Regulation for Submission of Evidence - Title 38 CFR 17.101(a)(4)

federal register

Tuesday
April 27, 1999

Part II

Department of
Veterans Affairs
38 CFR Part 17
Medical Care Collection or Recovery;
Final Rule and Notice

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Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules and Regulations

DEPARTMENT OF VETERANS
AFFAIRS
38 CFR Part 17
RIN 2900–AJ30

Medical Care Collection or Recovery
Department of Veterans Affairs.
Final rule.

AGENCY:
ACTION:

SUMMARY: This document amends VA’s
medical regulations concerning
collection or recovery by VA for medical
care or services provided or furnished to
a veteran:
—For a non-service connected disability
for which the veteran is entitled to
care (or the payment of expenses of
care) under a health-plan contract;
—For a non-service connected disability
incurred incident to the veteran’s
employment and covered under a
worker’s compensation law or plan
that provides reimbursement or
indemnification for such care and
services; or
—For a non-service connected disability
incurred as a result of a motor vehicle
accident in a State that requires
automobile accident reparations
insurance.
Previously, by statute VA was
authorized to charge ‘‘reasonable costs’’
for such care or services. However,
amended statutory provisions now
authorize VA to charge ‘‘reasonable
charges.’’ Accordingly, this document
establishes methodology for charging
‘‘reasonable charges’’ consistent with
the statutory amendment. The charges
billed using this methodology, as
appropriate, consist of inpatient facility
charges, skilled nursing facility/subacute inpatient facility charges,
outpatient facility charges, physician
charges, and non-physician provider
charges. Reasonable charges for
outpatient dental care and prescription
drugs not administered during treatment
will continue to be billed using the
existing cost-based methodology.
Pursuant to statutory authority, VA
has the right to recover or collect the
charges from a third party to the extent
that a provider of the care or services
would be eligible to receive payment
therefore from that third party if the care
or services had not been furnished by a
department or agency of the United
States. With respect to a third-party
payer liable under a health plan
contract, consistent with the statutory
authority, the third-party payer
continues to have the option of paying,
to the extent of its coverage, either the
billed charges or the amount the thirdparty payer demonstrates it would pay

for care or services furnished by
providers other than entities of the
United States for the same care or
services in the same geographic area.
Also, the regulations are clarified to
state specifically that billing
methodology based on costs will
continue to be applied to establish
charges for medical care furnished in
error or on tentative eligibility,
furnished in a medical emergency,
furnished to certain beneficiaries of the
Department of Defense or other Federal
agencies, furnished to pensioners of
allied nations, and furnished to military
retirees with chronic disability.
DATES: Effective Date: September 1,
1999.
FOR FURTHER INFORMATION CONTACT:
David Cleaver, VHA Office of Finance
(174), Veterans Health Administration,
Department of Veterans Affairs, 810
Vermont Avenue, NW, Washington, DC
20420, (202) 273–8210. (This is not a
toll free number.)
SUPPLEMENTARY INFORMATION: In a
document published in the Federal
Register on October 13, 1998 (63 FR
54756), we proposed to amend VA’s
medical regulations as set forth in the
SUMMARY portion on this document. We
provided a 60-day comment period that
ended December 14, 1998. We received
comments from six commenters in
response to the proposal. These
comments are discussed below. Based
on the rationale set forth in the
proposed rule and in this document, the
provisions of the proposed rule are
adopted as a final rule with changes
explained below.
Podiatrists, Optometrists, and
Physician Assistants
Three of the comments concerned the
proposal at § 17.101(f) to charge for
services of podiatrists and optometrists
at 95% and 90%, respectively, of the
amount that would be charged if the
care had been provided by a physician.
One of the comments concerned the
proposal at § 17.101(f) to charge for
services of physician assistants at 65%
for assistance at surgery, 75% for other
hospital care, and 85% for other nonhospital care. The commenters provided
information establishing that under the
Medicare program optometrists and
podiatrists are paid the same as
physicians for services provided and
physician assistants are paid for all
services at 85% of the amount that
would be charged if the care had been
provided by a physician. In this regard,
the commenters asserted that we should
adopt the Medicare payment
percentages for VA charges. In the
proposed rule we indicated that we

intended to use ‘‘the Medicare
percentages when available because of
their extensive use for billing and
payment of claims’’ (63 FR 54758).
Accordingly, since we now understand
that the Medicare regulations provide
for payment for optometrists and
podiatrists at the physician rate and
provide for payment for physician
assistants at 85% of the physician rate
for all billable services, we changed the
final rule to be consistent with
Medicare.
Effective Date
We considered whether to make the
final rule effective thirty days after
publication in the Federal Register or
whether to make the final rule effective
after a longer period. After considering
the comments, we have decided to make
the final rule effective September 1,
1999 to allow more time for industry to
prepare for the changes.
One commenter, a representative of
an association of insurance companies,
asserted that the effective date should be
delayed for twelve months. The
commenter asserted that additional time
is needed for them to establish
computer software to process the new
VA charges. The commenter also
asserted that now is a difficult time for
such changes since available resources
should be devoted as a priority to ‘‘year
two thousand compliance’’ issues. The
commenter also asserted that their 1999
premiums did not take into account
increased payments and administrative
costs that would occur under the new
system. The commenter also asserted
that the comment period should be
extended to allow time for engaging
outside actuarial or reimbursement
consultants in order to provide
substantive comments on the billing
methodology. The comments were
supplemented by the inclusion of
examples of cost comparisons between
current charges and charges
implemented by the final rule.
Initially, we note that the comments,
at least in part, are based on an incorrect
premise. Under the final rule an affected
entity is not necessarily required to pay
the full charges. The final rule provides
that an affected entity would continue
to have the option of paying to the
extent of its coverage either the billed
charges or the amount it would pay for
care or services furnished by providers
other than entities of the United States
for the same care or services in the same
geographic area.
Further, we believe insurers have had
ample opportunity to adjust premiums
for 1999. Ever since the enactment of
Public Law 105–33 on August 5, 1997,
it has been general knowledge in the

Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules and Regulations
insurance industry that VA would bill
based on market pricing as soon as
regulations could be established.
Moreover, the legislative history from
the House Conference Report (H. Rep.
No. 105–217, July 30, 1997, at pp. 974–
975) for Public Law No. 105–33 states
that ‘‘the Committee envisions VA
would establish health care charges that
would allow it to recover amounts
needed to help preserve the viability of
the health care system for all veterans
and that also reflect the substantial
advantages to VA patients both in
having the quality services provided by
that system available and in using
them.’’ We believe that any further
delay in implementing this remedial
legislation beyond the September 1,
1999, effective date of these final
regulations would be unreasonable.
Also, we believe that it is reasonable
for affected entities to establish an
appropriate mechanism to process VA’s
billed charges under this final rule by
the time payments to VA become due.
In this regard, we note that VA billing
under this final rule more closely
accords with industry practice.
Therefore, this should facilitate
development of computer software
necessary to process VA charges. In
addition, we believe that the
methodology for determining our new
charges is based on sound actuarial
principles.
Local Markets
In the proposed rule, we
acknowledged that we have insufficient
data for direct determination of
prevailing charges for all services in all
local markets (63 FR 54757). One
commenter questioned how VA could
determine local reasonable charges
under such circumstances for charges
other than those based on DRGs. No
changes are made based on this
comment. We believe that our
methodology provides an appropriate
remedy. For outpatient facility charges
and physician charges, we grouped CPT
codes for each local market, then
compiled averages for the CPT code
groups for each locality, and then used
these averages to obtain estimated
charges for those CPT codes for which
we had insufficient data. Further, for
skilled nursing facility/sub-acute
inpatient facility charges, we used statewide averages to establish geographic
area adjustment factors.
Co-payments for Non-service Connected
Outpatient Care
One commenter appeared to assume
that this rulemaking proceeding would
affect co-payments for non-service
connected outpatient care. This

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rulemaking proceeding does not address
this issue. The co-payment for nonservice connected outpatient care
continues to be based on the VA-wide
estimated average cost of an outpatient
visit (see 38 U.S.C. 1710(g)(2)).

Publication of Data for Calculating
Actual Amounts for Inpatient Facility
Charges, Skilled Nursing Facility/Subacute Inpatient Facility Charges,
Outpatient Facility Charges, and
Physician Charges

Effective Periods

In a document published in the
Federal Register on October 13, 1998
(63 FR 54766), we set forth data (derived
from the methodology of the final rule)
for calculating inpatient facility charges,
skilled nursing facility/sub-acute
inpatient facility charges, outpatient
facility charges, and physician charges
at individual VA facilities. These data
will be used for such charges from the
effective date of this final rule through
December 1999, except for those
changes (consistent with the
methodology of the final rule) set forth
in a companion document published in
the ‘‘Notices’’ section of this issue of the
Federal Register. As stated in the
proposal, VA will update annually in
the ‘‘Notices’’ section of the Federal
Register the data for calculating the
charges at individual VA facilities.

With respect to inpatient facility
charges, skilled nursing facility/subacute inpatient facility charges,
outpatient facility charges, and
physician charges, the proposed rule
provided in the trending provisions of
the charges methodology, that the
effective period for charges after
September 1999 would be from October
1 through September 30 of each year.
We changed these effective periods to
coincide with calendar years (January 1
through December 31) to be consistent
with standard industry practice.
Also, we have added provisions
stating that in those cases in which the
effective period for published charges
has expired and new charges have not
yet become effective, VA will continue
to bill using the most recently published
charges until new charges are published
and become effective. For example, if
the most recently published charges
state that they are effective through
December and new charges are not
published and effective until February
1, then the charges set forth for the
period through December will continue
to be used through January 31. Although
this normally would result in lower
charges than the methodology would
allow, this is necessary to ensure that
VA will not have to suspend charging in
those cases in which the effective period
for published charges has expired and
new charges have not yet become
effective.
The data for determining charges,
published in the October 13 Federal
Register and in a companion document
published in this issue of the Federal
Register, was designed for the period
August 1998 through September 1999.
Consistent with the principles
explained above, we intend to use these
data for the period September 1, 1999
through December 31, 1999. This will
result in lower charges than we could
otherwise charge. Even so, we do not
believe it would be cost effective to
recalculate these data and republish
them since they will be used for such a
short period of time.
Nonsubstantive Changes
Nonsubstantive changes are made for
purposes of clarity.

Paperwork Reduction Act
The collection of information
contained in the notice of the proposed
rulemaking was submitted to the Office
of Management and Budget (OMB) for
review in accordance with the
Paperwork Reduction Act (44 U.S.C.
3504(h)).
The information collection subject to
this rulemaking concerns submission of
evidence. Under the provisions of
§ 17.101(a)(2), a third-party payer that is
liable for reimbursing VA for health care
VA provided to veterans with nonservice-connected conditions continues
to have the option of paying either the
billed charges as described in § 17.101
or the amount the health plan
demonstrates it would pay to providers
other than entities of the United States
for the same care or services in the same
geographic area. If the amount
submitted for payment is less than the
amount billed, VA will accept the
submission as payment, subject to
verification at VA’s discretion. A VA
employee having responsibility for
collection of such charges may request
that the third party payer submit
evidence or information to substantiate
the appropriateness of the payment
amount (e.g., health plan policies,
provider agreements, medical evidence,
proof of payment to other providers
demonstrating the amount paid for the
same care and services VA provided).
This information is needed to determine
whether the third-party payer has met
the test of properly demonstrating its
equivalent private sector provider

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payment amount for the same care or
services and within the same geographic
area as provided by VA.
Interested parties were invited to
submit comments on the collection of
information. However, no comments
were received. OMB has approved this
information collection under control
number 2900–0606.
VA is not authorized to impose a
penalty on persons for failure to comply
with information collection
requirements which do not display a
current OMB control number, if
required.
Regulatory Flexibility Act
The Secretary hereby certifies that
this final rule would not have a
significant economic impact on a
substantial number of small entities as
they are defined in the Regulatory
Flexibility Act, 5 U.S.C. 601–612. This
rulemaking proceeding mostly would
affect large insurance companies.
Further, the provisions of the final rule
would not impose a significant
economic impact on any entities since
VA billing would not constitute a
significant portion of an insurance
company’s business. Accordingly,
pursuant to 5 U.S.C. 605(b), this final
rule is exempt from the initial and final
regulatory flexibility analyses
requirements of §§ 603 and 604.
OMB Review
This document has been reviewed by
OMB pursuant to Executive Order
12866.
Catalog of Federal Domestic Assistance
Numbers
The Catalog of Federal Domestic
Assistance Numbers for the programs
affected by this document are 64.005,
64.007.64.008, 64,009, 64.010, 64.011,
64.012, 64.013, 64.014, 64.015, 64.016,
64.018, 64.019, 64.022, and 64.025.
List of Subjects in 38 CFR Part 17
Administrative practice and
procedure, Alcohol abuse, Alcoholism,
Claims, Day care, Dental health, Drug
abuse, Foreign relations, Government
contracts, Grant programs health, Grant
programs-veterans, Health care, Health
facilities, Health professions, Health
records, Homeless, Medical and dental
schools, Medical devices, Medical
research, Mental health programs,
Nursing homes, Philippines, Reporting
and record-keeping requirements,
Scholarships and fellowships, Travel
and transportation expenses, Veterans.

Approved: March 25, 1999.
Togo D. West, Jr.,
Secretary of Veterans Affairs.

For the reasons set out in the
preamble, 38 CFR part 17 is amended as
set forth below:
PART 17—MEDICAL
1. The authority citation for part 17
continues to read as follows:
Authority: 38 U.S.C. 501, 1721, unless
otherwise noted.
§§ 17.101 and 17.102 [Redesignated as
§§ 17.102 and 17.101, respectively]

2. Sections 17.101 and 17.102 are
redesignated as §§ 17.102 and 17.101,
respectively.
3. Newly redesignated § 17.101 is
revised and a parenthetical at the end of
the section is added to read as follows:
§ 17.101 Collection or recovery by VA for
medical care or services provided or
furnished to a veteran for a non-service
connected disability.

(a)(1) General. This section covers
collection or recovery by VA, under 38
U.S.C. 1729, for medical care or services
provided or furnished to a veteran:
(i) For a non-service connected
disability for which the veteran is
entitled to care (or the payment of
expenses of care) under a health-plan
contract;
(ii) For a non-service connected
disability incurred incident to the
veteran’s employment and covered
under a worker’s compensation law or
plan that provides reimbursement or
indemnification for such care and
services; or
(iii) For a non-service connected
disability incurred as a result of a motor
vehicle accident in a State that requires
automobile accident reparations
insurance.
(2) Methodology. Based on the
methodology set forth in this section,
the charges billed will include, as
appropriate, inpatient facility charges,
skilled nursing facility/sub-acute
inpatient facility charges, outpatient
facility charges, physician charges, and
non-physician provider charges. In
addition, the charges billed for
prosthetic devices and durable medical
equipment provided on an outpatient
basis will be VA’s actual cost and the
charges billed for prescription drugs not
administered during treatment will be a
single nationwide average. Data for
calculating actual amounts for inpatient
facility charges, skilled nursing facility/
sub-acute inpatient facility charges,
outpatient facility charges, and
physician charges will be published
annually in the ‘‘Notices’’ section of the

Federal Register. In those cases in
which the effective period for published
charges has expired and new charges
have not yet become effective, VA will
continue to bill using the most recently
published charges until new charges are
published and become effective (for
example, if the most recently published
charges state that they are effective
through December and new charges are
not published and effective until
February 1, then the charges set forth for
the period through December will
continue to be used through January 31).
(3) Amount of recovery or collection—
third party liability. A third-party payer
liable under a health-plan contract has
the option of paying either the billed
charges described in this section or the
amount the health-plan demonstrates is
the amount it would pay for care or
services furnished by providers other
than entities of the United States for the
same care or services in the same
geographic area. If the amount
submitted by the health plan for
payment is less than the amount billed,
VA will accept the submission as
payment, subject to verification at VA’s
discretion in accordance with this
section. A VA employee having
responsibility for collection of such
charges may request that the third party
health plan submit evidence or
information to substantiate the
appropriateness of the payment amount
(e.g., health plan or insurance policies,
provider agreements, medical evidence,
proof of payment to other providers in
the same geographic area for the same
care and services VA provided).
(4) Definitions. For purposes of this
section:
Consolidated MSA means a
consolidated Metropolitan Statistical
Area.
CPI means Consumer Price Index.
CPI–U means Consumer Price Index—
All Urban Consumers.
CPI–W means Consumer Price
Index—Urban Wage Earners and
Clerical Workers .
CPT procedure code means a 5 digitidentifier for a specified physician
service or procedure.
DRG means diagnosis related group.
Geographic area means Metropolitan
Statistical Area (MSA) or the local
market, if the VA facility is not located
in an MSA.
RVU means relative value unit.
(b) Inpatient facility charges. When
VA provides or furnishes inpatient
services within the scope of care
referred to in paragraph (a)(1) of this
section, inpatient facility charges billed
for such services will be determined in
accordance with the provisions of this
paragraph. Inpatient facility charges

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consist of per diem charges for room
and board and for ancillary services that
vary by VA facility and by DRG. These
charges are calculated as follows:
(1) Formula. For each inpatient stay or
portion thereof for which a particular
DRG assignment applies, multiply the
nationwide room and board per diem
charge as set forth in paragraph (b)(2) of
this section by the appropriate
geographic area adjustment factor as set
forth in paragraph (b)(3) of this section.
The result constitutes the facilityspecific room and board per diem
charge. Also, for each inpatient stay,
multiply the nationwide ancillary per
diem charge as set forth in paragraph
(b)(2) of this section by the appropriate
geographic area adjustment factor as set
forth in paragraph (b)(3) of this section.
The result constitutes the facilityspecific ancillary per diem charge. Then
add the facility-specific room and board
per diem charge to the facility-specific
ancillary per diem charge. This
constitutes the facility-specific
combined per diem facility charge.
Finally, multiply the facility-specific
combined per diem facility charge by
the number of days of inpatient care to
obtain the total inpatient facility charge.
Note to paragraph (b)(1): If there is a
change in a patient’s condition and/or
treatment during a single inpatient stay such
that the DRG assignment changes (for
example, a psychiatric patient who develops
a medical or surgical problem), then the
calculations will be made separately for each
DRG, according to the number of days of care
applicable for each DRG, and the total
inpatient facility charge will be the sum of
the total inpatient facility charges for the
different DRGs.

(2) Per diem charges. To establish a
baseline, two nationwide average per
diem charges for each DRG are
calculated for Calendar Year 1995, one
from the Medicare Standard Analytical
File 5% Sample and one from the
MedStat claim database, a claim
database of nationwide commercial
insurance. Results obtained from these
two databases are then combined into a
single weighted average per diem charge
for each DRG. The resulting weighted
average per diem charge for each DRG
is then separated into its two
components, a room and board
component and an ancillary component,
with the amount for each component
calculated to reflect the corresponding
percentage set forth in paragraph
(b)(2)(i) of this section. The resulting
amounts for room and board and
ancillary services for each DRG are then
each multiplied by the final ratio set
forth in paragraph (b)(2)(ii) of this
section to reflect the 80th percentile
charges. Finally, the resulting charges

are each trended forward from their
1995 base to the effective time period
for the charges, as set forth in paragraph
(b)(2)(iii) of this section. The results
constitute the room and board per diem
charge and the ancillary per diem
charge.
(i) Charge component percentages.
Using only those cases from the
Medicare Standard Analytical File 5%
Sample for which a distinction between
room and board charges and ancillary
charges can be determined, the
percentage of the total charges for room
and board compared to the combined
total charges for room and board and
ancillary services, and the percentage of
the total charges for ancillary services
compared to the combined total charges
for room and board and ancillary
services, are calculated by DRG.
(ii) 80th percentile. Using the medical
and surgical admissions in the Medicare
Standard Analytical File 5% Sample,
obtain for each consolidated MSA the
ratio of the day-weighted 80th
percentile semi-private room and board
per diem charge to the average semiprivate room and board per diem
charge. The consolidated MSA ratios are
averaged to obtain a final 80th
percentile ratio.
(iii) Trending forward. For each DRG,
the 80th percentile charges, representing
calculations for calendar year 1995, are
trended forward for the period August
1998 through September 1999, and for
each 12-month calendar year period
thereafter, beginning January 1, 2000,
based on changes to the CPI. The
projected total CPI trend from 1995 to
the midpoint of the effective charge
period is calculated as the composite of
three components. The first component
trends from 1995 to January 1997, using
the Hospital Room component of the
CPI–W for room and board charges and
using the Other Hospital component of
the CPI–W for ancillary charges. The
second component trends from January
1997 to the latest available month, based
on the Inpatient Hospital component of
the CPI–U for room and board and
ancillary charges. The third component
trends from the latest available month to
the midpoint of the effective charge
period, based on the latest three-month
average annual trend rate from the
Inpatient Hospital component of the
CPI–U. The projected total CPI trends
are then applied to the 1995-base 80th
percentile charges.
(3) Geographic area adjustment
factors. For each VA facility location,
the average per diem room and board
charges and ancillary charges from the
1995 Medicare Standard Analytical File
5% Sample are calculated for each DRG.
The DRGs are separated into two

22679

groups, surgical and non-surgical. For
each of these groups of DRGs, for each
geographic area, average room and
board per diem charges and ancillary
per diem charges are calculated for
1995, weighted by FY 1997 nationwide
VA discharges and by average lengths of
stay from the combined Medicare
Standard Analytical File 5% Sample
and the MedStat claim data base. This
results in four average per diem charges
for each geographic area: room and
board for surgical DRGs, ancillary for
surgical DRGs, room and board for nonsurgical DRGs, and ancillary for nonsurgical DRGs. Four corresponding
national average per diem charges are
obtained from the 1995 Medicare
Standard Analytical File 5% Sample,
weighted by FY 1997 nationwide VA
discharges and by average lengths of
stay from the combined Medicare
Standard Analytical File 5% Sample
and the MedStat claim data base. Four
geographic area adjustment factors are
then calculated for each geographic area
by dividing each geographic area
average per diem charge by the
corresponding national average per
diem charge.
(c) Skilled nursing facility/sub-acute
inpatient facility charges. When VA
provides or furnishes skilled nursing/
sub-acute inpatient services within the
scope of care referred to in paragraph
(a)(1) of this section, skilled nursing
facility/sub-acute inpatient facility
charges billed for such services will be
determined in accordance with the
provisions of this paragraph. The skilled
nursing facility/sub-acute inpatient
facility charges are per diem charges
that vary by VA facility. The facility
charges cover care, including skilled
rehabilitation services (e.g., physical
therapy, occupational therapy, and
speech therapy), that is provided in a
nursing home or hospital inpatient
setting, is provided under a physician’s
orders, and is performed by or under the
general supervision of professional
personnel such as registered nurses,
licensed practical nurses, physical
therapists, occupational therapists,
speech therapists, and audiologists. The
skilled nursing facility/sub-acute
inpatient facility charges also
incorporate charges for ancillary
services associated with care provided
in these settings. The charges are
calculated as follows:
(1) Formula. For each stay, multiply
the nationwide per diem charge as set
forth in paragraph (c)(2) of this section
by the appropriate geographic area
adjustment factor as set forth in
paragraph (c)(3) of this section. The
result constitutes the facility-specific
per diem charge. Finally, multiply the

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facility-specific per diem charge by the
number of days of care to obtain the
total skilled nursing facility/sub-acute
inpatient facility charge.
(2) Per diem charge. To establish a
baseline, a nationwide average per diem
billed charge for July 1, 1998, was
obtained from the 1998 Milliman &
Robertson, Inc. Health Cost Guidelines,
a publication that includes nationwide
skilled nursing facility charges
(Milliman & Robertson, Inc., 1301 5th
Ave., Suite 3800, Seattle, WA 98101–
2605). That average per diem billed
charge is then multiplied by the 80th
percentile adjustment factor set forth in
paragraph (c)(2)(i) of this section to
obtain a nationwide 80th percentile
charge level. Finally, the resulting
charge is trended forward to the
effective time period for the charges, as
set forth in paragraph (c)(2)(ii) of this
section.
(i) 80th percentile. Using the 1995
Medicare Standard Analytical File 5%
Sample, the median per diem
accommodation charge is calculated for
each provider. For each State, the ratio
of the 80th percentile of provider
median charges to the average statewide
charges for accommodations is
calculated. The State ratios are averaged
to produce a nationwide 80th percentile
adjustment factor.
(ii) Trending forward. The 80th
percentile charge, representing charge
levels for July 1, 1998, is trended
forward to the midpoint of the period
August 1998 through September 1999,
and to the midpoint of each 12-month
calendar year period thereafter,
beginning January 1, 2000, based on the
projected change in Medicare
reimbursement from the Annual Report
of the Board of Trustees of the Federal
Hospital Insurance Trust Fund (this
report can be found on the Health Care
Financing Administration Internet site
at http://www.hcfa.gov under the
headings ‘‘Publications and Forms’’ and
‘‘Professional/ Technical Publications’’).
(3) Geographic area adjustment
factors. A ratio of the average per diem
charge for each State to the nationwide
average per diem charge is obtained
(these ratios are set forth in the 1998
Milliman & Robertson, Inc. Health Cost
Guidelines, a data base of nationwide
commercial insurance charges and
relative costs) (Milliman & Robertson,
Inc., 1301 5th Ave., Suite 3800, Seattle,
WA 98101–2605). The geographic area
adjustment factor for charges for each
VA facility is the ratio for the State in
which the facility is located.
(d) Outpatient facility charges. When
VA provides or furnishes outpatient
services that are within the scope of care
referred to in paragraph (a)(1) of this

section and are not customarily
performed in an independent clinician’s
office, the outpatient facility charges
billed for such services will be
determined in accordance with the
provisions of this paragraph. Except for
prosthetic devices and durable medical
equipment, whose charges will be made
separately at actual cost to VA, charges
for outpatient facility services will vary
by VA facility and by CPT procedure
code. These charges will be calculated
as follows:
(1) Formula. For each outpatient
facility charge CPT procedure code,
multiply the nationwide charge as set
forth in paragraph (d)(2) of this section
by the appropriate geographic area
adjustment factor as set forth in
paragraph (d)(4) of this section. The
result constitutes the facility-specific
outpatient facility charge. When
multiple surgical procedures are
performed during the same outpatient
encounter by a provider or provider
team, the outpatient facility charges for
such procedures will be reduced as set
forth in paragraph (d)(5) of this section.
(2) Nationwide 80th percentile
charges by CPT procedure code. For
each CPT procedure code for which
outpatient facility charges apply, the
1998 practice expense RVUs (these
RVU’s can be found in the 1998 St.
Anthony’s Complete RBRVS, Relative
Value Studies, Inc., St. Anthony
Publishing, 11410 Isaac Newton Square,
Reston, VA 20190) are used as the
outpatient facility RVUs. For each CPT
procedure code, the outpatient facility
RVU is multiplied by the charge amount
for each incremental RVU as set forth in
paragraph (d)(3) of this section. The
resulting charge is adjusted by a fixed
charge amount as also set forth in
paragraph (d)(3) of this section to obtain
the nationwide 80th percentile charge.
(3) Charge factor. Using the 1995
MedStat claims database of nationwide
commercial insurance, the median
billed facility charge is calculated for
each applicable CPT procedure code.
All outpatient facility CPT procedure
codes are then separated into one of the
37 outpatient facility CPT procedure
code groups as set forth in paragraph
(d)(3)(i) of this section. Then, for each
CPT procedure code in each such group,
the median charge is adjusted to the
80th percentile as set forth in paragraph
(d)(3)(ii) of this section. The resulting
80th percentile charge for each CPT
procedure code is trended forward to
the effective time period for the charges
as set forth in paragraph (d)(3)(iii) of
this section. Using the resulting charges
and the RVUs, the mathematical
approximation methodology of least
squares is applied to the data for each

CPT procedure code group to derive two
charge factors. The first factor represents
the charge amount for each incremental
RVU in the CPT procedure code group
and the second factor represents a fixed
charge amount adjustment for the CPT
procedure code group.
(i) Outpatient facility CPT procedure
code groups.
(A) Surgery—Integumentery System—
Skin, Subcutaneous & Accessory
Structures/Nails;
(B) Surgery—Integumentery System—
Repair—Simple, Intermediate, Complex,
Adjacent Tissue Transfer or
Rearrangement;
(C) Surgery—Integumentery System—
Not Otherwise Classified;
(D) Surgery—Musculoskeletal
System—Not Otherwise Classified;
(E) Surgery—Musculoskeletal
System—Limbs—Incisions/Excisions/
Insertion/Removal;
(F) Surgery—Musculoskeletal
System—Limbs—Shoulders/Humerus &
Elbow/Pelvis & Hip Joint/Femur & Knee
Joint—Other than Incisions/Excisions/
Insertion/Removal;
(G) Surgery—Musculoskeletal
System—Limbs—Forearm & Wrist—
Other than Incisions/Excisions/
Insertion/Removal;
(H) Surgery—Musculoskeletal
System—Limbs—Tibia/Fibula & Ankle
Joint—Other than Incisions/Excisions/
Insertion/Removal;
(I) Surgery—Musculoskeletal
System—Limbs—Hand & Fingers/Foot &
Toes—Other than Incisions/Excisions/
Insertion/Removal;
(J) Surgery—Musculoskeletal System
Arthroscopy;
(K) Surgery—Respiratory System;
(L) Surgery—Cardiovascular System;
(M) Surgery—Hemic & Lymphatic
Systems;
(N) Surgery—Digestive System—Not
Otherwise Classified;
(O) Surgery—Digestive System—
Endoscopy;
(P) Surgery—Urinary System;
(Q) Surgery—Male Genital System;
(R) Surgery—Laparoscopy/
Hysteroscopy;
(S) Surgery—Maternity Care &
Delivery;
(T) Surgery—Endocrine System;
(U) Surgery—Eye/Ocular Adnexa;
(V) Surgery—Auditory System;
(W) Radiology—Diagnostic—Head &
Neck/Chest/Spine & Pelvis;
(X) Radiology—Diagnostic—
Extremities/Abdomen/Gastrointestinal
Tract/Urinary Tract/Gynecological &
Obstetrical/Heart;
(Y) Radiology—Diagnostic—Aorta &
Arteries/Veins & Lymphatics;
(Z) Radiology—Diagnostic
Ultrasound;

Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules and Regulations
(AA) Radiology—Radiation Oncology/
Nuclear Medicine/Therapeutic;
(BB) Radiology—Diagnostic—CAT
Scans;
(CC) Radiology—Diagnostic—
Magnetic Resonance Imaging (MRI);
(DD) Medicine—Global—Not
Otherwise Classified;
(EE) Medicine—Global—Dialysis;
(FF) Medicine—Technical
Component—Gastroenterology;
(GG) Medicine—Technical
Component—Cardiovascular;
(HH) Medicine—Technical
Component—Pulmonary;
(II) Medicine—Technical
Component—Neurology &
Neuromuscular Procedures;
(JJ) Medicine—Observation Care; and
(KK) Medicine—Emergency.
(ii) 80th percentile. For each of the 37
outpatient facility CPT procedure code
groups set forth in paragraph (d)(3)(i) of
this section, the median charge is
increased by the ratio of the 80th
percentile charge to median charge (the
data for CPT procedure code groups
listed at paragraphs (d)(3)(i)(DD), (EE),
(JJ), and (KK) of this section are obtained
from the MedStat database of
nationwide charges; the data for the
other groups are obtained from the
Outpatient Facility UCR module of the
Comprehensive Healthcare Payment
System from MediCode, Inc., a 1997
release from a nationwide database of
outpatient facility charges) (MediCode,
Inc., 5225 Wiley Post Way, Suite 500,
Salt Lake, UT 84116). To mitigate the
impact of the variation in the intensity
of services by CPT procedure code, the
percent increase from the median to the
80th percentile in outpatient charges is
compared to the percent increase from
the median to the 80th percentile in
inpatient semi-private room and board
charges. Any percent increase in
outpatient charges in excess of the
inpatient semi-private room and board
percent increase is multiplied by a
factor of 0.50. The 80th percentile
outpatient facility charge is reduced
accordingly.
(iii) Trending forward. The charges for
each CPT procedure code, representing
calculations for calendar year 1995, are
trended forward for the period August
1998 through September 1999, and for
each 12-month calendar year period
thereafter, beginning January 1, 2000,
based on changes to the Outpatient
Hospital component of the CPI–U.
Actual CPI–U changes are used through
the latest available month. The threemonth average annual trend rate as of
the latest available month is held
constant to the midpoint of the effective
charge period. The projected total CPI–
U change from 1995 to this midpoint of

the effective charge period is then
applied to the 1995 80th percentile
charges.
(4) Geographic area adjustment
factors. For each VA outpatient facility
location, a single geographic area
adjustment factor is calculated as the
arithmetic average of the outpatient
geographic area adjustment factor (this
factor constitutes the ratio of the level
of charges for each geographic area to
the nationwide level of charges)
published in the Milliman & Robertson,
Inc. Health Cost Guidelines (Milliman &
Robertson, Inc., 1301 5th Ave., Suite
3800, Seattle, WA 98101–2605), and a
geographic area adjustment factor
developed from the MediCode data. The
MediCode-based geographic area
adjustment factors are calculated as the
ratio of the CPT-weighted average
charge level for each VA outpatient
facility location to the nationwide CPTweighted average charge level.
(5) Multiple surgical procedures.
When multiple surgical procedures are
performed during the same outpatient
encounter by a provider or provider
team as indicated by multiple surgical
CPT procedure codes, then the CPT
procedure code with the highest facility
charge will be billed at 100% of the
charges established under this section;
the CPT procedure code with the second
highest facility charge will be billed at
25% of the charges established under
this section; the CPT procedure code
with the third highest facility charge
will be billed at 15% of the charges
established under this section; and no
outpatient facility charges will be billed
for any additional surgical procedures.
(e) Physician charges. When VA
provides or furnishes physician services
within the scope of care referred to in
paragraph (a)(1) of this section,
physician charges billed for such
services will be determined in
accordance with the provisions of this
paragraph. Physician charges consist of
charges for professional services that
vary by VA facility and by CPT
procedure code. These charges are
calculated as follows:
(1) Formula. For each CPT procedure
code except those for anesthesia and
pathology, multiply the total facilityadjusted RVU as set forth in paragraph
(e)(2) of this section by the applicable
facility-adjusted conversion factor
(facility-adjusted conversion factors are
expressed in monetary amounts) set
forth in paragraph (e)(3) of this section
to obtain the physician charge for each
CPT procedure code at a particular VA
facility. For each anesthesia and
pathology CPT procedure code,
multiply the nationwide physician
charge as set forth in paragraph (e)(4) of

22681

this section by the geographic area
adjustment factor as set forth in
paragraph (e)(3)(iii) of this section to
obtain the physician charge for each
anesthesia and pathology CPT
procedure code at a particular VA
facility.
(2)(i) Total facility-adjusted RVUs for
physician services other than
anesthesia, pathology, and specified
CPT procedure codes. The work
expense and practice expense
components of the RVUs for CPT
procedure codes (other than anesthesia,
pathology, and those CPT procedure
codes set forth at paragraphs (e)(2)(ii)
and (e)(2)(iii) of this section) are
compiled (information concerning the
RVUs and their components can be
obtained from Veterans Health
Administration, Office of Finance,
Department of Veterans Affairs, 810
Vermont Ave., NW, Washington, DC
20420). For radiology CPT procedure
codes, these compilations do not
include separately identified technical
component RVUs. For CPT procedure
codes that generate an outpatient facility
charge, the facility practice expense
RVU is substituted for the non-facility
practice expense RVU (information
concerning facility practice expense
RVUs can be obtained from Veterans
Health Administration, Office of
Finance, Department of Veterans
Affairs, 810 Vermont Ave., NW,
Washington, DC 20420). For Medicine
and Surgery CPT procedure codes with
separate professional and technical
components that also generate an
outpatient facility charge, only the
professional component is compiled.
The sum of the facility-adjusted work
expense RVU as set forth in paragraph
(e)(2)(i)(A) of this section and the
facility-adjusted practice expense RVU
as set forth in paragraph (e)(2)(i)(B) of
this section equals the total facilityadjusted RVUs.
(A) Facility-adjusted work expense
RVUs. For each CPT procedure code for
each geographic area, the 1998 work
expense RVU is multiplied by the 1998
Medicare work adjuster (0.917) and the
results are further multiplied by the
work expense 1998 Medicare
Geographic Practice Cost Index. The
result constitutes the facility-adjusted
work expense RVU.
(B) Facility-adjusted practice expense
RVUs. For each CPT procedure code for
each geographic area, the 1998 practice
expense RVU is multiplied by the
practice expense 1998 Medicare
Geographic Practice Cost Index. The
result constitutes the facility-adjusted
practice expense RVU.
(ii) RVUs for specified CPT procedure
codes. For the following CPT procedure

22682

Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules and Regulations

codes, obtain the nationwide 80th
percentile billed charges from the
nationwide commercial insurance data
base compiled by the Health Insurance
Association of America (Health
Insurance Association of America, 555
13th Street, NW, suite 600E,
Washington, DC 20004): 20930, 20936,
22841, 48160, 48550, 54440, 79900,
80050, 80055, 80103, 80500, 80502,
85060, 85095, 85097, 85102, 86077,
86078, 86079, 86485, 86490, 86510,
86580, 86585, 86586, 86850, 86860,
86870, 86890, 86891, 86901, 86910,
86911, 86915, 86920, 86921, 86922,
86927, 86930, 86931, 86932, 86945,
86950, 86965, 86970, 86971, 86972,
86975, 86977, 86978, 86985, 88000,
88005, 88012, 88014, 88016, 88036,
88037, 88104, 88106, 88107, 88108,
88125, 88160, 88161, 88162, 88170,
88171, 88172, 88173, 88180, 88182,
88300, 88302, 88304, 88305, 88307,
88309, 88311, 88312, 88313, 88314,
88318, 88319, 88321, 88323, 88325,
88329, 88331, 88332, 88342, 88346,
88347, 88348, 88349, 88355, 88356,
88358, 88362, 88365, 89100, 89105,
89130, 89132, 89135, 89140, 89141,
89250, 89350, 89360, 92390, 92391,
94642, 94772, 99024, 99071, 99078,
99080, 99082, 99100, 99116, 99135,
99140, 99420, 99450, 99455, 99456. For
the following CPT procedure codes,
obtain the nationwide 80th percentile
billed charges from the Medicare
Standard Analytical File 5% Sample:
99070, M0076, M0300. Then divide the
nationwide 80th percentile billed
charges by the untrended nationwide
conversion factor for the corresponding
physician CPT procedure code group as
set forth in paragraphs (e)(3) and
(e)(3)(i). The resulting nationwide total
RVUs are multiplied by the geographic
adjustment factors as set forth in
paragraph (e)(2)(iv) of this section to
obtain the facility-specific total RVUs.
(iii) RVUs for specified CPT procedure
codes. For the following list of CPT
procedure codes, the nationwide total
RVU is calculated by multiplying the
1998 Medicare work adjuster (0.917) by
the work expense RVU and adding the
practice expense RVU (the work
expense RVU and the practice expense
RVU for these CPT procedure codes can
be found in the 1998 St. Anthony’s
Complete RBRVS, Relative Value
Studies, Inc., St. Anthony Publishing,
11410 Isaac Newton Square, Reston, VA
20190): 15824, 15825, 15826, 15828,
15829, 15876, 15877, 15878, 15879,
17380, 21088, 24940, 26587, 32850,
33930, 33940, 36415, 36468, 36469,
41820, 41821, 41850, 41870, 47133,
48554, 50300, 58974, 65760, 65765,
65767, 65771, 69090, 69710, 75556,

76092, 76140, 76350, 78608, 78609,
90700, 90701, 90702, 90703, 90704,
90705, 90706, 90707, 90708, 90709,
90710, 90711, 90712, 90713, 90714,
90716, 90717, 90718, 90179, 90720,
90721, 90724, 90725, 90726, 90727,
90728, 90730, 90732, 90733, 90735,
90737, 90741, 90742, 90744, 90745,
90746, 90747, 90882, 90889, 90989,
90993, 92531, 92532, 92533, 92534,
92551, 92559, 92560, 92590, 92591,
92592, 92593, 92594, 92595, 92992,
92993, 93760, 93762, 93784, 93786,
93788, 93790, 95120, 95125, 95130,
95131, 95132, 95133, 95134, 96110,
96545, 97545, 97546, 99000, 99001,
99002, 99025, 99050, 99052, 99054,
99056, 99058, 99075, 99090, 99190,
99191, 99192, 99288, 99358, 99359,
99360, 99361, 99362, 99371, 99372,
99373. The resulting nationwide total
RVUs are multiplied by the geographic
adjustment factors as set forth in
paragraph (e)(2)(iv) of this section to
obtain the facility-specific total RVUs.
(iv) RVU geographic area adjustment
factors for specified CPT procedure
codes. The geographic area adjustment
factor for each facility location consists
of the weighted average of the 1998
work expense and practice expense
Medicare Geographic Practice Cost
Indices for each facility location using
charge data for representative CPT
procedure codes statistically selected
and weighted for work expense and
practice expense.
(3) Facility-adjusted 80th percentile
conversion factors. CPT procedure
codes are separated into the following
24 physician CPT procedure code
groups: allergy immunotherapy, allergy
testing, anesthesia, cardiovascular,
chiropractor, consults, emergency room
visits and observation care, hearing/
speech exams, immunizations, inpatient
visits, maternity/cesarean deliveries,
maternity/non-deliveries, maternity/
normal deliveries, miscellaneous
medical, office/home urgent care visits,
outpatient psychiatry/alcohol and drug
abuse, pathology, physical exams,
physical medicine, radiology, surgery,
therapeutic injections, vision exams,
and well baby exams. For each of the 24
physician CPT procedure code groups,
representative CPT procedure codes
were statistically selected and weighted
so as to give a weighted average RVU
comparable to the weighted average
RVU of the entire physician CPT
procedure code group (the selected CPT
procedure codes are set forth in the
1998 Milliman & Robertson, Inc., Health
Cost Guidelines fee survey) (Milliman &
Robertson, Inc., 1301 5th Ave., suite
3800, Seattle, WA 98101–2605). The
80th percentile charge for each selected
CPT procedure code is obtained (this is

contained in the nationwide commercial
insurance data base compiled by the
Health Insurance Association of
America, 555 13th Street NW., Suite
600E, Washington, DC 20004 (medical
data for 5/1/96–4/30/97, including
radiology and pathology; surgical data
for 3/1/96–2/28/97; anesthesia data for
3/1/96–2/28/97)). A nationwide
conversion factor (a monetary amount)
is calculated for each physician CPT
procedure code group as set forth in
paragraph (e)(3)(i) of this section. The
nationwide conversion factors for each
of the 24 physician CPT procedure code
groups are trended forward as set forth
in paragraph (e)(3)(ii) of this section.
The resulting amounts for each of the 24
groups are multiplied by geographic
area adjustment factors as set forth in
paragraph (e)(3)(iii) of this section,
resulting in facility-adjusted 80th
percentile conversion factors for each
VA facility geographic area for the 24
physician CPT procedure code groups
for the effective charge period.
(i) Nationwide conversion factors.
Using the nationwide 80th percentile
charges for the selected CPT procedure
codes from paragraph (e)(3) of this
section, a nationwide conversion factor
is calculated for each of the 24
physician CPT procedure code groups
by dividing the weighted average charge
by the weighted average RVU. To
correspond with the charge data, for
medicine and surgery CPT procedure
codes, the total RVUs are used even
when separate professional and
technical components are specified.
(ii) Trending forward. The nationwide
conversion factor for each of the 24
physician CPT procedure code groups,
representing charges for time periods
detailed in paragraph (e)(3) of this
section, are trended forward for the
period August 1998 through September
1999, and for each 12-month calendar
year period thereafter, beginning
January 1, 2000, based on changes to the
Physician component of the CPI–U.
Actual CPI–U changes are used through
the latest available month. The threemonth average annual trend rate as of
the latest available month is held
constant to the midpoint of the effective
charge period. The projected total CPI–
U change from the midpoint of the
source data collection period to the
midpoint of the effective charge period
is then applied to the 24 conversion
factors.
(iii) Geographic area adjustment
factors. Using the 80th percentile
charges for the selected CPT procedure
codes from paragraph (e)(3) of this
section for each VA facility geographic
area, a geographic area-specific
conversion factor is calculated for each

Federal Register / Vol. 64, No. 80 / Tuesday, April 27, 1999 / Rules and Regulations
of the 24 physician CPT procedure code
groups by dividing the weighted average
charge by the weighted average facilityadjusted RVU. The resulting geographic
area conversion factor for each facility
geographic area for each physician CPT
procedure code group is divided by the
corresponding nationwide conversion
factor as set forth in paragraph (e)(3)(i).
The resulting ratios are the geographic
area adjustment factors for each of the
24 physician CPT procedure code
groups for each facility geographic area.
(4) Nationwide 80th percentile
charges for anesthesia and pathology
CPT procedure codes. The nationwide
charges are calculated by multiplying
the RVUs as set forth in paragraph
(e)(4)(i) of this section for anesthesia
CPT procedure codes and as set forth in
paragraph (e)(4)(ii) of this section for
pathology CPT procedure codes by the
appropriate nationwide trended 80th
percentile conversion factors as set forth
in paragraph (e)(3) of this section.
(i) RVUs for anesthesia. The 1998
base unit value for each anesthesia CPT
procedure code is compiled (the base
unit values can be found in the 1998 St.
Anthony’s Complete RBRVS, Relative
Value Studies, Inc., St. Anthony
Publishing, 11410 Isaac Newton Square,
Reston, VA 20190). The average time
unit value for each anesthesia CPT
procedure code is compiled from a
Health Care Financing Administration
study concerning average time unit
values for anesthesia CPT procedure
codes (these values can be obtained
from Veterans Health Administration,
Office of Finance, Department of
Veterans Affairs, 810 Vermont Ave.,
NW., Washington, DC 20420). For each
anesthesia CPT procedure code

introduced since the Health Care
Financing Administration study, the
time unit value is calculated as the
average time unit value for all other
anesthesia CPT procedure codes with
the same base unit value. The sum of
the anesthesia base unit value and the
anesthesia time unit value equals the
total anesthesia RVUs.
(ii) RVUs for pathology. For each
pathology CPT procedure code, the 1998
Medicare payment amount is used as
the RVU for the corresponding CPT
procedure code (the payment amounts
can be found on the Health Care
Financing Administration public use
files Internet site at http://
www.hcfa.gov/stats/pufiles.htm under
the heading ‘‘Payment Rates/ NonInstitutional Providers’’ and the title
‘‘Clinical Diagnostic Laboratory Fee
Schedule.’’
(f) Other provider charges. When the
following providers provide or furnish
VA care within the scope of care
referred to in paragraph (a)(1) of this
section, charges for that care covered by
a CPT procedure code will be
determined based on the following
indicated percentages of the amount
that would be charged if the care had
been provided by a physician under
paragraph (e) of this section:
(1) Nurse practitioner: 85%.
(2) Clinical nurse specialist: 85%.
(3) Physician Assistant: 85%.
(4) Certified registered nurse
anesthetist: 50% when physician
supervised; 100% when not physician
supervised.
(5) Clinical psychologist: 80%.
(6) Clinical social worker: 75%.
(7) Podiatrist: 100%.
(8) Chiropractor: 100%.

22683

(9) Dietitian: 75%.
(10) Clinical pharmacist: 80%.
(11) Optometrist: 100%.
(g) Outpatient dental care and
prescription drugs not administered
during treatment. Notwithstanding
other provisions of this section, when
VA provides or furnishes outpatient
dental care or prescription drugs not
administered during treatment, within
the scope of care referred to in
paragraph (a)(1) of this section, charges
billed separately for such care will be
based on VA costs in accordance with
the methodology set forth in § 17.102 of
this part.
(The Office of Management and Budget has
approved the information collection
requirements in this section under control
number 2900–0606.)
(Authority: 38 U.S.C. 101, 501, 1701, 1705,
1710, 1721, 1722, 1729)
§ 17.102

[Amended]

4. In newly redesignated § 17.102, the
first sentence of the introductory text is
amended by removing ‘‘Charges’’ and
adding, in its place, ‘‘Except as provided
in § 17.101, charges’’; paragraph (h) is
amended by removing the heading and
adding, in its place, ‘‘Computation of
charges.’’; by removing paragraphs
(h)(1), (h)(2), and (h)(4) through (h)(6);
and by removing ‘‘(3) The method of
computing the charges for medical care
and services’’ and by adding, in its
place, ‘‘The method for computing the
charges under paragraphs (a), (b), (d), (f),
and (g), and the last sentence of
paragraph (c) of this section.
[FR Doc. 99–10373 Filed 4–26–99; 8:45 am]
BILLING CODE 8320–01–P