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(A) Per diem amounts. Hospitals and units with a lower volume of CHAMPUS patients shall be paid on the basis of a regional per diem amount, adjusted for area wages and indirect medical education. Base period regional per diems shall be calculated based upon all CHAMPUS lower volume hospitals' claims paid during the base period. Each regional per diem amount shall be the quotient of all covered charges divided by all covered days of care, reported on all CHAMPUS claims from lower volume hospitals in the region paid during the base period, after having standardized for indirect medical education costs and area wage indexes and subtracted direct medical education costs. Regional per diem amounts are adjusted in accordance with paragraph (a)(2)(iii)(C) of this section. Additional pass-through payments to lower volume hospitals are made in accordance with paragraph (a)(2)(iii)(D) of this section. The regions shall be the same as the Federal census regions.

(B) Review of per diem amount. Any hospital that believes the regional per diem amount applicable to that hospital has been erroneously calculated by OCHAMPUS by more than $5.00 may submit to the Director, OCHAMPUS,

or a designee, evidence supporting a different regional per diem. The burden of proof shall be on the hosptial.

(C) Adjustments to regional per diems. Two adjustments shall be made to the regional per diem rates.

(1) Area wage index. The same area wage indexes used for the CHAMPUS DRG-based payment system (see paragraph (a)(1)(iii)(E)(2) of this section) shall be applied to the wage portion of the applicable regional per diem rate for each day of the admission. The wage portion shall be the same as that used for the CHAMPUS DRG-based payment system.

(2) Indirect medical education. The indirect medical education adjustment factors shall be calculated for teaching hospitals in the same manner as is used in the CHAMPUS DRG-based payment system (see paragraph (a)(1)(iii)(E)(3) of this section) and applied to the applicable regional per diem rate for each day of the admission.

(D) Annual cost pass-through for direct medical education. In addition to payments made to lower volume hospitals under paragraph (a)(2)(iii) of this section, CHAMPUS shall annually reimburse hospitals for actual direct medical education costs associated with services to CHAMPUS beneficiaries. This reimbursement shall be done pursuant to the same procedures as are applicable to the CHAMPUS DRG-based payment system

(see

paragraph (a)(1)(iii)(G) of this section).

(iv) Base period and update factors.

(A) Base period. The base period for calculating the hospital-specific and regional per diems, as described in paragraphs (a)(2)(ii) and (a)(2)(iii) of this section, is Federal fiscal year 1988. Base period calculations shall be based on actual claims paid during the period July 1, 1987 through May 31, 1988, trended forward to represent the 12month period ending September 30, 1988 on the basis of the Medicare inpatient hospital market basket rate.

(B) Alternative hospital-specific data base. Upon application of a higher volume hospital or unit to the Director, OCHAMPUS, or a designee, the hospital or unit may have its hospital-specific base period calculations based on claims with a date of discharge (rather than date of payment) between July 1, 1987 through May 31, 1988 if it has generally experienced unusual delays in claims payments and if the use of such an alternative data base would result in a difference in the per diem amount of at least $5.00. For this purpose, the unusual delays means that the hospital's or unit's average time period between date of discharge and date of payment is more than two standard deviations longer than the national average.

(C) Update factors—(1) The hospitalspecific per diems and the regional per diems calculated for the base period pursuant to paragraphs (a)(2)(ii) of this section shall remain in effect for federal fiscal year 1989; there will be no additional update for fiscal year 1989.

(2) Except as provided in paragraph (a)(2)(iv)(C)(3) of this section, for subsequent federal fiscal years, each per diem shall be updated by the Medicare update factor for hospitals and units

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exempt from the Medicare prospective payment system.

(3) As an exception to the update required by paragraph (a)(2)(iv)(C)(2) of this section, all per diems in effect at the end of fiscal year 1995 shall remain in effect, with no additional update, throughout fiscal years 1996 and 1997. For fiscal year 1998 and thereafter, the per diems in effect at the end of fiscal year 1997 will be updated in accordance with paragraph (a)(2)(iv)(C)(2).

(4) Hospitals and units with hospitalspecific rates will be notified of their respective rates prior to the beginning of each Federal fiscal year. New hospitals shall be notified at such time as the hospital rate is determined. The actual amounts of each regional per diem that will apply in any Federal fiscal year shall be published in the FEDERAL REGISTER at approximately the start of that fiscal year.

(v) Higher volume hospitals. This paragraph describes the classification of and other provisions pertinent to hospitals with higher volume of CHAMPUS patients.

(A) In general. Any hospital or unit that had an annual rate of 25 or more CHAMPUS discharges of CHAMPUS patients during the period July 1, 1987 through May 31, 1988 shall be considered a higher volume hospital has 25 or more CHAMPUS discharges, that hospital shall be considered to be a higher volume hospital during Federal fiscal year 1989 and all subsequent fiscal years. All other hospitals and units covered by the CHAMPUS mental health per diem payment system shall be considered lower volume hospitals.

(B) Hospitals that subsequently become higher volume hospitals. In any Federal fiscal year in which a hospital, including new hospital (see paragraph (a)(2)(v)(C) of this section), not previously classified as a higher volume hospital has 25 or more CHAMPUS discharges, that hospital shall be considered to be a higher volume hospital during the next Federal fiscal year and all subsequent fiscal years. The hospital specific per diem amount shall be calculated in accordance with the provisions of paragraph (a)(2)(ii) of this section, except that the base period average daily charge shall be deemed to be the hospital's average daily charge

in the year in which the hospital had 25 or more discharges, adjusted by the percentage change in average daily charges for all higher volume hospitals and units between the year in which the hospital had 25 or more CHAMPUS discharges and the base period. The base period amount, however, may not exceed the cap described in paragraph (a)(2)(ii)(B) of this section.

(C) Special retrospective payment provision for new hospitals. For purposes of this paragraph, a new hospital is a hospital that qualifies for the Medicare exemption from the rate of increase ceiling applicable to new hospitals which are PPS-exempt psychiatric hospitals. Any new hospital that becomes a higher volume hospital, in addition to qualifying prospectively as a higher volume hospital for purposes of paragraph (a)(2)(v)(B) of this section, may additionally, upon application to the Director, OCHAMPUS, receive a retrospective adjustment. The retrospective adjustment shall be calculated so that the hospital receives the same government share payments it would have received had it been designated a higher volume hospital for the federal fiscal year in which it first had 25 or more CHAMPUS discharges and the preceding fiscal year (if it had any CHAMPUS patients during the preceding fiscal year). Such new hospitals must agree not to bill CHAMPUS beneficiaries for any additional costs beyond that determined initially.

(D) Review of classification. Any hospital or unit which OCHAMPUS erroneously fails to classify as a higher volume hospital may apply to the Director, OCHAMPUS, or a designee, for such a classification. The hospital shall have the burden of proof.

(vi) Payment for hospital based professional services. Lower volume hospitals and units may not bill separately for hospital based professional mental health services; payment for those services is included in the per diems. Higher volume hospitals and units, whether they billed CHAMPUS separately for hospital based professional mental health services or included those services in the hospital's billing to CHAMPUS, shall continue the practice in effect during the period July 1, 1987 to May 31, 1988 (or other data base

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period used for calculating the hospital's or unit's per diem), except that any such hospital or unit may change its prior practice (and obtain an appropriate revision in its per diem) by providing to OCHAMPUS notice in accordance with procedures established by the Director, OCHAMPUS, or a designee.

(vii) Leave days. CHAMPUS shall not pay for days where the patient is absent on leave from the specialty psychiatric hospital or unit. The hospital must identify these days when claiming reimbursement. CHAMPUS shall not count a patients's leave of absence as a discharge in determining whether a facility should be classified as a higher volume hospital pursuant to paragraph (a)(2)(v) of this section.

(viii) Exemptions from the CHAMPUS mental health per diem payment system. The following providers and procedures are exempt from the CHAMPUS mental health per diem payment system.

(A) Non-specialty providers. Providers of inpatient care which are not either psychiatric hospitals or psychiatric specialty units as described in paragraph (a)(2)(i)(A) of this section are exempt from the CHAMPUS mental health per diem payment system. Such providers should refer to paragraph (a)(1) of this section for provisions pertinent to the CHAMPUS DRG-based payment system.

(B) DRG 424. Admissions for operating room procedures involving a principal diagnosis of mental illness (services which group into DRG 424) are exempt from the per diem payment system. They will be reimbursed pursuant to the provisions of paragraph (a)(3) of this section.

(C) Non-mental health services. Admissions for non-mental health procedures in specialty psychiatric hospitals and units are exempt from the per diem payment system. They will be reimbursed pursuant to the provisions of paragraph (a)(3) of this section.

(D) Sole community hospitals. Any hospital which has qualified for special treatment under the Medicare prospective payment system as a sole community hospital and has not given up that classification is exempt.

(E) Hospitals outside the U.S. A hospital is exempt if it is not located in

one of the 50 states, the District of Columbia or Puerto Rico.

(ix) Per diem payment for psychiatric and substance use disorder rehabilitation partial hospitalization services—(A) In general. Psychiatric and substance use disorder rehabilitation partial hospitalization services authorized by $ 199.4 (b)(10) and (e)(4) and provided by institutional providers authorized under $199.6 (b)(4)(xii) and (b)(4)(xiv), are reimbursed on the basis of prospectively determined, all-inclusive per diem rates. The per diem payment amount must be accepted as payment in full for all institutional services provided, including board, routine nursing services, ancillary services (includes art, music, dance, occupational and other such therapies), psychological testing and assessments, overhead and any other services for which the customary practice among similar providers is included as part of the institutional charges.

(B) Services which may be billed separately. The following services are not considered as included within the per diem payment amount and may be separately billed when provided by an authorized independent professional provider:

(1) Psychotherapy sessions not included. Professional services provided by an authorized professional provider (who is not employed by or under contract with the partial hospitalization program) for purposes of providing clinical patient care to a patient in the partial hospitalization program are not included in the per diem rate. They may be separately billed. Professional mental health benefits are limited to a maximum of one session (60 minutes individual, 90 minutes family, etc.) per authorized treatment day not to exceed five sessions in any calendar week.

(2) Non-mental health related medical services. Those services not normally included in the evaluation and assessment of a partial hospitalization program, non-mental health related medical services, may be separately billed when provided by an authorized independent professional provider. This includes ambulance services when medically necessary for emergency transport.

(C) Per diem rate. For any full day (c) Reimbursement for Other Than Hospartial hospitalization program (min- pitals and SNFs.

The Director, imum of 6 hours), the maximum per OCHAMPUS, or a designee, shall estabdiem payment amount is 40 percent of lish such other methods of determining the average inpatient per diem amount allowable cost or charge reimburseper case established under the ment for those institutions, other than CHAMPUS mental health per diem re- hospitals and SNFs, as may be reimbursement system for both high and quired. low volume psychiatric hospitals and (d) Payment of institutional facility units (as defined in 8 199.14(a)(2)) for the costs for ambulatory surgery. (1) In genfiscal year. A partial hospitalization eral. CHAMPUS pays institutional faprogram of less than 6 hours (with a cility costs for ambulatory surgery on minimum of three hours) will be paid a the basis of prospectively determined per diem rate of 75 percent of the rate amounts, as provided in this parafor a full-day program.

graph. This payment method is similar (D) Other requirements. No payment is

to that used by the Medicare program due for leave days, for days in which

for ambulatory surgery. This paratreatment is not provided, or for days

graph applies to payment for instituin which the duration of the program

tional charges for ambulatory surgery services was less than three hours. provided in hospitals and freestanding (3) Billed charges and set rates. The al

ambulatory surgical centers. It does lowable costs for authorized care in all

not apply to professional services. A hospitals not subject to the CHAMPUS

list of ambulatory surgery procedures DRG-based payment system

subject to the payment method set

or the CHAMPUS mental health per diem

forth in this paragraph shall be pubpayment system shall be determined

lished periodically by the Director, on the basis of billed charges or set

OCHAMPUS. Payment to freestanding rates. Under this procedure the allow

ambulatory surgery centers is limited

to these procedures. able costs may not exceed the lower of:

(2) Payment in full. The payment pro(i) The actual charge for such service

vided for under this paragraph is the made to the general public; or

payment in full for services covered by (ii) The allowed charge applicable to

this paragraph. Facilities may not the policyholders or subscribers of the

charge beneficiaries for amounts, if CHAMPUS fiscal intermediary for

any, in excess of the payment amounts comparable services under comparable

determined pursuant to this paragraph. circumstances, when extended to

(3) Calculation of standard payment CHAMPUS beneficiaries by consent or

rates. Standard payment rates are calagreement; or

culated for groups of procedures under (iii) The allowed charge applicable to the following steps: the citizens of the community or state (i) Step 1: Calculate a median standardas established by local or state regu- ized cost for each procedure. For each latory authority, excluding title XIX of ambulatory surgery procedure, a methe Social Security Act or other wel- dian standardized cost will be calfare program,

when extended to culated on the basis of all ambulatory CHAMPUS beneficiaries by consent or

surgery charges nationally under agreement.

CHAMPUS during a recent one-year (4) CHAMPUS discount rates. The base period. The steps in this calculaCHAMPUS-determined allowable cost tion include standardizing for local for authorized care in any hospital may labor costs by reference to the same be based on discount rates established wage index and labor/non-labor-related under paragraph (i) of this section. cost ratio as applies to the facility

(b) Skilled Nursing Facilities (SNFs). under Medicare, applying a cost-toThe CHAMPUS-determined allowable charge ratio, calculating a median cost cost for reimbursement of a SNF shall for each procedure, and updating to the be determined on the same basis as for year for which the payment rates will hospitals which are not subject to the be in effect by the Consumer Price CHAMPUS DRG-based payment sys- Index-Urban. In applying a cost-totem.

charge ratio, the Medicare cost-to

charge ratio for freestanding ambulatory surgery centers (FASCs) will be used for all charges from FASCs, and the Medicare cost-to-charge ratio for hospital outpatient settings will be used for all charges from hospitals.

(ii) Step 2: Grouping procedures. Procedures will then be placed into one of ten groups by their median per procedure cost, starting with $0 to $299 for group 1 and ending with $1000 to $1299 for group 9 and $1300 and above for group 10, with groups 2 through 8 set on the basis of $100 fixed intervals.

(iii) Step 3: Adjustments to groups. The Director, OCHAMPUS may make adjustments to the groupings resulting from step 2 to account for any ambulatory surgery procedures for which there were insufficient data to allow a grouping or to correct for any anomalies resulting from data or statistical factors or other special factors that fairness requires be specially recognized. In making any such adjustments, the Director may take into consideration the placing of particular procedures in the ambulatory surgery groups under Medicare.

(iv) Step 4: standard payment amount per group.

The standard payment amount per group will be the volume weighted median per procedure cost for the procedures in that group. For cases in which the standard payment amount per group exceeds the CHAMPUS-determined inpatient allowable amount, the Director, TSO or his designee, may make adjustments.

(v) Step 5: Actual payments. Actual payment for a procedure will be the standard payment amount for the group which covers that procedure, adjusted for local labor costs by reference to the same labor/non-labor- related cost ratio and hospital wage index as used for ambulatory surgery centers by Medicare.

(4) Multiple procedures. In cases in which authorized multiple procedures are performed during the same operative session, payment shall be based on 100 percent of the payment amount for the procedure with the highest ambulatory surgery payment amount, plus, for each other procedure performed during the session, 50 percent of its payment amount.

(5) Annual updates. The standard payment amounts will be updated annually by the same update factor as is used in the Medicare annual updates for ambulatory surgery center payments.

(6) Recalculation of rates. The Director, OCHAMPUS may periodically recalculate standard payment rates for ambulatory surgery using the steps set forth in paragraph (d)(3) of this section.

(e) Reimbursement of Birthing Centers.

(1) Reimbursement for maternity care and childbirth services furnished by an authorized birthing center shall be limited to the lower of the CHAMPUS established all-inclusive rate or the center's most-favored allinclusive rate.

(2) The all-inclusive rate shall include the following to the extent that they are usually associated with a normal pregnancy and childbirth: Laboratory studies, prenatal management, labor management, delivery, postpartum management, newborn care, birth assistant, certified nurse-midwife professional services, physician professional services, and the use of the facility.

(3) The CHAMPUS established all-inclusive rate is equal to the sum of the CHAMPUS area prevailing professional charge for total obstetrical care for a normal pregnancy and delivery and the sum of the average CHAMPUS allowable institutional charges for supplies, laboratory, and delivery room for 4 hospital inpatient normal delivery. The CHAMPUS established all-inclusive rate areas will coincide with those established for prevailing professional charges and will be updated concurrently with the CHAMPUS area prevailing professional charge database.

(4) Extraordinary maternity care services, when otherwise authorized, may be reimbursed at the lesser of the billed charge or the CHAMPUS allowable charge.

(5) Reimbursement for an incomplete course of care will be limited to claims for professional services and tests where the beneficiary has been screened but rejected for admission into the birthing center program, or where the woman has been admitted but is discharged from the birthing

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