic understanding of the benefit coverage and payments 
among managed care support contractors, providers and eligible 
beneficiary groups. As with other adopted Medicare reimbursement 
systems (e.g., those Medicare reimbursement systems for hospice and 
acute inpatient hospitalization), uniformity is maintained through 
annual policy manual updates. These routine changes ensure compliance 
with existing Medicare regulations and internal Program Memoranda 
(i.e., Medicare internal procedural guidelines for the processing and 
payment of home health services). The updating process also ensures 
that the most current rates and wage indexes are being used in 
reimbursement of home health services. We also believe that the 
Medicare cross references (i.e., the statutory and regulatory 
provisions) cited in the interim final rule are sufficient to maintain 
uniformity in benefit structure and reimbursement between the programs 
(i.e., consistency in benefit coverage and reimbursement between the 
Medicare and TRICARE programs). The cross referenced regulatory 
provisions implement key sections of the Social Security Act relating 
to covered services, conditions of participation and the prospective 
payment of home health services.
    Comment. One commentor felt that the Department had exceeded the 
statutory authority granted it under the National Defense Authorization 
Act for Fiscal Year 2002 (NDAA-02), Pub. L. 107-107 for home health 
services through the adoption of conditions of coverage and 
participation prescribed under Sections 1861(o) and 1891 of the Social 
Security Act and 42 CFR Part 484. The commentor also expressed the view 
that restricting eligibility to home care based on a ``qualifying 
service,'' would limit an effective way to decrease aide visits, while 
at the same time provide compensatory strategies needed to increase 
beneficiary safety and independence.
    Response. The Department does not believe it has exceeded the 
statutory authority granted to it under the NDAA-02, Pub. L. 107-107, 
given the fact that the conditions of coverage and participation 
prescribed under 1861(o) and 1891 of the Social Security Act and 42 CFR 
Part 484 are an integral part of the Medicare home health benefit from 
which HHA PPS rates were extrapolated; i.e., the national mean 
utilization for each of the six home health disciplines was used in 
calculating the initial unadjusted national 60-day episode payment. 
Since the conditions of coverage/participation determine the mix and 
level of services (e.g., the beneficiary must need skilled nursing care 
on an intermittent basis, or physical therapy or speech-language 
pathology services, or have continued need for occupational therapy 
after the need for skilled nursing care, physical therapy, or speech-
language pathology services have ceased, on which the prospective 
payment rates were based), it is illogical to believe that it was 
Congress' intent to exclude their adoption under the TRICARE program. A 
shift in the mix and level of services (e.g., the substitution of 
occupational services for home health aide services) resulting from 
elimination of the Medicare conditions of coverage/participation would 
deviate from the resource allocation used in establishing the 
prospective payment rates.
    Comments. Two commentors expressed concern over the weakness of 
Medicare's Outcome and Assessment Information Set (OASIS) instrument as 
a payment setting mechanism for maternity patients and individuals 
under the age of 18. The commentors felt that, while an abbreviated 
OASIS format (i.e., a core of 23 elements used to determine the 
reimbursement amount) might be workable, it would not accurately 
reflect the needs of a younger TRICARE population, or generate an 
appropriate payment for home health services.
    Response. A fixed case-mix and wage adjusted 60-day episode payment 
will be paid to Medicare-certified home health agencies providing home 
health services to beneficiaries who are under the age of 18 and/or 
receiving maternity care. However, this prospective payment amount will 
be determined through the manual completion and scoring of an 
abbreviated assessment form (Home Health Resource Group Worksheet). The 
23 items in this assessment will provide the minimal amount of data 
necessary for generating a Health Insurance Prospective Payment System 
(HIPPS) code for reimbursement under the HHA PPS. While an abbreviated 
assessment may facilitate payment under the HHA PPS, it does not 
adequately reflect the management oversight required to ensure quality 
of care for beneficiaries under the age of 18, and obstetrical 
patients. As a result, TRICARE contractors will have to continue to 
case manage these beneficiary categories through the use of appropriate 
evaluation criteria as required under the specific terms of their 
contract to ensure the quality and appropriateness of home health 
services (e.g., the use of Interqual criteria for managing the 
appropriateness of home health services).
    The program intends to conduct a follow-up analysis after at least 
a year's worth of accumulated data to evaluate the appropriateness of 
Medicare weights and rates in reimbursement of these specialty provider 
categories.
    If a Medicare-certified HHA is not available within the service 
area, the TRICARE contractor may authorize care in a non-Medicare 
certified HHA (e.g., a HHA which has not sought Medicare certification/
approval due to the specialized beneficiary categories it services--
patients receiving maternity care and/or patients under the age of 18) 
that qualifies for corporate services provider status under TRICARE. 
The freestanding corporate entity will be reimbursed for otherwise 
covered professional services under the TRICARE Maximum Allowable 
Charge (TMAC) reimbursement system, subject to any restrictions and 
limitations as

[[Page 61373]]

may be prescribed under existing TRICARE policy. Payment will also be 
allowed for supplies used by a TRICARE authorized individual provider 
employed by or under contract with a corporate services provider in the 
direct treatment of a TRICARE eligible beneficiary. Allowable supplies 
will be reimbursed in accordance with TRICARE allowable charge 
methodology. There are also regulatory and contractual provisions 
currently in place that grant contractors the authority to establish 
alternative network reimbursement systems as long as they do not exceed 
what would have otherwise been allowed under Standard TRICARE payment 
methologies.
    Comment. One commentor wanted to know how children under the age of 
ten would be reimbursed given the fact that they are exempt from the 
HHA PPS.
    Response. The exemption has been removed for children under the age 
of ten. A fixed case-mix and wage adjusted 60-day episode payment will 
be paid to Medicare-certified home health agencies providing home 
health services to beneficiaries who are under the age of 18. This 
prospective payment amount will be determined through the manual 
completion and scoring of an abbreviated assessment form (Home Health 
Resource Group Worksheet). The 23 items in this assessment will provide 
the minimal amount of data necessary for generating a Health Insurance 
Prospective Payment System (HIPPS) code for reimbursement under the HHA 
PPS.
    Comment. Another commentor requested that the requirement for 
physician certification of the correctness of the Home Health Resource 
Group (HHRG) referenced in the SUPPLEMENTARY INFORMATION section of the 
interim final rule be removed and implementation monitored to ensure 
that the requirement is not enforced. The commentor felt that a 
physician was in no position to oversee the reimbursement methodology 
or to maintain the expertise necessary to offer such certification.
    Response. The Department agrees that a physician does not have the 
necessary expertise to certify the correctness of the Home Health 
Resource Group (HHRG). As a result, the requirement has been removed 
from the SUPPLEMENTARY INFORMATION section of the final rule. 
Contractor enforcement of the deleted requirement is not anticipated 
since it does not appear in any of the implementing instructions (i.e., 
TRICARE Policy Manual issuances). The physician's fundamental role is 
to certify the continuing need for home health services and the 
homebound status of the patient through the development and maintenance 
of a formal Plan of Care (POC). The POC must specify the medical 
treatments/services to be furnished, the type of home health 
disciplines that will furnish the ordered services, and the frequency 
of the services furnished.
    Comment. One commentor felt that the absence of a definitive 
effective date would cause confusion for TRICARE beneficiaries and 
providers of home health services. It was recommended that a Federal 
Register notice be issued at least 60 days prior to the actual 
implementation date in order to give both patients and providers the 
opportunity to take appropriate steps to transition into the new 
benefit.
    Response. On March 30, 2004, DoD published a notice (69 FR 16531) 
to announce the phased-in implementation of the HHA prospective payment 
system with the start health care delivery date under each of the 
TRICARE Next Generation of Contracts (T-Nex). The implementation date 
for the regional groupings of states under each of the T-Nex contracts 
was provided in that notice. This implementation began on June 1, 2004, 
and was fully phased-in on November 1, 2004. There were also provisions 
within the implementing guidelines which gave both patients and 
providers the necessary time to transition into the new benefit. Under 
those provisions, TRICARE contractors were responsible for identifying 
all beneficiaries receiving home health care services 60 days prior to 
implementation of the HHA PPS, and for notifying them and the HHA of 
any change in their benefit.
    Comment. Another commentor suggested that ``Activities of Daily 
Living'' as defined in 32 CFR 199.2(b) be modified to include the 
phrase ``that reasonably can be performed by an untrained adult with 
minimum structure or supervision,'' since many of the listed activities 
can rise to the level of skilled nursing or therapy services in 
complicated or abnormal circumstances.
    Response. Similar language already appears in the definition.
    Comment. One commentor recommended that ``Home Health Discipline'' 
as defined in 32 CFR 199.2(b) be modified to include ``home health aide 
services'' since only 5 of the 6 disciplines appeared in the original 
rule.
    Response. The definition of ``Home Health Discipline'' has been 
modified to include ``home health aide services''.
    Comment. One commentor recommended that decisions on policy changes 
remain solely with TRICARE Management Activity and not with individual 
contractors. The commentor felt that variations in contractor policies 
could lead to lingering confusion between patients, providers and 
regulatory officials regarding actual policy interpretation.
    Response. TRICARE Management Activity will be responsible for 
issuing all policy decisions and/or changes pertaining to the coverage 
and reimbursement of home health services.
    Comment. Another commentor requested further clarification 
regarding the circumstances in which TRICARE would consider care 
``custodial.''
    Response. ``Custodial Care'' is treatment or services that can be 
rendered safely and reasonably by a person who is not medically 
skilled, and is designed mainly to help the patient with the activities 
of daily living. The activities of daily care consist of providing food 
(including special diets), clothing, and shelter; personal hygiene 
services, observation and general monitoring; bowel training or 
management (unless abnormalities in bowel function are of a severity to 
result in a need for medical or surgical intervention in the absence of 
skilled services); safety precautions; general preventive procedures 
(such as turning to prevent bedsores); passive exercise; companionship; 
recreation; transportation; and such other elements of personal care 
that reasonably can be performed by an untrained adult with minimal 
instruction or supervision.
    Comment. Another commentor felt that the reference to ``all 
services'' in paragraph 199.6(b)(4)(xv)(F)(1) might be confusing, as it 
is intended to apply to all home health services. The commentor 
recommended that ``home health'' be added prior to ``services.''
    Response. The commentor's recommendation has been adopted. ``All 
services'' in paragraph 199.6(b)(4)(xv)(F)(1) has been further 
clarified in this final rule by adding ``home health'' prior to 
``services.''
    Comment. A commentor recommended that ``Custodial Care'' as defined 
in 32 CFR 199.2(b) be modified to indicate that its application in the 
context of the home health benefit be limited to circumstances where 
the overall plan of care does not include any skilled nursing or 
therapy services. It was felt that additional guidance was necessary to 
avoid misapplication of the custodial care exclusion given the fact 
that home health aide services by their very nature are: (1) Services 
that can be rendered safely and reasonably by a person who is not 
medically skilled, or (2) designed to help a patient with the 
activities of daily living.

[[Page 61374]]

    Response. The definition contained in the interim final rule is 
statutory, that is, the language was contained in the National Defense 
Authorization Act for Fiscal Year 2002 (NDAA-02), Public Law 107-107, 
Section 701(c). Custodial care remains excluded.
    Comment. A beneficiary advocacy organization expressed concern that 
(1) not all NDAA-02 reforms are addressed in the interim final rule; 
(2) family members may experience breaks in coverage for services 
allowed pre- NDAA-02 until all NDAA-02 reforms are implemented; and (3) 
a desire that active-duty family members are provided all services 
authorized by NDAA-02.
    Response. (1) Because of the complexity of developing the proposed 
programs, including significant agency decisions regarding the 
discretionary elements of NDAA-02, and the requirement to follow the 
prescribed rule-making process, the Agency has determined it is more 
timely and fiscally prudent to implement certain NDAA-02 authorized 
programs separate from those covered by this rule; (2) there are no 
pre- NDAA-02 benefits which require implementation of NDAA-02 benefits 
in order to be allowed; and (3) those services required by NDAA-02 to 
be provided to active-duty family members are available through 
existing programs; discretionary NDAA-02 elements will be implemented 
following the rule-making process and incorporation into the managed 
care support contracts.
    Comment. The same organization wanted to know how the new home 
health benefit and reimbursement methodology was going to be 
transitioned into the program since the existing coverage is more 
robust than that being implemented through statute.
    Response. The new home health benefit and reimbursement system has 
been transitioned into the program as part of the next generation of 
TRICARE contracts. There were provisions within the implementing 
guidelines which gave both patients and providers the necessary time to 
transition into the new benefit. Under these provisions, TRICARE 
contractors were responsible for identifying all beneficiaries 
receiving home health care services 60 days prior to implementation of 
the HHA PPS, and for notifying them and the HHA of any change in their 
benefit.
    Comment. The same organization also wanted to know how the cases of 
beneficiaries who are already getting a benefit and who did not have a 
three-day qualifying hospital stay (required for a skilled nursing 
facility (SNF) benefit) be handled. The commentor raised concerns about 
the education for providers treating non-Medicare eligible 
beneficiaries and wanted to know how providers will know that the 
three-day Medicare rule will also apply to these TRICARE beneficiaries.
    Response. The three-day qualifying hospital stay and the SNF 
prospective payment system (PPS) requirements apply to those cases that 
have an SNF admission date of August 1, 2003, or after. This 
implementation date allowed for the education of providers. Under the 
new requirements, SNFs are required to enter into a participation 
agreement with TRICARE. Along with this participation agreement, the 
Managed Care Support (MCS) contractors are required to send a letter to 
SNFs explaining the new requirements. This letter specifically states 
that the new requirements also apply to those TRICARE beneficiaries who 
are not Medicare-eligible. Prior to the implementation of SNF PPS, MCS 
contractors spent considerable effort in educating the providers 
regarding the new SNF benefit and PPS requirements and entered into a 
participation agreement with SNFs.
    Comment. The same organization suggested that guidelines regarding 
benefits available to active-duty family members versus non-active-duty 
family members be incorporated into this rule.
    Response. As mentioned above, the benefits authorized by NDAA-02 
for active-duty family members are either currently available or will 
be so as a result of separate rule-making and implementation in the T-
Nex contracts, therefore, suggested guidelines are not necessary in 
this rule.
    Comment. That organization commented that the Resource Utilization 
Groups (RUG-III) used to calculate SNF payments and the Minimum Data 
Set (MDS) assessments may not be designed to reflect coverage of 
conditions affecting children and supported the Department's proposal 
not to use the MDS for children under age ten. They believed it 
appropriate that the ``billed charge'' for the care of these children 
will be deemed the ``allowed charge.'' The organization also commented 
that it is concerned about the transition for care of children as they 
get older and that there may be a period where coverage for slightly 
more home care will allow the family to have the child with them at 
home before having to place the child in an institutional setting. It 
suggested that the procedures allow for some flexibility to meet the 
needs and wishes of the family where cost effective.
    Response. For the benefits authorized by section 701(b) of NDAA-02, 
the allowed charges will be the ``billed charges'' or ``negotiated 
rates'' for children under age 10. As stated in the rule, the MDS will 
not be used for assessment of these children until further review by 
the Department is completed. Currently, the applicability of MDS will 
be determined based on the child's age (10 years) on the date of his/
her SNF admission. We believe the medical necessity and medical 
appropriateness should determine the most cost effective level and 
setting of care. In certain cases, home health care may be the most 
cost effective and appropriate care based upon the medical necessity 
and medical need of a child's condition.
    Comment. The same commentor was also concerned that the definition 
of ``homebound'' may be too restrictive for families with children. The 
commentor believed this definition needed to be modified to reflect the 
characteristics of the entire TRICARE beneficiary population, and not 
just the Medicare-eligible segment.
    Response. An exception is being made to the definitional homebound 
criteria for beneficiaries under the age of 18 and those receiving 
maternity care. The only homebound requirement for these special 
beneficiary categories is written certification from a physician 
attesting to the fact that leaving the home would place the beneficiary 
at medical risk.
    Comment. Two commentors recommended elimination of the significant 
change in condition (SCIC) adjustment in 32 CFR 199.14(h)(4), as it 
creates an unnecessary administrative burden and unfairly reimburses 
providers when patients' conditions deteriorate.
    Response. Section 707 of National Defense Authorization Act for 
Fiscal Year 2002 (NDAA-02) was quite specific in its intent that 
TRICARE home health payment amounts be determined to the extent 
practicable in accordance with the same reimbursement rates as apply to 
payments to providers of services of the same type under title XVIII of 
the Social Security Act (42 U.S.C. 1295). Elimination of the 
significant change in condition (SCIC) adjustment would represent a 
major deviation from the Medicare HHA PPS methodology, and as such, 
would be contrary to the statutorily mandated reimbursement provisions 
under Section 707 of NDAA-02.
    Comment. Another commentor wanted to know if TRICARE would be 
adopting changes to the OASIS data collection instrument as a result of 
upcoming Center for Medicare and

[[Page 61375]]

Medicaid Services (CMS) Technical Expert Panel (TEP) assessments.
    Response. TRICARE will be adopting all upcoming Center for Medicare 
and Medicaid Services (CMS) changes to the OASIS data collection 
instrument.
    Comment. Two commentors felt that the requirement for TMA Director 
approval of home health aide training programs, as specified in 32 CFR 
199.4(e)(21)(i)(D), would impose an additional standard beyond that set 
out in the Medicare conditions of participation for home health 
agencies. It was recommended that the requirement for home health aide 
training programs be modified to reflect the current Conditions of 
Participation under the Medicare Program.
    Response. The requirement for home health aide training programs 
has been modified to reflect the current condition of participation 
under the Medicare program; i.e., the home health aide must have 
successfully completed a state-established or other training program 
that meets the requirements of 42 CFR 484.36 Condition of 
participation: Home health aide services.
    Comment. One commentor wanted to know if the concept of ``TRICARE-
authorized physician'' was more restrictive than that of Medicare's--as 
it relates to general supervision/direction of ``skilled nursing 
services'' as defined in 32 CFR 199.2(b). The commentor recommended 
that ``TRICARE-authorized physician'' either be defined, or the 
reference eliminated from the definition of ``skilled nursing 
services.''
    Response. Physician as defined in 32 CFR 199.2(b) is a person with 
a degree of Doctor of Medicine (M.D.) or Doctor of Osteopathy (D.O.) 
who is licensed to practice medicine by an appropriate authority. Based 
on this definition, it appears that the concept of ``TRICARE-authorized 
physician'' is comparable to that of Medicare's--as it relates to 
general supervision/direction of ``skilled nursing services.''
    Comment. One commentor recommended adding the phrase ``subject to 
appropriate adjustments'' at the end of the second and fourth sentences 
of subparagraph 32 CFR 199.14(h)(1), since residual final payment 
depends upon the actual HHRG and the impact of other payment 
adjustments that cannot be made prior to final claim submission.
    Response. The phrase ``subject to appropriate adjustments'' is 
being added to the recommended sentences in subparagraph 32 CFR 
199.14(h)(1), since it is agreed that residual final payments are 
impacted by other payment adjustments that cannot be made prior to 
final claim submission.
    Comment. Several commentors felt that the OASIS was an unsuitable 
data collection tool for active duty dependents since it was developed 
primarily for the elderly with very different health care needs. The 
commentor recommended development of an assessment tool which would 
more closely correlate with a younger, healthier TRICARE population.
    Response. The program intends to conduct a follow-up analysis after 
at least a year's worth of accumulated data to evaluate the 
appropriateness of Medicare weights and rates in reimbursement of 
TRICARE beneficiaries.
    Comment. Another commentor recommended adding the phrase ``to 
another home health agency'' following ``transfer'' in subparagraph 32 
CFR 199.14(h)(3), since transfer is limited to a transfer to another 
home health agency for continuation of receiving the home health 
benefit.
    Response. The commentor's recommendation has been adopted by adding 
the phrase ``to another home health agency'' following ``transfer'' in 
subparagraph 32 CFR 199.14(h)(3) of the final rule.
    Comment. One commentor recommended modification of the citation 
references in 32 CFR 199.4(e)(21)(ii)(I). The commentor felt that the 
existing citations were related solely to Medicare conditions of 
participation for home health agencies rather than conditions of 
coverage for home health services.
    Response. The citation reference 42 CFR 409, Subpart E, has been 
added to subparagraph 32 CFR 199.4(e)(21)(ii)(I). This subpart 
implements Sections 1814(a)(2)(C), 1835(a)(2)(A), and 1861(m) of the 
Social Security Act with respect to the requirements that must be met 
for Medicare payment to be made for home health services furnished to 
eligible beneficiaries.
    Comment. Another commentor felt that a description of the outlier 
payment methodology was warranted in the regulatory text.
    Response. A description of the outlier payment methodology has been 
incorporated into the final rule.
    Comment. Another commentor felt that the Medicare qualifying 
condition for payment definition of ``intermittent skilled nursing 
services'' be included in 32 CFR 199.2(b), since it is distinct from 
the scope of coverage standards available under the home health benefit 
(i.e., the definitions of ``intermittent home health aide and skilled 
nursing services'' and ``part time home health aide and skilled nursing 
services'').
    Response. The definitions of intermittent or part-time skilled 
nursing and home health aide services have been consolidated and 
revised to reflect the statutory definition under Sec.  1861 of the 
Social Security Act (42 U.S.C. 1395x(m)).
    Comment. One commentor felt that the new definitions of custodial 
care, domiciliary care and activities of daily living combined with the 
anticipated ``significant increase'' in patient volume and the 
elimination of Medicare day limits require careful administration and 
oversight that can best be provided through case management and 
suggested to include operational guidelines for the Managed Care 
Support Contractors.
    Response. The Department will administer the provisions consistent 
with the statutory requirements. Detailed operational guidelines have 
been developed for the Managed Care Support contractors.
    Comment. The same commenter stated that the Medicare payment system 
was not designed for an active duty population and misses the mark 
completely with respect to children.
    Response. These issues have been addressed above and the Department 
plans to carefully monitor and evaluate the issues pertaining to 
children.
    Comment. The commenter stated that there is some concern as to how 
well the rule will serve the needs of those living outside the 
continental United States.
    Response. The SNF PPS will be applicable to those areas outside the 
continental United States as it is applicable under Medicare.
    Comment. The commentor felt that there was a gap in the level of 
nursing care afforded under the new home health benefit.
    Response. 32 CFR 199.4(e)(21) ``Home health services,'' provides 
the broad range of services available under the new home health benefit 
structure.
    Comment. The commentor pointed out that home health aide and 
medical social worker services were currently being covered under case 
management as well as under the hospice benefit.
    Response. Section IV of the SUPPLEMENTARY INFORMATION portion of 
the rule has been modified to reflect this additional coverage.
    Comment. The same commentor suggested that the rule specify what, 
if any, benefit exclusions remain following the change in the 
definitions of ``custodial care'' and ``domiciliary care.''
    Response. The existing regulatory language provides the benefit 
exclusions; relevant TRICARE policies have been or will be modified as

[[Page 61376]]

necessary to reflect the revised definitions.
    Comment. The commentor also suggested adding a regulatory 
definition for ``medically necessary care.''
    Response. That term is consistent with the existing regulatory 
definitions of ``appropriate medical care'' and ``medically or 
psychologically necessary''; a separate definition is not necessary.
    Comment. The same commentor recommended that the case manager's 
involvement in the plan of care be recognized in the final rule.
    Response. The regulatory provisions for establishment of a plan of 
care are consistent with those provided under the Medicare program.

X. Regulatory Procedures

    We have examined the impacts of the Final Rule under Executive 
Order 12866. Executive Order 12866 directs agencies to assess all costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits. 
A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any one 
year).
    We originally thought that this final rule was a major one because 
it had an impact of more than $100 million per year. However, we now 
believe that the impact will be significantly less. We had originally 
projected that the skilled nursing facility (SNF) benefit change and 
the reduced TRICARE payments to SNFs would reduce SNF payments by more 
than $100 million per year. However, analysis of actual SNF payments 
that have been made since the benefit changes and payment system were 
implemented in August 2003 indicate that the impact has been much less 
than expected. Based on the analysis of actual SNF payments and other 
benefit changes, we have determined that this rule is not economically 
significant under Executive Order 12866.

SNF Changes

    The objective of the SNF benefit change and the revised SNF payment 
system is to make TRICARE's SNF benefit consistent with Medicare, which 
satisfies a Congressional goal. A second objective is to increase the 
quality of care by requiring a more detailed review of SNF cases and 
more appropriate placement of SNF patients. There will also be an 
increase in payment efficiency because SNF payments will cease when SNF 
care is no longer necessary.
    We assessed the quantitative impact of the SNF change by comparing 
TRICARE's payments for SNF care prior to the changes with payments 
after the changes were implemented in August 2003. These payment trends 
capture both the impact of the SNF benefit changes and reimbursement 
changes.
    We examined SNF payments for beneficiaries under age 65 and age 65 
and over separately. Table 1 shows that the level of government 
payments for SNF services for beneficiaries under age 65 declined by 
about 48 percent from the quarter immediately prior to implementation 
of the new rules to the quarter immediately after their implementation 
(we did not use data from August 2003 because some persons were in SNFs 
under the old rules and some were there under the new rules). We 
believe that most of this impact is due to TRICARE's shift from paying 
billed charges for SNF services to using the SNF PPS method. The 
percentage reduction in government SNF payments was less for persons 
age 65 and over: we found an 11 percent decline in SNF payments for 
these beneficiaries. We believe that the impact is less for 
beneficiaries age 65 and over because TRICARE is second payer to 
Medicare. Because Medicare's payments for these beneficiaries have been 
based on Medicare's SNF-PPS payment system for a number of years, 
TRICARE's introduction of the new payment system had a very small 
impact. In aggregate, the benefit changes and the new SNF payment 
system reduced TRICARE government payments to SNFs by 18 percent, which 
is equal to about $4.2 million per quarter or about $17 million per 
year.

    Table 1.--Change in Government Payments for SNF Care for TRICARE
                              Beneficiaries
                             [In thousands]
------------------------------------------------------------------------
                                    Under age    Age 65 and
                                        65         above        Total
------------------------------------------------------------------------
May-July 2003....................       $4,790      $18,051      $22,841
Sep-Nov 2003.....................       $2,571      $16,048      $18,619
% Change.........................          -48          -11          -18
------------------------------------------------------------------------

Home Health

    The objective of the home health (HH) benefit change and the 
revised HH payment system is to make TRICARE's HH benefit consistent 
with Medicare, which satisfies a Congressional goal. A second objective 
is to increase the quality of care by requiring a more detailed review 
of HH cases and more appropriate placement of HH patients. The HH 
payment system also increases efficiency because its per-episode method 
of payment discourages unnecessary utilization.
    For home health claims, the benefit and reimbursement changes have 
just gone into effect and