Payment for Inpatient and Outpatient Health Care Professional Services at Non-Departmental Facilities and Other Medical Charges Associated With Non-VA Outpatient Care, 78901-78915 [2010-31629]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 75, Number 242 (Friday, December 17, 2010)]
[Rules and Regulations]
[Pages 78901-78915]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31629]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 17

RIN 2900-AN37


Payment for Inpatient and Outpatient Health Care Professional 
Services at Non-Departmental Facilities and Other Medical Charges 
Associated With Non-VA Outpatient Care

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: This document affirms as final, with changes, a proposed rule 
that updates the Department of Veterans Affairs (VA) medical 
regulations concerning the payment methodology used to calculate VA 
payments for inpatient and outpatient health care professional services 
and other medical services associated with non-VA outpatient care. The 
rule has been designed to ensure that it will not have adverse effects 
on access to care.

DATES: This final rule is effective February 15, 2011.

FOR FURTHER INFORMATION CONTACT: Holley Niethammer, Supervisory Policy 
Specialist, National Fee Program Office, Department of Veterans 
Affairs, 3773 Cherry Creek North Dr., Suite 450, Denver, CO 80209, 
telephone (303) 370-5062. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: Under 38 U.S.C. 1703(a), ``[w]hen [VA] 
facilities are not capable of furnishing economical hospital care or 
medical services because of geographical inaccessibility or are not 
capable of furnishing the care or services required, the Secretary, as 
authorized in [38 U.S.C. 1710], may contract with non-[VA] facilities 
in order to furnish'' certain hospital care and medical services to 
veterans who qualify under 38 U.S.C. 1703. VA implemented this 
authority in 38 CFR 17.52. Also, under 38 U.S.C. 1728, VA may authorize 
payment for emergency care in a non-VA facility in limited situations, 
primarily where the care is needed for the treatment of a service-
connected disability or related condition. Under that authority, as 
implemented in 38 CFR 17.120, VA reimburses either the veteran who made 
payments for hospital care or medical services, the person or 
organization making such expenditure on behalf of such veteran, or the 
hospital or other health facility furnishing the care or services if 
such care or services were provided in a medical emergency and VA or 
other Federal facilities were not feasibly available, and an attempt to 
use them beforehand would not have been reasonable.
    Payment methodology for health care professional services 
associated with outpatient and inpatient care that are payable under 
either 38 U.S.C. 1703 or 1728 is currently set forth in 38 CFR 17.56.
    Current Sec.  17.56(a) adopted the Medicare Participating Physician 
Fee Schedule for the payment of professional services. For services not 
covered by the Medicare Participating Physician Fee Schedule, VA pays 
the lesser of the actual amount billed or the amount calculated using 
the 75th percentile methodology set forth in current Sec.  17.56(c) (or 
the usual and customary rate if there are fewer than 8 treatment 
occurrences for a procedure during the previous fiscal year). We cannot 
predict whether there will be 8 treatment occurrences during an 
upcoming fiscal year, or the precise charges of such treatment 
occurrences, because these depend upon the billing practices of the 
non-VA facilities involved. In the majority of these cases, the non-VA 
facilities' charges are far greater than the allowable Medicare charges 
for the same treatment. As a result, VA's expenditures can be 
unpredictable and, in some cases, can greatly exceed the costs VA would 
incur using the Medicare payment systems or fee schedules.
    In a proposed rule published on February 18, 2010 (75 FR 7218), we 
proposed to amend Sec.  17.56 to apply Medicare payment methodologies 
to all non-VA inpatient and outpatient health care professional 
services and other medical charges associated with non-VA outpatient 
care. We explained that such charges would include ancillary and 
facility costs such as those that are reimbursed using the following 
Medicare payment systems or fee schedules: Ambulatory Surgical Center 
Payment, Clinical Laboratory Fee Schedule, Home Health Prospective 
Payment System (PPS), Hospice, Hospital Outpatient PPS, and End Stage 
Renal Disease (ESRD) composite rate payment method (NOTE: Beginning 
January 1, 2011, Medicare will pay for

[[Page 78902]]

ESRD services based on the prospective bundled payment system, not the 
composite rate. We have revised this final rule to correctly utilize 
the prospective bundled payment system). We also proposed to revise the 
regulation to clarify how payments will be computed for inpatient and 
outpatient health care professional services at non-VA facilities and 
other medical charges associated with non-VA outpatient care. We 
concluded that using the Medicare payment systems and fee schedules 
will clearly help VA contain costs.
    We received 18 comments on the proposed rule. All of the comments 
oppose at least one portion of the proposed rule. The proposed 
regulation governs multiple health service areas including but not 
limited to outpatient hospitals, ambulatory surgery centers, home 
health, ESRD, and laboratory services. The majority of comments 
concerned exclusively dialysis, thus VA's responses to the comments 
largely address only dialysis. The subject matter of most of the 
comments can be grouped into several categories, and we have organized 
our discussion of the comments accordingly.
    We received no comments regarding the correction of the 
typographical error in 38 CFR 17.52(a). Prior versions of this 
regulation (codified at 38 CFR 17.50b(a)) included cross-references to 
38 CFR 17.50c through f. Sections 17.50c, 17.50d and 17.50f have 
subsequently been recodified as 38 CFR 17.53, 17.54 and 17.55, 
respectively. 61 FR 21964 (1996). Additionally, since the most recent 
revision to this regulation, Sec.  17.56 was added to the regulatory 
sequence. Therefore, we remove the reference in Sec.  17.52(a) to 
``provisions of Sec.  17.53 through f'' and replace it with 
``provisions of Sec. Sec.  17.53, 17.54, 17.55 and 17.56.''

Challenges to VA's Legal Authority To Promulgate This Rule

    Several commenters argued that VA lacks authority to establish by 
regulation rates to serve as default payment amounts in the absence of 
a negotiated payment amount, or in the context of individual 
authorizations for care. We disagree, but make clarifying changes to 
the regulation based on the comments. We will discuss these changes in 
reference to the comments before addressing our authority, because the 
clarifications themselves answer some of the comments.
    Commenters expressed confusion between the preamble and the rule 
text regarding whether VA will enter into negotiated agreements if the 
agreed-upon rates are greater than the Medicare rate. In addition, 
commenters asked whether VA would be obligated to pay the negotiated 
amount in all contexts. We have clarified the regulatory text based on 
these comments. Depending upon agency need or prevailing market 
conditions, VA may negotiate specific rates with non-VA providers. If 
and when such contracts are awarded, VA will pay the negotiated 
contract rate for services within the contract's scope and terms. This 
negotiated rate could be greater than the Medicare rate.
    In addition, nothing in the final rule authorizes VA to breach any 
contracts, including contracts which contain a negotiated rate. Some 
commenters expressed such a concern, as well as a concern that the rule 
would negate the payment terms of existing multi-Veterans Integrate 
Service Network (VISN) contracts or contracts negotiated pursuant to 
the Federal Acquisition Regulation (FAR) and the VA Acquisition 
Regulation (VAAR) for individual VISNs, and thus the rule represents a 
breach of contract and an unconstitutional taking under United States 
v. Winstar Corp., 518 U.S. 839 (1996). Again, no such alteration to 
existing VISN or multi-VISN contracts would take place upon 
promulgation of this regulation. As the clarified hierarchy in the 
final rule more clearly establishes, contracts entered into pursuant to 
specific negotiation have precedence over the default rates, including 
the Medicare rate.
    Finally, commenters indicated that the rule was unclear when it 
attempted to distinguish between a FAR contract and a VAAR contract. We 
agree that the proposed regulation text was confusing in this respect, 
and that this confusion may also have contributed to commenters' 
questions about the continuing authority to specifically negotiate 
rates with non-VA providers. We have removed the references to the FAR 
and VAAR because of this confusion. Nevertheless, as discussed below, 
the FAR and VAAR continue to be relevant to our authority to negotiate 
specific rates with specific providers, which we will pay under Sec.  
17.56(a)(1). We reassure the commenters that this regulation would not 
override or cancel out any contracts in existence upon promulgation of 
this final rule. Therefore, no breach of contract or constitutional/
unconstitutional taking would occur. The modified regulatory language 
addresses the comments that expressed confusion about what payment 
mechanism VA will apply under a given circumstance.
    We now address the specific challenges to VA's authority. Several 
commenters stated that VA does not have specific authority from 
Congress under 38 U.S.C. 1703 to promulgate this regulation, and 
therefore VA cannot set reimbursement rates or price controls. We 
disagree, and do not make any changes to the regulation based on this 
comment. Section 1703 gives VA the authority to contract with non-VA 
facilities to provide hospital care and medical services. This 
contracting authority is not limited to contracts which contain 
negotiated prices. For example, 38 CFR 17.52, which implements the 
authority granted by section 1703, allows for individual authorizations 
when demand is only for infrequent use. As discussed in more detail 
below, individual authorizations are essentially a price offer to the 
non-VA provider, who then accepts that offer by performing services for 
the VA patient. Thus, VA has always interpreted the contracting 
authority granted in section 1703 to include forms of contracts other 
than contracts containing negotiated prices. The commenters incorrectly 
assume that VA must have specific authority in 38 U.S.C. 1703 to 
include reimbursement rates in a regulation. However, VA has broad 
authority to issue regulations that are ``necessary or appropriate to 
carry out the laws administered by the Department and are consistent 
with those laws.'' 38 U.S.C. 501(a).
    Other commenters added that the FAR, VAAR, Competition in 
Contracting Act, Public Law 98-369, section 2701, and other Federal 
procurement laws and policies apply to all VA acquisitions made with 
appropriated funds unless explicitly exempted under 38 U.S.C. 8153, and 
stated that none of these provisions allow VA to set limitations on 
cost and require that VA negotiate contract prices. We disagree--none 
of these general contracting laws prohibits the contracting or payment 
provisions in the final rule. VA is authorized by the FAR, VAAR, and 
other Federal procurement laws and policies to enter into contracts to 
provide care to veterans through private providers. As noted above, our 
authority to enter contracts for this purpose is in fact specifically 
stated in 38 U.S.C. 1703 and 1728. These authorities--FAR, VAAR, and 38 
U.S.C. 1703 and 1728--have long been the source of our authority to 
provide individual authorizations for care under 38 CFR 17.52. 
Moreover, these authorities do not prohibit VA's implementation of the 
specific contracting authority authorized in section 1703. Indeed, if 
these broader contracting laws prohibited the contracting arrangements 
described in the proposed rule, our arrangements

[[Page 78903]]

prior to the proposed revisions to Sec.  17.56 would have been void; 
yet, the comments made no such assertion.
    Thus, we have long-standing authority to engage in contracts and 
individual authorizations with non-VA providers. Inherent in VA's 
authority to enter into these contracts is our authority to set rate 
terms and conditions for those contracts. Some of these are 
specifically negotiated. Others, however, are governed by the specific 
amount-calculation mechanisms established in current Sec.  17.56. Our 
proposed rule merely revised those calculation mechanisms, and made 
them applicable to a broader group of non-VA providers.
    When VA offers to send a patient to a non-VA provider under the 
authority of Sec.  17.56, and the non-VA provider accepts the patient 
and provides the service, a contract has been formed. In practice, 
these contract actions are ordered utilizing (1) VA Form 10-7078, 
Authorization and Invoice for Medical and Hospital Services, (2) VA 
Form 10-7079, Request for Outpatient Medical Services, or (3) VA Form 
10-2570d, Dental Record Authorization and Invoice for Outpatient 
Service. The final rule merely indicates that the rate of payment for 
these contracts must conform to the regulation.
    Under its acquisition protest authority, the Government 
Accountability Office (GAO) has found that similar pricing and contract 
arrangements were not unduly restrictive of competition. In a request 
for proposal (RFP), VA stated that the Medicare Fee Schedule rate in 
effect at the time and location of service would apply to prosthetics 
orders under the contract. As in the case of the proposed rule and this 
final rule, use of the Medicare pricing in the RFP was in response to a 
VA Office of Inspector General (OIG) report that found that past 
acquisitions resulted in inflated and noncompetitive pricing. An 
orthopedic services provider challenged the use of the Medicare pricing 
structure in the RFP because those rates allegedly did not provide 
adequate compensation for the services. The GAO found that VA properly 
exercised its discretion under the relevant statutory authority, 38 
U.S.C. 8123. Section 8123 is very broad and gives VA the authority to 
``procure'' prosthetic appliances and necessary services in whatever 
manner the Secretary deems proper, without regard to other provisions 
of law. Although 38 U.S.C. 8123 provides broad procurement authority 
without regard to other provisions of law, the GAO's holding did not 
rest solely on this basis. Rather, the GAO explained that the 
circumstances, particularly VA's broad grant of procurement authority, 
provided no basis for questioning the RFP's provisions. In particular, 
the GAO stated that ``it is not unduly restrictive of competition for 
the agency to predesignate pricing in order to protect legitimate 
government interests.'' See Orthopedic Servs., Inc., B-247695, June 30, 
1992, 92-1 CPD ] 547.
    As mentioned above, a 2006 VA OIG report, No. 05-03037-107, 
described in the proposed rule, found that establishing payment rates 
is necessary to ensure consistent, predictable medical costs and 
control expenditures. In addition, unlike the RFP examined by the GAO, 
the Medicare prices prescribed by Sec.  17.56(a)(2) are not ceilings 
per se, but rather the default price that must apply when no other rate 
has been negotiated. Thus, existing authority actually encourages the 
development of rates through regulation as a matter of consistent 
government practice and protection of the public fisc.
    Notwithstanding our disagreement with the commenters that we lack 
authority to set rates via regulation, including for the individual 
authorizations that we have been providing before we proposed to revise 
Sec.  17.56, the comments generally reflect that the proposed rule 
language was confusing. It did not sufficiently distinguish negotiated 
rates from the default rates that generally apply to individual 
authorizations. It also seemed to state that our authority for 
individual authorizations was something other than FAR/VAAR. As noted 
above, we have revised the final rule to eliminate references to the 
FAR and VAAR and to otherwise clarify the hierarchical payment 
structure that we stated in the proposed rule. These changes are not 
departures from our intent in the proposed rule text and we believe 
that they will eliminate the confusion and clarify the meaning and 
effect of the final rule.
    Some commenters argued that Congress could not have intended to 
grant VA the authority to use Medicare rates under 38 U.S.C. 1703 
because Congress explicitly authorized VA to set maximum payable rates 
in emergency situations under section 1725, but did not provide the 
same authorization in section 1703. In other words, the commenters 
state that the specific authority in section 1725 eliminates the 
possibility of implicit authority in section 1703.
    There are two problems with this logic. First, as explained above, 
there is no need for a specific grant of authority in section 1703 
because VA's contractual authority extends to VA's authority to pre-
establish prices through regulation as a contractual ``term'' where 
specific rates are not otherwise negotiated. Second, the final rule 
does not set a maximum rate. The explicit authority in section 1725 to 
set maximum rates for emergency care episodes does not speak to whether 
VA may include in a regulation a default contractual rate for 
different, non-emergent services. Further, section 1725 applies only to 
emergent care rendered in non-VA facilities, a context in which pre-
negotiated contracts are not practical. Thus, the explicit authority to 
set a maximum rate makes sense in this narrow context and should not be 
compared with the broader contracting authority in section 1703.
    Related to challenges to VA's statutory authority, one commenter 
opined that Sec.  17.56 is inconsistent with 38 CFR 17.52 and VA 
Directive 2007-025 because Sec.  17.52 authorizes individual 
authorizations for medical services in non-VA facilities only when 
demand is for infrequent use and VA Directive 2007-025 states that 
dialysis should generally be authorized under a contract rather than 
fee for service. The rule is not inconsistent with 38 CFR 17.52 or VA 
Directive 2007-025. First, Sec.  17.52 implements section 1703, which 
establishes that VA may contract with non-VA providers. Section 17.56 
describes what payment methodology VA will apply in a given 
circumstance. As previously discussed, the inclusion of individual 
authorizations in Sec.  17.52 demonstrates VA's broad interpretation of 
the word ``contract'' in section 1703. The fact that Sec.  17.52 
mentions individual authorizations does not make Sec.  17.56 
inconsistent for describing the payment rate that will apply in the 
absence of a negotiated contract. Second, in the context of dialysis 
services, VA's individual authorization authority applies because it is 
in fact infrequent that non-VA dialysis providers provide services to 
veterans under Sec.  17.56. The veteran population that is served by 
these non-VA facilities is quite small when compared to the general 
population. In fact, some commenters indicated that they only had four 
total veteran dialysis patients annually. VA does not consider such 
usage to be ``frequent.'' To the extent that these individual patients 
generally require repeated treatments, this is not the sort of 
``frequency'' that we intended to govern through the Sec.  17.52 
reference to infrequent use--that regulation is clearly discussing the 
frequency of facility-wide use of non-VA providers

[[Page 78904]]

and not the use of non-VA providers to provide care to a particular 
individual.
    Further, 38 CFR 17.56 is not inconsistent with the exhortation in 
VA Directive 2007-025 that dialysis care ``should generally be 
authorized under a contract rather than on a fee for service basis.'' 
This language does not bar VA from using a means other than a long-term 
contract for the provision of dialysis care; it merely expresses non-
binding agency guidance regarding the policies existing prior to this 
final rule. Moreover, the Directive is somewhat misleading, in that it 
suggests that individual authorizations under Sec.  17.56 are not 
contracts. As previously explained, individual authorizations involve 
VA's offer via the appropriate referral form, and the provider's 
acceptance via delivery of services. Finally, if the VA Directive is at 
all inconsistent with our regulation, the regulation, which has been 
properly promulgated under the Administrative Procedure Act, and is 
therefore binding on VA and the public, clearly takes precedence. 
Hence, we do not make any changes based on these comments.

Comments That the Proposed Rule Did Not Comply With Executive Order 
12866

    Several comments raised economic concerns about the regulation. In 
particular, several commenters opined that the proposed rulemaking did 
not comply with Executive Order 12866. To the extent that the 
commenters challenge this rulemaking on Executive Order 12866 
compliance grounds, we note that section 10 of the order explains that 
it ``is intended only to improve the internal management of the Federal 
Government and does not create any right or benefit, substantive or 
procedural, enforceable at law or equity by a party against the United 
States.'' The Office of Management and Budget (OMB) is solely 
responsible for enforcing the order, and OMB approved the proposed rule 
as being in compliance with the order. Therefore, we make no changes 
based on these comments. However, to the extent that the comments 
citing Executive Order 12866 address economic or other substantive 
concerns about the rulemaking, we address them elsewhere in this 
document.

Economic Concerns Raised by Commenters

    The majority of the 18 comments received in connection with this 
rulemaking concerned the payment rate for dialysis treatment, the 
impact of the rule on small dialysis providers, whether VA would adopt 
various adjustments made to the Medicare schedule for dialysis care, 
and whether VA should phase-in the proposed payment rate for dialysis 
treatment.
    As discussed in the proposed rule, VA intends to reimburse 
providers using the applicable Medicare fee schedule or prospective 
payment system as a standalone reimbursement method. VA considers 
Medicare's fee schedules and prospective payment systems as independent 
``fair market value'' reimbursement without any consideration to cost 
reporting. Included in these fee schedules and payment systems are 
several items described in some comments as ``adjustments.'' Again, if 
the ``adjustment'' is part of the Medicare schedule or payment system, 
then VA will apply it. Additionally, if a Medicare schedule is 
implemented by the Centers for Medicare & Medicaid Services (CMS) 
gradually, such as through a ``phase in'' approach, then our rule would 
apply the payment amount due according to the phased-in schedule for 
the period in which the medical service was provided. The rule is clear 
in this respect. For example, under 42 CFR 413.239, which will be 
effective on January 1, 2011, Medicare has instituted a transition 
period during which treatment for ESRD provided from January 1, 2011, 
through December 31, 2013, will be either phased in at a ``blended 
rate'' that adjusts each calendar year or, at the provider's option, at 
a rate of 100 percent of the payment amount determined under the rate 
established under 42 CFR 413.215. See Medicare Program; End-Stage Renal 
Disease Prospective Payment System, 75 FR 49,030, 49,198 (Aug. 12, 
2010). Thus, if a provider has opted with Medicare to be paid at the 
Sec.  413.215 rate, that is the rate applicable to that provider and VA 
will pay for ESRD services using that rate. Providers who have not 
exercised that option will be paid at the phased-in ``blended'' rate. 
We are already developing appropriate procedures to adjust payment 
rates for ESRD service providers who exercise this option, and we will 
not have any difficulty identifying these providers and paying them at 
the appropriate rate. Indeed, this is exactly what is contemplated by 
the reference in Sec.  17.56(a)(2)(i) to ``[t]he applicable Medicare 
fee schedule or prospective payment system amount * * * for the period 
in which the service was provided''.
    Notwithstanding the transition period for ESRD implemented by CMS 
in its regulations, several commenters urged VA to separately phase-in 
its adoption of the Medicare fee schedule. The commenters suggested 
that a phase-in by VA would lessen the disruption caused by the 
transition contained in the Medicare ESRD rates. For the reasons 
discussed in the following sections, we do not believe that any phase-
in beyond that contemplated by the Medicare rates themselves is 
appropriate or necessary.
    Moreover, as explained in the proposed rule, VA will not include 
any post-schedule adjustments made by CMS, such as end-of-year 
adjustments. As we explained in the proposed rule, due to the 
relatively small numbers of veterans impacted compared with the size of 
the Medicare program, we believe these end-of-year cost adjustments 
have minimal impact and will be cost-prohibitive for VA to execute.
    One commenter discussed the effect of this rule on medical schools, 
noting that VA often contracts with teaching hospitals and medical 
schools at rates exceeding Medicare or VA fee schedules due to 
considerations such as impact on training programs. A few commenters 
also asked how this rule would affect sharing agreements with non-VA 
facilities made pursuant to 38 U.S.C. 8153, which provides VA with 
enhanced sharing authority to contract for health care resources. One 
commenter also asked whether VA will continue to follow VA Directive 
1663, which provides special rules and policies for implementing and 
managing sharing agreements under section 8153.
    In response to the above comments, we note that VA will continue to 
follow Directive 1663. This final rule applies only to payments for 
non-VA health care services purchased under 38 U.S.C. 1703. As such, 
health care resources contracted for under 38 U.S.C. 8153 are not 
affected by this rule. We will continue to follow VA Directive 1663 for 
negotiating contracts with medical schools.
    Several commenters stated that Sec.  17.56 will have a significant 
impact on small dialysis providers. We are sympathetic to the needs of 
small health care providers and the potential effect of decreased VA 
payments on these providers. However, we also dispute at least some of 
the basis for the comment. In the proposed rule, we recognized that 
adopting the Medicare payment system for dialysis could lead to a 39 
percent decrease in VA's overall outpatient dialysis facility 
expenditures. We recognize that this effect will be greater on smaller 
providers who receive VA funds. However, we also explained that the 
benefits of this savings to our nation's veterans and to the American 
people, as well as our adoption of the national ``standard'' rate 
(i.e., the

[[Page 78905]]

Medicare rate) for government-reimbursed private health care, 
outweighed the potential impact on some small dialysis providers. So 
long as veterans continue to have access to care (see below), we 
believe that it would not be a responsible use of VA funds to continue 
to pay a rate higher than that paid by other Federal agencies simply to 
subsidize these providers or to address perceived financial performance 
issues in other lines of business. Concerns and comments about whether 
the rates adopted by CMS are adequate or appropriate as a general 
matter have been addressed by CMS in their final rulemaking. See 75 FR 
49030 (Aug. 12, 2010). In addition, we have addressed throughout this 
final rule the adequacy and propriety of adopting those rates 
specifically for care provided to veterans.
    Again, we are adopting Medicare rates as the uniform standard for 
Federal government payment for care purchased from private sector 
providers. Congress has established a number of processes for 
monitoring the adequacy of payment rates in Medicare and for providing 
input on potential updates and changes in Medicare, and providers with 
underlying concerns about Medicare's payment rates should address those 
concerns to CMS and other entities such as the Medicare Payment 
Advisory Commission (MedPAC). Further, Medicare's new prospective 
payment system for dialysis services, starting in 2011, is expected to 
recognize the unique needs of low-volume providers by including 
adjustments to the CMS schedule for low-volume providers. VA would 
implement this higher payment for low-volume providers as it is 
implemented by the Medicare payment system, including, as noted above, 
any phase-in of that payment system. Again, the final rule clearly 
states that VA will apply the rate required by that payment system.
    In addition, our analysis in the proposed rule shows that VA is not 
a significant source of revenue for any providers. In fact, a majority 
of dialysis providers do not treat VA-referred patients. A 2008 CMS 
report to Congress on ESRD payments documents some 315,000 patients 
receiving chronic dialysis services paid for by CMS (A Design for a 
Bundled End Stage Renal Disease Prospective Payment System, available 
at https://www.cms.gov/ESRDGeneralInformation/Downloads/ESRDReportToCongress.pdf). In contrast, VA typically purchases these 
services for approximately 9,000 patients. This reinforces the 
conclusion that the number of VA-funded patients in the community 
represents only a small portion of the total number treated. In 
addition, it is unreasonable to expect VA to pay at a significantly 
higher rate than the rate at which CMS reimburses.
    Commenters also stated that the current state of the economy, 
specifically unemployment, has led to a decrease in the number of 
privately insured dialysis patients, further magnifying the impact of 
additional change to the current VA payment structure (because private 
insurers pay more than the Medicare rate). Again, we recognize that 
this is a valid concern, but the solution is not higher rates of 
payment solely for treating our nation's veterans (so long as they 
continue to have access to care). VA's responsibility to our nation's 
veterans does not include a duty to address changes in the national 
economic climate. We also note that due to national health reform 
efforts, such as The Affordable Care Act, Public Law 111-148, the 
number of privately insured patients should, in fact, increase.
    One comment stated that making contract negotiations contingent 
upon the contracted rates being lower than Medicare would render many 
providers economically unable to bid. Nothing in the final rule 
restricts negotiations of possible payment amounts. Moreover, we note 
that virtually every non-VA provider in the United States does accept 
Medicare patients and therefore does accept payment at the Medicare 
rate. One comment recommended changing the language in proposed Sec.  
17.56(a)(2)(iii)(A) to expressly state that the applicable 
``geographically adjusted'' Medicare rate will apply. Because Medicare 
rates take into account the geographic location of the provided 
service, we decline to make this change.

Concerns Raised by Commenters Regarding Access to Care, Particularly to 
Dialysis Treatment

    Several commenters asserted that the effect of this rule on low-
volume dialysis providers will force them to refuse to accept VA 
patients, or will lead to the closure of entire low-volume dialysis 
facilities. Similarly, commenters stated that because the rule will 
cause non-VA dialysis providers to close and/or refuse VA patients, 
veterans will have fewer scheduling options. Comments were that fewer 
scheduling options will require veterans to schedule their care for 
different times and potentially require veterans to travel greater 
distances to receive care, which could be detrimental to their health. 
The commenters opined that their concerns will be magnified for rural 
veterans.
    VA takes this concern seriously, and we are strongly committed to 
ensuring that this final rule does not diminish access to care for the 
nation's veterans, including those who suffer from kidney disease. For 
three reasons, we do not believe that the concern about diminished 
access is justified. First, our analysis of the effect of this rule on 
the national non-VA dialysis provider community does not support that 
concern. ESRD services are currently provided to Medicare patients by 
private providers at the Medicare rate, and there is no evidence that 
these providers will refuse to continue to provide ESRD services to 
veterans simply because the payment rate will now be the same as the 
rate for Medicare patients. On the contrary, the historical record 
suggests that payment of the Medicare rate has not led providers to 
deny care to Medicare patients. In its March 2010 report, Report to the 
Congress: Medicare Payment Policy, MedPAC found that most payment 
adequacy indicators for dialysis services are positive and that 
Medicare beneficiaries continue to have good access to care for 
dialysis services. (available at https://www.medpac.gov/documents/Mar10_EntireReport.pdf) In adopting Medicare's payment rates for 
dialysis, we expect that VA beneficiaries should similarly have good 
access to care. This conclusion is fortified by the fact that, under 
the Medicare program, CMS has instituted a transitional period for ESRD 
payments.
    Second, we note that CMS has finalized a new bundled prospective 
payment system, which will be effective in 2011, and which will 
explicitly include adjustments based on different geographic regions 
and for low-volume providers. 75 FR 49030, 49198 (Aug. 12, 2010). When 
Medicare implements these adjustments, they will be applied under Sec.  
17.56 because they will be part of the Medicare fee schedule that will 
be adopted by this rule. Such adjustments should help to ensure that 
this final rule does not have adverse effects on access to care, 
including in the rural areas that have been mentioned by some 
commenters.
    Third, and finally, all existing contracts will continue to be 
honored, and we retain the right to contract with specific providers at 
specialized rates. We will exercise our right to enter into contracts 
with providers, including at rates higher than the Medicare rates, if 
and when necessary to ensure that veterans, including veterans who live 
in rural areas, have access to quality care.

[[Page 78906]]

    We reiterate that ESRD services are currently provided to Medicare 
patients by private providers at the Medicare rate, and there is no 
reason to believe these providers will refuse to continue to provide 
ESRD services to veterans simply because the payment rate will now be 
the same as the rate for Medicare patients. For all of the reasons 
discussed above, we do not believe that adopting the Medicare rates 
will jeopardize the ability of our nation's veterans to obtain 
necessary health care in general, or specifically for ESRD. We are 
prepared to take appropriate steps to address that concern if and when 
it arises.
    Similarly, some commenters believe that the rule will cause a 
decline in the quality of care administered by private dialysis 
providers. Medicare patients represent the bulk of the country's 
dialysis patients, and we are simply adopting the same rates that will 
be paid by Medicare. Medicare's January 1, 2011 implementation of the 
prospective bundled payment system, which VA adopts in this final rule, 
includes a significant expansion in case-mix adjustments. 75 FR 49030 
(Aug. 12, 2010). Because these case-mix adjustments are part of the 
Medicare payment system, VA will be including them in its use of the 
Medicare payment rates. There is no evidence to suggest that the 
majority of patients who receive services under the Medicare umbrella 
are expected to see a decline in quality of care. VA adopting this same 
payment rate should not decrease quality of care.
    One commenter also indicated concern that the proposed rule will 
lead to an increase in the illegal practice of ``split invoicing'' or 
``balance billing,'' whereby private providers bill patients separately 
and on top of Medicare or VA payment schedules. By law, VA's payment 
represents payment in full; it is illegal for providers to ``balance 
bill'' or ``split invoice'' VA beneficiaries for an amount above VA's 
allowed charge. Anticipated violations of this law are not a valid 
basis for a policy determination; however, they may affect 
implementation or lead to greater oversight through procedural methods. 
VA will not allow the potential for illegal activity to prevent us from 
promulgating a valid rule that conforms to national health care policy. 
We make no changes based on this comment.

Comments That the Quality of VA Services Will Decline

    Commenters indicated that because some dialysis providers may 
refuse VA patients, VA will be forced to take on more dialysis patients 
at its own Medical Centers. Commenters opined that this will overwhelm 
VA's facilities, resulting in a lower quality of care than what would 
be provided by non-VA providers. We make no changes based on these 
comments. For the reasons explained previously, we do not think that 
the payment changes will negatively impact access to care or that VA 
will be forced to take on more dialysis patients. Further, we do not 
expect this to impair veterans' access to non-VA dialysis services. We 
also disagree with the commenter's assertion that VA facilities would 
provide a lower quality of care relative to non-VA providers under the 
final rule.

Comments About VA's Billing Practices

    Several commenters believe that VA is not prepared to adopt the 
Medicare reimbursement scheme set to take effect in 2011. They cite to 
a 2009 internal audit conducted by VA OIG that shows that VA has 
improperly reimbursed dialysis providers under its current Fee Based 
program, which according to the commenters is easier to administer than 
the proposed changes.
    VA has taken action to improve our payment practices based in part 
on the results of the OIG audit. To assure we implement timely and 
accurate payment processing under this final rule, VA will follow its 
predecessors at CMS and the Department of Defense (DoD) (in the context 
of the TRICARE program), by hiring a third party with expertise to 
accurately price claims (VA will continue to pay after the third party 
pricing) under the Medicare payment system. This contractor will be 
responsible for determining the appropriate Medicare rate, including 
the contemplated changes to the dialysis rate that we expect to take 
effect in 2011. This should ensure that reimbursement is properly 
calculated, as both CMS and TRICARE have had success with this 
approach.
    The use of contractors also should serve as a response to comments 
that we should document how we will ensure compliance with the final 
rule, including that providers receive accurate and timely payment 
under the final rule because CMS and TRICARE have successfully 
addressed such potential problems in this same manner.
    In addition, because CMS had not yet published its final rule 
during the public comment period for VA's proposed rule, the commenters 
believed that VA could not adopt the new payment system with respect to 
the 2011 schedule changes. Since the submission of the comment, CMS 
published a final rule titled ``Medicare Program; End-Stage Renal 
Disease Prospective Payment System,'' which amended 42 CFR parts 410, 
413, and 414. 75 FR 49030 (Aug. 12, 2010). The rule adopts the Medicare 
fee schedule in effect on January 1, 2011, and thereafter; VA will be 
required under this rule to immediately adjust its fees to adopt the 
CMS prospective bundled payment system on the effective date of the 
rule. We make no changes to the rule based on this comment because the 
publication of the CMS final rule addresses the concerns presented by 
the commenter.
    One commenter asserted that VA's claims process is more expensive 
and administratively burdensome than that of Medicare, and that the 
historical VA rates better cover these additional costs. Specifically, 
the commenter asserted that VA's preauthorization requirement, 
inconsistency in accepting electronic billing, payment processing 
delays, and inconsistency in making electronic payments all contribute 
to higher costs for providers. The commenter suggested that the 
proposed rule ``would result in a reduction in provider reimbursement 
far in excess of the mere rate change from VA to Medicare'' and 
requested that VA exclude laboratory services from the rule. We will 
not make any changes based upon these comments.
    The purpose of this rulemaking is in part to facilitate 
standardization in Federal government payment for medical services. We 
disagree with the allegation that VA's requirement of treatment 
authorization for a non-VA provider to receive payment is burdensome to 
obtain, because VA's practice is to pre-authorize veterans, effectively 
removing any potential burden on providers. Regarding processing delays 
and the need for more consistency in electronic billing and payments, 
it is our view that the first step toward the efficiency the commenter 
seeks is to standardize as much as possible the amount being billed and 
paid by VA. We have carefully considered and rejected the commenter's 
suggestion that we continue the inefficiencies associated with current 
methodology while we nonetheless strive to become more efficient. 
Moreover, we note that VA is actively improving its billing and payment 
practices. VA is currently transitioning to an improved claims 
processing system, which should hasten payment of claims and enhance 
VA's electronic payment remittance and EFT capabilities. With this 
final rule, VA will actually have an even greater opportunity to reduce 
administrative costs by adopting a standardized payment methodology. 
This will allow VA to better identify and implement best practices 
developed by CMS and

[[Page 78907]]

other third-party payers. Accordingly, we intend that any additional 
cost currently associated with billing VA for providing care to 
veterans will be removed upon implementation of the final rule.

VA Should Exempt Certain Services or Otherwise Modify Its Adoption of 
the Medicare Rate

    Some commenters stated that VA should exempt dialysis treatments 
and/or laboratory services from the adoption of the Medicare payment 
system. We make no changes based on these comments. Excluding any 
services from the rule is inconsistent with one of the goals of this 
rule, which is to align VA reimbursement with the government standard. 
Moreover, there is no evidence to support the comment that the proposed 
rule would create an administrative burden on laboratory service 
providers. Virtually all of these providers currently use the Medicare 
payment system to bill Medicare patients, and will be required to use 
the CMS prospective bundled payment system beginning on January 1, 
2011. Because these providers must implement the new Medicare schedule, 
applying it to VA-referred veterans should not present an undue 
administrative burden.
    Commenters also stated that VA should consider establishing a rate 
not tied to Medicare. Commenters suggested alternatives to the Medicare 
rate, such as allowing the negotiation of non-standard contracts in the 
event of special circumstances like transfers from VA facilities to 
non-VA facilities of medically complex patients; implementation of a 
coordinated-care plan like the Contract Care Coordination 
Recommendations of VA's Independent Budget, FY 2011; and a payment 
regime that would incentivize more participation by non-VA health care 
providers. We do not make any changes based on these comments. Again, 
one of the goals of this rule is to align our payment structure with 
the government standard. Adopting a different rate would defeat this 
purpose.
    As to incentivizing participation by non-VA providers, VA retains 
its ability to negotiate contracts under this rule and may consider 
special circumstances like those that the comments raised, to the 
extent allowable under the FAR and VAAR contracting authorities. 
Similarly, VA has included care coordination requirements in some of 
its recent contracts with community health care providers, and 
continues to seek opportunities for improved coordination of care. 
These efforts are not precluded by this rule. We make no changes based 
on these comments.
    Another comment was that VA should evaluate the cost of treating 
patients in its own centers and compare it to the Medicare rate. One 
commenter suggested that VA would incur greater costs if it were forced 
to accept more dialysis patients in house. As previously discussed, we 
reject the premise that the rule will cause decreased access to care. 
Another commenter asserted that the Medicare rate for dialysis is less 
than the amount that VA calculates as the cost of care at VA 
facilities. Any number of variables may affect the cost of providing 
care; therefore, it is not clear that costs of providing dialysis at VA 
facilities can be properly compared to costs of providing dialysis at 
non-VA facilities. In any event, this comparison is not relevant to our 
policy decision to pay non-VA providers at the national standard, 
Medicare rate. Moreover, as noted repeatedly in this notice, Medicare 
may adjust the rate payable for dialysis to address pricing accuracy.
    Another comment was that VA should not implement the contemplated 
revisions to the rule until CMS has finished phasing in the new 
Medicare payment system for dialysis, which CMS has proposed to do over 
a 4-year period. We do not intend to wait until after Medicare's 4-year 
phase-in period to adopt the current CMS rates for purposes of 
establishing a national standard rate. If necessary, we will address 
any problems or issues uncovered by CMS during the 4-year period, 
particularly if these problems are unique to our veteran population or 
are not addressed by CMS. There is no need to wait until their phase-in 
is complete.

Comments That VA Relies Upon Erroneous and Inaccurate Facts

    A commenter stated that VA has significantly misinterpreted the 
data that it relied upon in the proposed rule. As a result, the 
commenter believes that VA incorrectly determined that the impact on 
dialysis providers would be minimal, and VA has not adequately 
considered reasonable alternatives. Specifically, the commenter stated 
that VA erroneously proposed to pay for dialysis services using 2008 
Medicare claims data that reflect the soon-to-be-outdated composite 
rate and payment rates for separately billable items.
    We make no changes based on these comments. VA has correctly relied 
upon the data presented in the proposed rule to determine the number of 
veterans who receive dialysis treatment at non-VA facilities relative 
to the total population of dialysis patients receiving such care from 
private providers. We have addressed each alternative proposed in the 
comments, and have demonstrated VA's strategy to incorporate Medicare's 
2011 pricing change for dialysis. In addition, VA cannot simulate the 
specific cost impact of Medicare's 2011 revision to the dialysis rate 
because Medicare has not yet implemented the prospective bundled 
payment system. Therefore, use of the 2008 Medicare claims data was 
proper as this was the most recent available data.
    Another commenter stated that the smallest dialysis provider in New 
Hampshire received more than $200,000 in payments, so the claim in the 
proposed rule that 95 percent of vendors received less than $150,000 
and 82 percent received less than $50,000 is incorrect. The data relied 
upon by VA for our statement in the proposed rule--which considered 
this specific facility--were for fiscal year 2008. We believe that the 
discrepancy between the commenter's calculation and VA's calculation is 
explained by the fact that (1) VA's calculation did not include costs 
for lab services and services purchased under competitive contracts, 
and (2) VA calculated by calendar year whereas the commenter calculated 
by fiscal year. Inclusion of these costs and calculation of total 
payments by calendar year (rather than fiscal year) account for the 
discrepancy between the commenter's records and VA's calculation that 
95 percent of providers received less than $150,000 and 82 percent 
received less than $50,000.
    In fact, using the commenter's own calculations actually supports 
our overall rationale in adopting this final rule. The commenter stated 
that in 2008 they provided a total of 6,501 dialysis treatments at an 
average cost of $264.85 per treatment. 5,417 treatments were for 
Medicare patients, 349 treatments were for Medicaid patients, 160 
treatments were for veterans, and payment for the remaining 575 
treatments were from unlisted sources. Based on the comment, the 
provider received payment from VA of over $200,000 for providing 
dialysis care costing approximately $42,376. This data supports the 
cost-saving rationale for use of the Medicare rate, and demonstrates 
that the Medicare rate will be sufficient to support the community of 
private dialysis providers. VA predicted a 39 percent decrease in the 
rate at which it reimburses providers for dialysis care, which would 
still reimburse this specific provider far more than the estimated 
$264.85 cost of care per patient. Thus, the commenter's own data shows 
that the proposed CMS

[[Page 78908]]

rates would be adequate, and that the commenter will continue to 
receive significant profits from treating VA patients.

A Commenter Requested That VA Define ``Repricing Agent'' To Clarify 
Which Payors Are Encompassed in the Term

    We agree with the comment and have changed Sec.  17.56(a)(2)(ii) to 
define a ``repricing agent'' as follows: ``For the purposes of this 
section, repricing agent means a contractor that seeks to connect VA 
with discounted rates from non-VA providers as a result of existing 
contracts that the non-VA provider may have within the commercial 
health care industry.''
    Repricing is a program that allows VA to share in savings available 
in managed care networks by utilizing contracted rates currently 
available in the commercial industry and paying a contracted repricing 
agent a portion of the savings. The use of the repricing agent provides 
VA with access to economical community-based vendor contracts that 
provide cost avoidance for VA. Non-VA care claims submitted to VA for 
payment are sent to the repricing agent to determine if a lower rate 
can be utilized.

Comment That VA's Fee Schedules Should Be Readily Available to the 
Public

    The final rule continues to provide, as one basis for calculating 
the payment amount, the ``75th percentile'' schedule used under Sec.  
17.56 prior to its revision by this rulemaking. A commenter requested 
that this fee schedule be made available to the general public. 
Currently, VA field offices each maintain a separate fee schedule and 
individual fee schedules are currently available to the public upon 
request. The Medicare fee schedules and prospective payment system 
rates are already available to the general public. However, the rates 
calculated using the 75th percentile method are calculated and applied 
at the local level, and can be obtained from local offices. 
Additionally, after the effective date of this final rule, VA will add 
complete and accurate information to the public on VHA's Web site. This 
should further address the commenter's concern.

Comment That VA Has Not Made Payments Consistent With the Maryland 
Waiver, and Should Reconcile Discrepancies

    The proposed and final rule text clearly states that VA will comply 
with the terms of any Medicare waiver. To the extent that the commenter 
is concerned about VA's past performance, this is beyond the scope of 
this rulemaking.

Comments That VA Should Integrate Care With Non-VA Dialysis Providers, 
in Which Health Information From Non-VA Providers is Easily Exchanged 
With VA

    We agree with the comment, but make no changes to the final rule. 
VA takes every opportunity to provide quality care to veterans and 
strives to assure those same veterans receive quality care from non-VA 
providers. VA is currently planning pilots for increased clinical 
information sharing with community providers, and this rule does not 
preclude VA from implementing electronic health information sharing 
policies.

Home Health Care and Hospice Care

    As noted above, in the proposed rule, we indicated that the pricing 
methodology adopted by this rule would be used in establishing payment 
rates for all non-VA inpatient and outpatient health care professional 
services and other outpatient services, including hospice care and home 
health services. However, in reviewing implementation strategies and 
internal procedural practices related to the payment of hospice care 
and home health services through means other than a contract, we have 
encountered significant practical problems that prevent immediate 
implementation of this new methodology. These problems relate to 
separate administration of hospice care and home health services by the 
Veterans Health Administration's Office of Geriatrics and Extended 
Care, which uses separate methods for forming agreements for these 
services, and challenges regarding information technology systems 
necessary to move to the new Medicare rate, but do not relate to the 
actual payment amounts for these services. Such amounts would generally 
be unchanged by this rulemaking because the vast majority of these 
services are paid through a contractual mechanism (and are therefore 
exempted under Sec.  17.56(a)(1)). However, we estimate that there may 
be about 100 providers who are not paid through a contractual mechanism 
and therefore who would have been affected by this rulemaking.
    Given separate administration of hospice and home health services 
under separate VA guidance, we have determined that these providers did 
not receive adequate notice regarding the intended effect of the 
proposed rule or of the need for some delay in implementation of the 
rule so that VA may modify its systems. We will promulgate, as soon as 
possible, a proposed rule to make Sec.  17.56, as revised by this 
notice, applicable to these providers. Therefore, we have added to 
paragraph (a) of the final rule an exception for these two services.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in an expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any given year. This rule would have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    This document contains no provisions constituting a new collection 
of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3521). Non-VA health care providers currently bill VA using 
uniform billing forms CMS-1450, OMB Control No. 0938-0997, and CMS-
1500, OMB Control No. 0938-0999. This practice will not be altered or 
amended.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires agencies to analyze options 
for regulatory relief of small businesses if a rule has a significant 
impact on a substantial number of small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and small governmental jurisdictions. Most hospitals, Ambulatory 
Surgery Centers, and other providers subject to this rule are 
considered to be small entities, either by being nonprofit 
organizations or by meeting the Small Business Administration (SBA) 
definition of a small business, as codified in 13 CFR 121.201. 
Therefore, the Secretary has determined that this final rule would have 
a significant impact on a substantial number of small entities and 
therefore completed a final regulatory flexibility analysis, which is 
discussed in ``Executive Order 12866 and Regulatory Flexibility Act.''

Executive Order 12866 and Regulatory Flexibility Act

    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health

[[Page 78909]]

and safety, and other advantages; distributive impacts; and equity). 
The Executive Order classifies a regulatory action as a ``significant 
regulatory action,'' requiring review by the Office of Management and 
Budget (OMB) unless OMB waives such review, if it is a regulatory 
action that is likely to result in a rule that may: (1) Have an annual 
effect on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities; (2) create a serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impact of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    VA has examined the economic, interagency, budgetary, legal, and 
policy implications of this final rule and has concluded that it is a 
significant regulatory action under Executive Order 12866 because it is 
likely to result in a rule that may have an annual effect on the 
economy of $100 million or more.
    VA followed OMB circular A-4 to the extent feasible in this 
analysis. The circular first calls for a discussion of the need for the 
regulation. The preamble above discusses the need for the regulation in 
more detail.

Need

    Under 38 U.S.C. 1703(a), ``[w]hen [VA] facilities are not capable 
of furnishing economical hospital care or medical services because of 
geographical inaccessibility or are not capable of furnishing the care 
or services required, the Secretary, as authorized in [38 U.S.C. 1710], 
may contract with non-[VA] facilities in order to furnish'' certain 
hospital care and medical services to veterans who qualify under 38 
U.S.C. 1703. Medicare is the largest U.S. Federal health care payer and 
is recognized as the Federal health care industry standard for 
reimbursement rates. Providers, particularly the medical facilities 
affected by this rule, are familiar with Medicare payment 
methodologies. Indeed, VA currently uses Medicare methodologies in 
connection with in-patient treatment and physician and non-physician 
professional services. Moreover, two separate audits by VA's Office of 
Inspector General concluded that clarification of VA's regulations 
governing payment of outpatient facility charges is necessary. See VA 
OIG Reports 08-02901-185 (2009) and 05-03037-107 (2006). As such, we 
believe the adoption of Medicare rates will help ensure consistent, 
predictable medical costs and will help control costs. Thus, we believe 
that adoption of this rate is important to both VA and the general 
public.

Impact

    We received a number of comments objecting to the proposed rule due 
to a perceived adverse impact on small businesses, specifically low-
volume dialysis providers. Commenters argued that due to the reduction 
in the rates dialysis providers currently charge VA and the Medicare 
rate that VA proposed to adopt, many providers will be forced to refuse 
care to veterans while a great deal of providers, particularly in rural 
areas will close down altogether. These comments are discussed in 
greater detail in the preamble above.
    In general, the final rule will impact the following providers 
classified as small businesses: Freestanding emergency and ambulatory 
surgical centers with revenues less than $9.0 million, independent 
diagnostic centers with revenues less than $12.5 million, and hospitals 
and kidney dialysis centers with revenues less than $31.5 million. A 
precise estimate of the number of small entities that fall within the 
rule is not currently feasible. See the below ``Benefits-Cost 
Analysis'' discussion for additional information concerning the 
economic impact of this final rule.

Benefits-Cost Analysis

    We received comments asserting that the benefits-cost analysis was 
inaccurate or too broad because it overlooked the potential adverse 
impact on certain low-volume dialysis providers, and disregarded the 
overall cost of providing dialysis treatment. VA contracted with an 
independent consultant to conduct and analyze the benefits-cost 
analysis in more detail. The VA's estimated total cost savings amount 
published in the proposed rule has been revised to show the slightly 
higher amount provided in the contractor's analysis. The comments 
regarding the benefits-cost analysis are addressed fully in the 
preamble above and in the Accounting Statement below.

Alternatives

    We received a number of comments suggesting that VA use alternative 
pricing mechanisms for different geographic regions in order to provide 
more equitable payments to dialysis providers in rural areas. Several 
commenters suggested alternative approaches including a phase-in of the 
CMS fee schedule, geographically adjusted rates, and different rates 
for low-volume providers. We have addressed these comments in detail in 
the preamble above.
    Approximately 1.6 percent of the total U.S. population are veterans 
who utilize the VA Health Care System. Of the total number of veterans 
who utilized the VHA Health Care System in fiscal year 2008, VHA 
preauthorized non-VA outpatient hospital services for approximately 5.4 
percent of veterans, 2.5 percent used community hospital emergency 
rooms, 0.8 percent used freestanding ambulatory surgery centers, 0.7 
percent used independent laboratories, and 0.1 percent were authorized 
care at end stage renal disease treatment centers at VA expense. We 
believe that the impact of veterans authorized non-VA health care 
services at VA expense in the local health care market is minimal, as 
illustrated in Table 1.

                          Table 1--Percent of Veterans Utilizing VA Health Care System
----------------------------------------------------------------------------------------------------------------
                                                                                                Percent of total
                                                             FY 2008 total     FY 2008 total     veteran users/
                          State                               population       veteran users       total U.S.
                                                                                                   population
----------------------------------------------------------------------------------------------------------------
Alabama..................................................         4,692,977            94,426                2.0
Alaska...................................................           689,791            13,826                2.0
Arizona..................................................         6,630,722           114,126                1.7
Arkansas.................................................         2,910,777            80,831                2.8
California...............................................        37,873,407           369,346                1.0
Colorado.................................................         4,962,478            68,628                1.4
Connecticut..............................................         3,550,231            50,373                1.4

[[Page 78910]]

 
Delaware.................................................           885,956            13,099                1.5
District of Columbia.....................................           589,366             8,894                1.5
Florida...............