E7-14681. Expansion of a TRICARE Demonstration Project for the State of Alaska

AGENCY:

Department of Defense.

ACTION:

Notice of expansion of a TRICARE demonstration project for the State of Alaska.

SUMMARY:

This notice is to advise interested parties of an expansion of a Military Health System (MHS) demonstration project entitled TRICARE Provider Reimbursement Demonstration Project for the State of Alaska. The original demonstration notice was published on November 20, 2006 (71 FR 67112-67113) and described a demonstration project to increase reimbursement for individual providers in the State of Alaska. The demonstration project will now also include increased reimbursement for health care services by hospitals that have been designated as Critical Access Hospitals (CAH) in the State of Alaska. TRICARE, under the demonstration project, will reimburse CAHs in a similar manner as they are reimbursed under Medicare. The expansion of the demonstration project will test the effect of this change on CAH provider participation in TRICARE, beneficiary access to care, cost of health care services, military medical readiness, morale and welfare. In particular, the demonstration will test whether the increased costs of provider payments are offset in whole or part by savings in travel costs, lost duty time, and other factors. This demonstration will be conducted under statutory authority provided in 10 U.S.C. 1092.

DATES:

Effective Date: The expansion of the demonstration will be effective July 1, 2007, and will continue for a period of 3 years from the date of the original demonstration.

ADDRESSES:

TRICARE Management Activity (TMA), Medical Benefits and Reimbursement Systems (MB&RS), 16401 E. Centretech Parkway, Aurora, CO 80011.

FOR FURTHER INFORMATION CONTACT:

For questions pertaining to the expansion of the demonstration/Critical Access Hospital portion of the demonstration, Ann N. Fazzini, 303.676.3803.

SUPPLEMENTARY INFORMATION:

A. Background

For additional information on the TRICARE demonstration project for the State of Alaska, please see 71 FR 67112-67113. The demonstration notice focused on increased payment rates for individual providers to determine the impact on access to care.

This expansion of the demonstration applies to Critical Access Hospitals (CAH) within the State of Alaska. Hospitals are authorized TRICARE institutional providers under 10 U.S.C. 1079(j)(2) and (4). Under 10 U.S.C. 1079(j)(2), the amount to be paid to hospitals, skilled nursing facilities (SNFs), and other institutional providers under TRICARE, shall, by regulation, “shall be determined to the extent practicable in accordance with the same reimbursement rules as apply to payments to providers of services of the same type under Medicare.” Under 32 CFR 199.14(a)(1)(ii)(D)(1) through (9) it specifically lists those hospitals that are exempt from the DRG-based payment system. Critical access hospitals are not listed as excluded, thereby making them subject to the DRG-based payment system. Critical access hospitals are not listed as exempt, because at the time this regulatory provision was written, CAHs were not a recognized entity.

Legislation enacted as part of the Balanced Budget Act (BBA) of 1997 authorized states to establish State Medicare Rural Hospital Flexibility Programs, under which certain facilities participating in Medicare could become Critical Access Hospitals (CAHs). CAHs represent a separate provider type with their own Medicare conditions of participation as well as a separate payment method. Since that time, a number of hospitals have taken the necessary steps to be designated as CAHs. Since the statutory authority requires TRICARE to apply the same reimbursement rules as apply to payments to providers of services of the same type under Medicare to the extent practicable, TRICARE has the authority through the publication of a proposed and final rule to exempt critical access hospitals from the DRG-based payment system and adopt a method similar to Medicare principles for these hospitals. The purpose of the demonstration is to provide this exemption immediately to CAHs in the State of Alaska.

Currently under TRICARE, CAHs are subject to the TRICARE DRG-based payment system. Under the demonstration project, CAHs will be reimbursed under a manner similar to the Centers for Medicare and Medicaid Services (CMS) payment methodology of 101 percent of reasonable costs for inpatient care and outpatient care. CAHs in the State of Alaska are currently receiving reimbursement for billed charges for facility charges for outpatient care. Under the demonstration, the 101% of reasonable costs will be calculated by multiplying the billed charge of each claim by the hospital's cost-to-charge ratio, and then adding 1% to that amount.

B. Current Status of Access

CAH providers in Alaska have notified the Department that they are considering no longer treating military beneficiaries due to low payment rates. The alternatives to local purchase of services for military officials are to transport patients to Seattle or another location for treatment, or to relocate scarce military medical assets to Alaska to provide services. The first is an expensive proposition that brings with it considerable lost duty time and other complications; the second approach is untenable in wartime, and as a practical matter medical practice in Alaska would not provide sufficient opportunity for military medical specialists to maintain their skills.

C. Description of Expansion of Demonstration Project

Under this demonstration, DoD will also waive, for services provided in the State of Alaska, the provisions of 10 U.S.C. 1079(j)(2), as implemented by 32 CFR 199.14(a) that do not exempt CAH providers from the Medicare Diagnostic Related Group payment methodology for inpatient services. Instead, CAHs will be reimbursed under the Centers for Medicare and Medicaid Services (CMS) payment methodology of 101 percent of reasonable costs for inpatient care and outpatient care.

This action will directly increase overall reimbursement levels for CAH providers, and is expected to result in increased access to care for military beneficiaries; reduced travel to Seattle, accompanied by a reduction in lost duty days; and improved morale for military members and families as a result of increased access and reduced separation.

D. Implementation

The expansion of the demonstration will be effective for inpatient admissions on and after July 1, 2007 and for outpatient services provided on and after July 1, 2007.

E. Evaluation

An independent evaluation of the demonstration will be conducted. The evaluation will be designed to use a combination of administrative and survey measures of health care access to provide analyses and comment on the effectiveness of the demonstration in meeting its goal of improving beneficiary access to healthcare by maximizing the potential pool of healthcare providers in Alaska.

Dated: July 24, 2007.

L.M. Bynum,

Alternate OSD Federal Register Liaison Officer, DoD.