Summary of FY 07 TRICARE Reimbursement Update

The Fiscal Year 2007 updates to the TRICARE Reimbursement systems were implemented for dates of service October 1, 2006 and forward, unless otherwise indicated below. Following are highlights of these updates. (Note: TRICARE followed many of the changes instituted by the Centers for Medicare & Medicaid Services [CMS].) Visit www.tricare.mil for additional information.

DRG Weights & Rate Changes:

DRG Weights – TRICARE Management Activity (TMA) will maintain its current method of calculating DRG weights.

Fiscal Year 2007 TMA Adjusted Standardized Amount
Hospital Type	Labor Portion	Non-Labor Portion	Total
For Wage Index Greater Than 1.0	$2,987.70	$1,298.81	$4,286.51
For Wage Index Less Than or Equal to 1.0	$2,657.64	$1,628.87	$4,286.51

DRG weights, outlier thresholds, ASAs and cost share per diem – These items were calculated based on data provided by the CMS, with some adjustments for the TRICARE population. Detailed information is available on TMA’s home page at www.tricare.mil. The 2007 DRG Calculator is also available on the TMA web site in the provider portal.

Percentage of Labor Related Share (tentative) – For FY 2007, for wage index values greater than 1.0, contractors are to apply 69.7 percent to the labor portion of the adjusted standardized amount and for wage indexes less than or equal to 1.0, contractors shall continue to apply 62 percent to the labor portion of the adjusted standardized amount.

Market Basket Increase – The update factor for the standardized amounts for FY 2007 is equal to the market basket percentage increase of 3.4 percentage points for hospitals.

Severity – For FY 2007, TRICARE decided to make additions and deletions to existing DRGs in order to recognize severity of illness. These are included in the following outline of DRG changes:

New, Deleted, and Modified DRGs – 20 new DRGs were added, 8 DRGs were deleted, and 32 DRGs were modified for a total of 538 DRGs in FY2007.

New DRGs – 560, 561, 562, 563, 564, 565, 566, 567, 568, 569, 570, 571, 572, 573, 574, 575, 576, 577, 578 and 579

Deleted DRGs – 20, 24, 25, 148, 154, 415, 416 and 475.

Modified DRGs – In creating new DRGs 571 and 573, the following DRGs were modified by removing certain diagnoses from them: 174, 175, 182, 183, 184, 188, 189, and 190.
In creating new DRG 573, the following DRGs were modified by renaming them and/or by removing certain procedures from them: 303, 304, 305, 308, and 309.
In creating new DRG 574, the following DRGs were modified by removing certain diagnoses from them: 395, 396, 398, and 399.
In creating new DRG 577 the following DRGs were modified by removing carotid stent procedures from them: 533 and 534.
DRG 103 was modified by adding a procedure code for external heart assist systems.
DRG 479 was modified by adding 2 procedures from DRG 468 (04.92 and 86.96).
DRG 513 was modified due to a National Coverage Determination addressing pancreas transplant alone.
DRG 543 was modified by adding codes for dual array neurostimulator cases.
DRG 515, DRG 535, and DRG 536 were modified by adding codes for defibrillator devices and lead combinations.
DRG 545 was modified by adding codes moved from DRG 471 regarding partial revisions of the knee and hip as well as unspecified joint procedures.
DRG 553 and DRG 554 were modified by adding two procedure codes (04.92 and 86.96) from DRG 468.

Expansion of Post-Acute Care Transfers – The DRGs reflected in Table 5 of CMS’ final rule is included in the Reimbursement Manual, Chapter 6, Addendum C. The second column of this table indicates if the DRG is subject to the post acute care transfer policy. Column three indicates if the DRG is subject to post acute care special payment provisions. There are 190 DRGs subject to the post acute care transfer policy. There are 12 DRGs subject to special payment provisions.

Following is the link to CMS’ final rule.

http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-6692.pdf

Changes to Adjustments to the Base DRG:

Payment for Blood Clotting Factor – A future change will pay the blood clotting factor at the average sale price (ASP) plus 6%, retroactive to October 1, 2005

Neonatal Cost to Charge Ratio – The neonatal cost to charge ratio for calculating outliers for neonates in acute care hospitals is .3967.

Capital Percentage Reduction – There is no capital percentage reduction for FY 2007.

Formula Multiplier for IDME Factor – The formula multiplier for the IDME adjustment for FY 2007 is 1.00.

Changes to the Cost Outlier (please note, a complete explanation of the calculation of the Cost Outlier is available in the TRICARE Reimbursement Manual, Chapter 6, Section 8, at pages 12 ff.):

Outlier Threshold (tentative) – For FY 2007, a fixed loss cost-outlier threshold is set of $22,649. Effective October 1, 2006, the cost-outlier threshold shall be the DRG-based amount (wage-adjusted) plus the IDME payment, plus the flat rate of $22,649 (also wage-adjusted). The marginal cost factor for cost outliers continues to be 80 percent.

Cost-to-Charge Ratios – For FY 07, the cost-to-charge ratio used for the TRICARE/CHAMPUS DRG-based payment system are 0.3967.

NOSCASTC –The National Operating Standard Cost as a Share of Total Costs used in the cost outlier threshold calculation for FY 2007 is 0.925.

Changes Specific to Children’s Hospitals:

The FY2007 Children’s Hospital and Neonatal Outlier adjustment factor is increased to 1.27, compared to 1.21 in FY 2006. The National Operating Standard Cost as a share of total costs, used in calculating the cost outlier threshold, is 0.925.

Indirect Medical Education (IDME) Factors for Children’s Hospitals – If updated Interns and Residents/Number of Beds (I&R/B) ratios were not provided, the IDME factor from the previous year shall be included in the updated provider file.

Cost-to-Charge Ratios – For children’s hospitals, the cost-to-charge ratio is 0.4282.

Other Changes:

Hospice, RTC, and New Active Duty Inpatient Cost Share for FY 2007 – The following reimbursement systems are being updated in accordance with the specific Code of Federal Regulations (CFR) provisions (CFR Part 199.14) under which they are implemented. They include the following:

Hospice Per Diems. National Medicare hospice rates are obtained from CMS for care and services provided on or after October 1, 2006, through September 30, 2007, along with their respective wage and non-wage components. This includes the hourly rate for continuous home care and the updated hospice cap amount for the cap year October 31, 2006. The updated hospice per diems for the four levels of care provided by or under arrangement with an approved hospice program along with the cap amount are published in Chapter 11, Addendum A of the TRICARE Reimbursement Manual. Overall, all hospice payment rates will increase by 3.4 percentage points. The Hospice wage index for FY 2006 utilized a blended wage index value, comprised of 50 percent of the wage index had the Metropolitan statistical Area (MSA) designations remained in effect and 50 percent of the wage index under the Core Based Statistical Area (CBSA) designations. The special codes employed in FY 2006 are not in effect for FY 2007.
Individual RTC Per Diems and Cap Amount. Under the provision of 32 CFR 199.14(f)(5)(iii), for subsequent Federal fiscal years after fiscal year 1997, RTC rates shall be updated by the Medicare update factor for hospitals and units exempt from the Medicare prospective payment system. In conformance with these provisions, RTC individual rates and cap amount are updated as of October 1, 2006 (FY07) by the currently projected Medicare inflation factor of 3.4 percent. The updated rates are published in Chapter 7, Addendum G of the TRICARE Reimbursement Manual.
New Active Duty Family Member Inpatient Cost Share for FY07. The active duty family member inpatient cost share for FY 07, except for Prime Active Duty Family Members, is provided in the TRICARE Reimbursement Manual, Chapter 2, Section 1.

Inpatient Mental Health and Partial Hospitalization – For services on or after October 1, 2006, the following mental health per diem rates were updated based on the Medicare update factor for hospitals and units exempt from the Medicare Prospective Payment System.

TRICARE inpatient mental health
Hospital specific per diems and cap amount
Regional specific per diems and the cost sharing per diem
Partial hospitalization regional per diems for full day and half day programs

The update factor per the final CMS rule published on May 9, 2006, is 3.4 percent. The labor-related portion of the per diem rate is 75.665 percent.

Birthing Center All-Inclusive Rate During FY 2007 – The state-specific non-professional price component amounts used in updating the birthing center all-inclusive rates during FY 2007 are published in Chapter 10, Addendum A of the TRICARE Reimbursement Manual. The all inclusive prices for birthing centers were updated concurrently with CHAMPUS Maximum Allowable Charge (CMAC) updates for 2007.

Skilled Nursing Facilities (SNF) – The SNF PPS updates and rate and wage indexes for FY 2007 are published in the TRICARE Reimbursement Manual, Chapter 8. The updated SNF rate and wage indexes were effective on October 1, 2006.

Providers will now need to prepare separate bills for services before September 30 and for services on or after October 1 in order to receive the correct payment as the SNF PPS rate is updated for each fiscal year. This split billing by providers ensures that the claim is paid using the correct rate. Prior to this change, providers didn’t have to split SNF claims when dates of service crossed fiscal years.

Ambulatory Surgery – Ambulatory surgery codes are updated after Medicare issues an update. These are published in the TRICARE Reimbursement Manual, Chapter 9, Addendum B. Ambulatory procedures performed in a hospital based Ambulatory Surgery Center shall be reimbursed under the Outpatient Perspective Payment System (OPPS) effective on June 1, 2007.

Anesthesia Rates – The updated anesthesia rates are included in the updated CMAC rates.