Federal Register, Volume 78 Issue 184 (Monday, September 23, 2013)

[Federal Register Volume 78, Number 184 (Monday, September 23, 2013)]
[Proposed Rules]
[Pages 58386-58414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22821]

[[Page 58385]]

Vol. 78

Monday,

No. 184

September 23, 2013

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

42 CFR Parts 405, 491, and 493

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Medicare Program; Prospective Payment System for Federally Qualified
Health Centers; Changes to Contracting Policies for Rural Health
Clinics; and Changes to Clinical Laboratory Improvement Amendments of
1988 Enforcement Actions for Proficiency Testing Referral; Proposed
Rule

Federal Register / Vol. 78 , No. 184 / Monday, September 23, 2013 /
Proposed Rules

[[Page 58386]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 491, and 493

[CMS-1443-P]
RIN 0938-AR62

Medicare Program; Prospective Payment System for Federally
Qualified Health Centers; Changes to Contracting Policies for Rural
Health Clinics; and Changes to Clinical Laboratory Improvement
Amendments of 1988 Enforcement Actions for Proficiency Testing Referral

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish methodology and payment
rates for a prospective payment system (PPS) for federally qualified
health center (FQHC) services under Medicare Part B beginning on
October 1, 2014, in compliance with the statutory requirement of the
Affordable Care Act. This proposed rule would also establish a policy
which would allow rural health clinics (RHCs) to contract with
nonphysician practitioners when statutory requirements for employment
of nurse practitioners and physician assistants are met, and make other
technical and conforming changes to the RHC and FQHC regulations.
Finally, this proposed rule would make changes to the Clinical
Laboratory Improvement Amendments (CLIA) regulations regarding
enforcement actions for proficiency testing referral.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on November 18,
2013.

ADDRESSES: In commenting, please refer to file code CMS-1443-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1443-P, P.O. Box 8013,
Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1443-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Corinne Axelrod, (410) 786-5620 for
FQHCs and RHCs.
Melissa Singer, (410) 786-0365 for CLIA Enforcement Actions for
Proficiency Testing Referral.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Acronyms

AIR All-Inclusive Rate
APM Alternative Payment Methodology
CCN CMS Certification Number
CCR Cost-To-Charge Ratio
CFR Code of Federal Regulations
CLIA Clinical Laboratory Improvement Amendments of 1988
CMP Civil Money Penalty
CMS Centers for Medicare & Medicaid Services
CNM Certified Nurse Midwife
CP Clinical Psychologist
CSW Clinical Social Worker
CY Calendar Year
DSMT Diabetes Self-Management Training
E/M Evaluation and Management
FQHC Federally Qualified Health Center
FSHCAA Federally Supported Health Centers Assistance Act
GAF Geographic Adjustment Factor
GAO Government Accountability Office
GPCI Geographic Practice Cost Index
HCPCS Healthcare Common Procedure Coding System
HCRIS Healthcare Cost Report Information System
HBV Hepatitis B Vaccines
HRSA Health Resources and Services Administration
IDR Integrated Data Repository
IPPE Initial Preventive Physical Exam
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCO Managed Care Organization
MEI Medicare Economic Index
MIPPA Medicare Improvements for Patients and Providers Act
MNT Medical Nutrition Therapy
MUA Medically Underserved Area
MUP Medically Underserved Population
NP Nurse Practitioner
OBRA Omnibus Budget Reconciliation Act
PA Physician Assistant
PHS Public Health Service
PFS Physician Fee Schedule
PPS Prospective Payment System
PT Proficiency testing
ResDAC Research Data Assistance Center
RIA Regulatory Impact Analysis
RHC Rural Health Clinic
SNF Skilled Nursing Facility
UDS Uniform Data System
USPSTF U.S. Preventive Services Task Force
UPL Upper Payment Limit

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Table of Contents

I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of Major Provisions
a. Basis for Payment Under the FQHC PPS
b. Addressing Payment for Multiple Visits on the Same Day
c. Beneficiary Coinsurance
d. Waiving Coinsurance for Preventive Services
e. Transition Period and Annual Adjustment
f. Other FQHC and RHC Provisions
g. CLIA Enforcement Actions for Proficiency Testing Referral
3. Summary of Cost and Benefits
B. Overview and Background
1. FQHC Description and General Information
2. Medicare's FQHC Coverage and Payment Benefit
3. Legislation Pertaining to Medicare and Medicaid Payments for
FQHC Services
4. Medicare's Current Cost-Based Reimbursement Methodology
5. Summary of Requirements Under the Affordable Care Act for the
FQHC PPS and Other Provisions Pertaining to FQHCs
6. Approach to the FQHC PPS
II. Establishment of the Federally Qualified Health Center
Prospective Payment System (FQHC PPS)
A. Design and Data Sources for the FQHC PPS
1. Overview of the PPS Design
2. Medicare FQHC Cost Reports
3. Medicare FQHC Claims
4. Linking Cost Reports and Claims To Compute the Average Cost
per Visit
B. Policy Considerations for Developing the FQHC PPS Rates and
Adjustments
1. Multiple Visits on the Same Day
2. Preventive Laboratory and Technical Components of Other
Preventive Services
3. Vaccine Costs
C. Risk Adjustments
1. Alternative Calculations for Average Cost per Visit
2. Geographic Adjustment Factor
3. New Patient or Initial Medicare Visit
4. Other Adjustment Factors Considered
5. Report on PPS Design and Models
D. Base Rate Calculation
E. Implementation
1. Transition Period and Annual Adjustment
2. Medicare Claims Payment
3. Beneficiary Coinsurance
4. Waiving Coinsurance for Preventive Services
5. Cost Reporting
6. Medicare Advantage Organizations
III. Additional Proposed Changes Regarding FQHCs and RHCs
A Rural Health Clinic Contracting
B. Technical and Conforming Changes
IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)--
Enforcement Actions for Proficiency Testing Referral
A. Background
B. Proposed Changes
V. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
VI. Response to Comments
VII. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Limitations of Our Analysis
D. Anticipated Effects of FQHCs PPS
1. Effects on FQHCs
2. Effects on RHCs
3. Effects on Other Providers and Suppliers
4. Effects on Medicare and Medicaid Programs
5. Effects on Medicare Beneficiaries
E. Effects of Other Policy Changes
1. Effects of Policy Changes for FQHCs and RHCs
2. Effects of CLIA Changes for Enforcement Actions for
Proficiency Testing Referral
F. Alternatives Considered
G. Accounting Table and Statement
H. Conclusions
Regulations Text
ADDENDUM--Proposed FQHC PPS Geographic Adjustment Factors (GAFs)

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
The Affordable Care Act (Pub. L. 111-148) added section 1834(o) of
the Social Security Act (the Act) to establish a new system of payment
for the costs of federally qualified health center (FQHC) services
under Medicare Part B (Supplemental Medical Insurance) based on
prospectively set rates. According to section 1834(o)(2)(A) of the Act,
the FQHC prospective payment system (PPS) is to be effective beginning
on October 1, 2014. The primary purpose of this rule is to propose a
methodology and payment rates for the new FQHC PPS.
This rule also proposes to allow RHCs to contract with non-
physician practitioners, consistent with statutory requirements that
require at least one nurse practitioner (NP) or physician assistant
(PA) be employed by the RHC.
The ``Taking Essential Steps for Testing Act of 2012'' (TEST Act)
(Pub. L. 112-202) was enacted on December 4, 2012. The TEST Act amended
section 353 of the Public Health Service Act (PHS Act) to provide the
Secretary with discretion as to which sanctions may be applied to cases
of intentional PT referral. The purpose of this proposal is to amend
the CLIA regulations to be in alignment with the statutory change and
to propose the regulatory changes needed to fully implement the TEST
Act.
2. Summary of the Major Provisions
a. Basis for Payment Under the FQHC PPS
Under the PPS, we are proposing to establish a national, encounter-
based rate for all FQHCs and pay FQHCs a single encounter-based rate
for professional services furnished per beneficiary per day. The
encounter-based rate would be calculated based on an average cost per
visit (that is, total FQHC cost divided by total FQHC encounters) using
Medicare cost report and claims data. We believe an encounter-based
payment rate for the FQHC PPS will both provide appropriate payment
while remaining administratively simple. An encounter-based payment
rate is consistent with our commitment to greater bundling of services,
and gives FQHCs the flexibility to implement efficiencies to reduce
over-utilization of services. FQHCs are accustomed to billing for a
single encounter and being paid through an all-inclusive rate (AIR). An
encounter-based payment is also similar to Medicaid payment systems,
and Medicaid is the predominant payer for FQHCs.
We are also proposing a few simple adjustments to the encounter-
based payment rate. We are proposing to adjust the encounter-based rate
for geographic differences in the cost of inputs by applying an
adaptation of the geographic practice cost indices (GPCI) used to
adjust payment under the Physician Fee Schedule (PFS). Also, we are
proposing to adjust the encounter-based rate when a FQHC furnishes care
to a patient that is new to the FQHC or to a beneficiary receiving a
comprehensive initial Medicare visit (that is, an initial preventive
physical examination (IPPE) or an initial annual wellness visit (AWV)).
We believe this adjustment would account for the greater intensity and
resource use associated with these types of services. For additional
information on the design of the FQHC PPS and risk adjustment, see
section II. of this proposed rule.
b. Addressing Payment for Multiple Visits on the Same Day
Under the current reasonable cost based payment methodology, FQHCs
are paid an AIR for all services furnished on the same day to the same
beneficiary, with the following exceptions: (1) The FQHC can bill for
an additional visit on the same day when an illness or injury occurs
subsequent to the initial visit; and (2) the FQHC can bill for
additional visits when mental health, diabetes self-management/medical
nutrition therapy (DSMT/MNT), or the IPPE are furnished on the same day
as the medical visit. However, there are no statutory requirements that
we pay separately for these services, and an analysis of FQHC claims
data submitted in 2011 and 2012

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indicates that less than 0.5 percent of all billed visits were for more
than 1 visit per day for the same beneficiary.
We understand that there may be many possible reasons why the rate
of billing for more than one visit per day has been low, and that there
are many ways that FQHCs are providing integrated, patient-centered
health care services. Since the option to bill for more than one visit
per day is rarely utilized by FQHCs and continuation of the exception
to the single, all-inclusive payment per day requires additional
complexity to the PPS, we are proposing to eliminate these exceptions
for payment for multiple visits on the same day and limit FQHCs to 1
encounter payment per day. We believe this approach is consistent with
an all-inclusive methodology and reasonable cost principles, and would
not significantly impact FQHC reimbursement. However, we are interested
in comments that address whether there are factors that we have not
considered, particularly in regards to mental health services, and we
would reconsider this approach if information is presented that this
may impact on beneficiaries' access to services or the integration of
services in underserved communities. For additional information on
billing for multiple visits on the same day, see section B of this
proposed rule.
c. Beneficiary Coinsurance
Under the current reasonable cost system, beneficiary coinsurance
for FQHC services is assessed based on the FQHC's charge, which can
result in the coinsurance amount being higher than what it would be if
it was based on the AIR, which is derived from costs. Section
1833(a)(1)(Z) of the Act requires that Medicare payment under the FQHC
PPS shall be 80 percent of the lesser of the actual charge or the PPS
rate, and we are proposing that coinsurance would be 20 percent of the
lesser of the actual charge or the PPS rate. While the statute makes no
specific provision to revise the methodology for determining
coinsurance amounts under the new PPS, we believe that this is
consistent with statutory language in sections 1866(a)(2)(A) and
1833(a)(3)(A) of the Act and elsewhere that addresses coinsurance
amounts and Medicare cost principles.
d. Waiving Coinsurance for Preventive Services
Effective January 1, 2011, Medicare waives beneficiary coinsurance
for eligible preventive services furnished by a FQHC. Medicare requires
detailed Healthcare Common Procedure Coding System (HCPCS) coding on
FQHC claims to ensure that coinsurance is not applied to the line item
charges for these preventive services.
For FQHC claims that include a mix of preventive and non-preventive
services, we are proposing to use physician office payments under the
Medicare PFS to determine the proportional amount of coinsurance that
should be waived for payments based on the PPS encounter rate, and we
would continue to use provider-reported charges to determine the amount
of coinsurance that should be waived for payments based on the
provider's charge. Total payment to the FQHC, including both Medicare
and beneficiary liability, would not exceed the provider's charge or
the PPS rate.
e. Transition Period and Annual Adjustment
The statute requires implementation of the FQHC PPS for FQHCs with
cost reporting periods beginning on or after October 1, 2014. FQHCs
would transition into the PPS based on their cost reporting periods.
The claims processing system would maintain the current system and the
PPS until all FQHCs have transitioned to the PPS. We are proposing to
transition the PPS to a calendar year update for all FQHCs, beginning
January 1, 2016, to be consistent with many of the PFS files that are
updated on a calendar year basis. The statute also requires us to
adjust the FQHC PPS by the MEI in the first year after implementation,
and either the MEI or a FQHC market basket in subsequent years.
f. Other FQHC/RHC Provisions
In addition to proposing to codify the statutory requirements for
the FQHC PPS in this proposed rule, we are proposing to allow RHCs to
contract with non-physician practitioners, consistent with statutory
requirements that require at least one nurse practitioner (NP) or
physician assistant (PA) be employed by the RHC. The ability to
contract with NPs, PAs, certified nurse midwives (CNMs), clinical
psychologists (CPs), and clinical social workers (CSWs) would provide
RHCs with additional flexibility with respect to recruiting and
retaining non-physician practitioners.
We are also proposing edits to correct terminology, clarify policy,
delete irrelevant code, and make other conforming changes for existing
mandates and the new PPS.
g. CLIA Enforcement Actions for Proficiency Testing Referral
The ``Taking Essential Steps for Testing Act of 2012'' (Pub. L.
112-202) amended section 353 of the Public Health Service Act to
provide the Secretary with discretion as to which sanctions may be
applied to cases of intentional PT referral in lieu of the automatic
revocation of the CLIA certificate and the subsequent ban preventing
the owner and operator from owning or operating a CLIA certified
laboratory for 2 years. Based on this discretion, we would amend the
CLIA regulations by adding three categories of sanctions for PT
referral based on the severity and extent of the violation.
3. Summary of Cost and Benefits
a. For the FQHC PPS
As required by section 1834(o)(2)(B)(i) of the Act, initial
payments (Medicare and coinsurance) under the FQHC PPS must equal 100
percent of the estimated amount of reasonable costs, as determined
without the application of the current system's UPL or productivity
standards that can reduce a FQHC's per visit rate. The proposed FQHC
PPS is estimated to have an overall impact of increasing total Medicare
payments to FQHCs by approximately 30 percent. The annualized cost to
the federal government associated with the proposed FQHC PPS is
estimated to be between $183 million and $186 million, based on 5 year
discounted flows using 3 percent and 7 percent factors.
b. For Other FQHC and RHC Changes
The ability to contract with NPs, PAs, CNMs, CP, and CSWs would
provide RHCs with additional flexibility with respect to recruiting and
retaining non-physician practitioners, which may result in increasing
access to care in rural areas. There is no cost to the Federal
government and we are unable to estimate a cost savings for RHCs. In
addition, we believe that there are no costs associated with the
technical and conforming regulatory changes that would be made in
conjunction with the establishment of the FQHC PPS.
c. CLIA Enforcement Actions for Proficiency Testing Referral Changes
Over a 4-year span, we estimate that an average of 6 cases per year
may have fit the terms of described in this proposed rule to have
alternative sanctions applied. We believe that the largest single type
of cost is the expense to the laboratory or hospital to contract out
for management of the laboratory, and to pay laboratory director fees,
due

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to the 2-year ban that prohibits the owner and operator from owning or
operating a CLIA-certified laboratory in accordance with revocation of
the CLIA certificate. Estimating the expense of alternative sanctions
at $150,000 per laboratory, the annual fiscal savings of the proposed
changes for affected laboratories would be approximately $2.6 million
($578,400--$150,000 for 6 laboratories). We note that there are a
number of factors (known and unknown) that could impact this estimate.
We also note that the total savings may not be large, but the savings
to the individual laboratory or hospital that would be affected may be
significant. However, we note that the $2.6 million estimated savings
to laboratories may overstate or understate the provision's net
benefits. While we recognize that there are several potential
inaccuracies in our estimates, we lack data to account for these
considerations.

B. Overview and Background

1. FQHC Description and General Information
FQHCs are facilities that provide services that are typically
furnished in an outpatient clinic setting. They are currently paid an
AIR per visit for qualified primary and preventive health services
furnished to Medicare beneficiaries.
The statutory requirements that FQHCs must meet to qualify for the
Medicare benefit are in section 1861(aa)(4) of the Act. Based on these
provisions, the following three types of organizations that are
eligible to enroll in Medicare as FQHCs:
Health Center Program grantees: Organizations receiving
grants under section 330 of the PHS Act (42 U.S.C. 254b).
Health Center Program ``look-alikes'': Organizations that
have been identified by the Health Resources and Services
Administration (HRSA) as meeting the requirements to receive a grant
under section 330 of the PHS Act, but which do not receive section 330
grant funding.
Outpatient health programs/facilities operated by a tribe
or tribal organization (under the Indian Self-Determination Act) or by
an urban Indian organization (under Title V of the Indian Health Care
Improvement Act).
Section 330 Health Centers are the predominant type of FQHC.
Originally known as Neighborhood Health Centers, they have evolved over
the last 45 years to become an integral component of the Nation's
health care safety net system, with more than 1,100 centers operating
approximately 8,900 delivery sites that serve more than 21 million
people each year from medically underserved communities. They include
community health centers (section 330(e) of the PHS Act), migrant
health centers (section 330(g) of the PHS Act), health care for the
homeless (section 330(h) of the PHS Act), and public housing primary
care (section 330(i) of the PHS Act).
FQHCs may be either not-for-profit or public organizations. The
main purpose of the FQHC program is to enhance the provision of primary
care services in underserved urban, rural and tribal communities. FQHCs
that are not operated by a tribe or tribal organization are required to
be located in or treat people from a Federally-designated medically
underserved area (MUA) or medically underserved population (MUP) and to
comply with all the requirements of section 330 of the PHS Act. Some of
these section 330 requirements include offering a sliding fee scale to
persons with incomes below 200 percent of the federal poverty level,
and being governed by a board of directors of whom a majority of the
members receive their care at the FQHC. According to HRSA's Uniform
Data System (UDS),\1\ approximately 8 percent of FQHC patients were
Medicare beneficiaries, 41 percent were Medicaid recipients, and 36
percent were uninsured in 2012. The remainder was privately insured or
had other public insurance. Medicare and Medicaid accounted for
approximately 9 percent and 47 percent of their total billing,
respectively.
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\1\ The UDS collects and tracks data such as patient
demographics, services provided, staffing, clinical indicators,
utilization rates, costs, and revenues from section 330 health
centers and health center look-alikes.
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Congress has authorized several programs to assist FQHCs in
increasing access to care for underserved and special populations. Many
FQHCs receive section 330 grant funds to offset the costs of
uncompensated care and provide other services. All FQHCs are eligible
to participate in the 340B Drug Pricing Program for pharmaceutical
products. FQHCs that receive section 330 grant funds also are eligible
to apply for medical malpractice coverage under Federally Supported
Health Centers Assistance Act (FSHCAA) of 1992 (Pub. L. 102-501) and
FSHCAA of 1995 (Pub. L. 104-73 amending section 224 of the PHS Act) and
may be eligible for Federal loan guarantees for capital improvements
when funds for this purpose are appropriated. Title VIII of the
American Recovery and Reinvestment Act (Pub. L. 111-5) appropriated $2
billion for construction, equipment, health information technology, and
related improvements to existing section 330 grantees and for the
establishment of new grantees sites. The Affordable Care Act
appropriated an additional $11 billion over a 5-year period ($1.5
billion for capital improvements and $9.5 billion for support and
expansion of the 330 health centers). HRSA administers the 330 grant
program and other programs that assist FQHCs in increasing access to
primary and preventive health care in underserved communities.
2. Medicare's FQHC Coverage and Payment Benefit
The FQHC coverage and payment benefit under Medicare was added
effective October 1, 1991, when section 1861(aa) of the Act was amended
by section 4161 of the Omnibus Budget Reconciliation Act (OBRA) of 1990
(Pub. L. 101-508, enacted on November 5, 1990) and implemented in
regulations via the June 12, 1992 final rule with comment period (57 FR
24961) and the April 3, 1996 final rule (61 FR 14640). Regulations
pertaining to FQHCs are found primarily in 42 CFR Part 405, and 42 CFR
Part 491.
FQHC covered services and supplies include the following:
Physician, NP, PA, CNM, CP, and CSW services.
Services and supplies furnished incident to a physician,
NP, PA, CNM, CP, or CSW services.
FQHC covered drugs that are furnished by, a FQHC
practitioner.
Outpatient diabetes self-management training (DSMT) and
medical nutrition therapy (MNT) for beneficiaries with diabetes or
renal disease.
Statutorily-authorized preventive services.
Visiting nurse services to the homebound in an area where
CMS has determined that there is a shortage of home health agencies.
3. Legislation Pertaining to Medicare and Medicaid Payments for FQHC
Services
FQHCs currently receive cost-based reimbursement, subject to an
upper payment limit (UPL) and productivity standards, for services
furnished to Medicare beneficiaries, and PPS payment, based on their
historical cost data, for services furnished to Medicaid recipients
(section 1902(bb) of the Act). The UPL for Medicare FQHC services is
adjusted annually based on the Medicare Economic Index (MEI), as
described in 1842(i)(3) of the Act. Authority to apply productivity
standards is found in 1833(a) and 1861(v)(1)(A) of the Act. Section
151(a)

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of the Medicare Improvements for Patients and Providers Act (MIPPA) of
2008 (Pub. L. 110-275, enacted on July 15, 2008) increased the UPL for
FQHC by $5, effective January 1, 2010. Section 151(b) of the MIPPA
required the Government Accountability Office (GAO) to study and report
on the effects and adequacy of the Medicare FQHC payment structure.
Based on a GAO analysis of 2007 Medicare cost report data, about 72
percent of FQHCs had average costs per visit that exceeded the UPL, and
the application of productivity standards reduced Medicare payment for
approximately 7 percent of FQHCs. In 2007, application of the limits
and adjustments currently in place reduced FQHCs' submitted costs of
services by approximately $73 million, about 14 percent (Medicare
Payments to Federal Qualified Health Centers, GAO-10-576R, July 30,
2010).
The Benefits Improvement and Protection Act of 2000 (Pub. L. 106-
554, enacted December 21, 2000) created section 1902(bb) of the Act
which established a PPS for Medicaid reimbursement. The law allowed
state Medicaid agencies to establish their own reimbursement
methodology for FQHCs provided that total reimbursement would not be
less than the payment under the Medicaid PPS, and that the FQHC agreed
to the alternative payment methodology (APM). For beneficiaries
enrolled in a managed care organization (MCO), the MCO pays the FQHC an
agreed upon amount, and the state Medicaid program pays the FQHC a
wraparound payment equal to the difference, if any, between the PPS
rate and the payment from the managed care organization.
The Affordable Care Act established a Medicare PPS for FQHCs.
Section 10501(i)(3)(A) of the Affordable Care Act added section 1834(o)
of the Act, requiring the Medicare FQHC PPS to be implemented starting
October 1, 2014. The new PPS for FQHCs is required to take into account
the type, intensity, and duration of services furnished by FQHCs and
may include adjustments, including geographic adjustments, determined
appropriate by the Secretary. A detailed discussion of the statutory
requirements for the Medicare FQHC PPS is discussed in section I.B. of
this proposed rule.
4. Medicare's Current Reasonable Cost-Based Reimbursement Methodology
FQHCs are paid an AIR per visit for medically-necessary
professional services that are furnished face-to-face (one practitioner
and one patient) with a FQHC practitioner (42 CFR 405.2463). Services
and supplies furnished incident to a FQHC professional service are
included in the AIR and are not billed as a separate visit. Technical
components such as x-rays, laboratory tests, and durable medical
equipment are not part of the AIR and are billed separately to Medicare
Part B.
The AIR is calculated by dividing total allowable costs by the
total number of visits. Allowable costs may include practitioner
compensation, overhead, equipment, space, supplies, personnel, and
other costs incident to the delivery of FQHC services. Cost reports are
filed in order to identify all incurred costs applicable to furnishing
covered FQHC services. Freestanding FQHCs complete Form CMS-222-92,
``Independent Rural Health Clinic and Freestanding Federally Qualified
Health Center Cost Report''. FQHCs based in a hospital complete the
Worksheet M series of Form CMS-2552-10, ``Hospital and Hospital Care
Complex Cost Report''. FQHCs based in a skilled nursing facility (SNF)
complete the Worksheet I series of Form CMS-2540-10, ``Skilled Nursing
Facility and Skilled Nursing Facility Health Care Complex Cost
Report''. FQHCs based in a home health agency complete the Worksheet RF
series of Form CMS-1728-94, ``Home Health Agency Cost Report''.
Information on these cost report forms is found in Chapters 29, 40, 41
and 32, respectively, of the ``Provider Reimbursement Manual--Part 2''
(Publication 15-2). Per 42 CFR 413.65(n), only FQHCs that were
operating as provider-based clinics prior to 1995 and either received
funds under section 330 of the PHS Act or were determined by CMS to
meet the criteria to be a look-alike clinic are eligible to be
certified as provider-based FQHCs. FQHCs that do not already have
provider-based status are no longer permitted to receive the
designation.
At the beginning of a FQHC's fiscal year, the Medicare
Administrative Contractor (MAC) calculates an interim AIR based on
actual costs and visits from the previous cost reporting period. For
new FQHCs, the interim AIR is estimated based on a percentage of the
per-visit limit. FQHCs receive payments throughout the year based on
their interim rate. After the conclusion of the fiscal year, the cost
report is reconciled and any necessary adjustments in payments are
made.
Allowable costs are subject to tests of reasonableness,
productivity standards, and an overall payment limit (42 CFR 405.2464,
405.2466, and 405.2468). The productivity standards require 4,200
visits per full-time equivalent physician and 2,100 visits per full-
time equivalent non-physician practitioner (NP, PA or CNM) on an annual
basis. If the FQHC has furnished fewer visits than required by the
productivity standards, the allowable costs would be divided by the
productivity standards numbers instead of the actual number of visits.
The payment limit varies based on whether the FQHC is located in an
urban or rural area (as defined in section 1886(d)(2)(D) of the Act).
The 2013 payment limits per visit for urban and rural FQHCs are $128.00
and $110.78, respectively. FQHCs with multiple sites may elect to file
a consolidated cost report (CMS Pub. 100-04, Medicare Claims Processing
Manual, chapter 9, Sec. 30.8), and if the FQHC has both urban and
rural sites, the MAC applies a weighted UPL based on the percentage of
urban and rural visits as the percentage of total site visits. The AIR
is equal to the FQHC's cost per visit (adjusted by the productivity
standard if appropriate) or the payment limit, whichever is less.
Medicare beneficiaries receiving services at a FQHC are not subject
to the annual Medicare deductible for FQHC-covered services (section
1833(b) of the Act). Medicare beneficiaries pay a copayment based on 20
percent of the charges (section 1866(a)(2)(A)(ii) of the Act), except
for: (1) Mental health treatment services, which are subject to the
outpatient mental health treatment limitation until January 1, 2014,
when beneficiary coinsurance is reduced to the same level as most other
Part B services; (2) FQHC-supplied influenza and pneumococcal and
Hepatitis B vaccines (HBV); and (3) effective January 1, 2011,
personalized prevention plan services and any Medicare covered
preventive service that is recommended with a grade of A or B by the
U.S. Preventive Services Task Force (USPSTF).
The administration and payment of influenza and pneumococcal
vaccines is not included in the AIR. They are paid at 100 percent of
reasonable costs through the cost report. The cost and administration
of Hepatitis B vaccine (HBV) is covered under the FQHC's AIR.
5. Summary of Requirements Under the Affordable Care Act for the FQHC
PPS and Other Provisions Pertaining to FQHCs
Section 10501(i)(3)(A) of the Affordable Care Act amended section
1834 of the Act by adding a new subsection (o), ``Development and
Implementation of Prospective Payment System''. Section 1834(o)(1)(A)
of the Act requires that the system include a process for appropriately
describing the services furnished by FQHCs. Also, the

[[Page 58391]]

system must establish payment rates based on such descriptions of
services, taking into account the type, intensity, and duration of
services furnished by FQHCs. The system may include adjustments (such
as geographic adjustments) as determined appropriate by the Secretary
of HHS.
Section 1834(o)(1)(B) of the Act specifies that, by no later than
January 1, 2011, FQHCs must begin submitting information as required by
the Secretary, including the reporting of services using HCPCS codes,
in order to develop and implement the PPS.
Section 1834(o)(2)(A) of the Act requires that the FQHC PPS must be
effective for cost reporting periods beginning on or after October 1,
2014. For such cost reporting periods, reasonable costs will no longer
be the basis for Medicare payment for services furnished to
beneficiaries at FQHCs.
Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS
rates must be set so as to equal in the aggregate 100 percent of the
estimated amount of reasonable costs that would have occurred for the
year if the PPS had not been implemented. This 100 percent must be
calculated prior to application of copayments, per visit limits, or
productivity adjustments.
Section 1834(o)(2)(B)(ii) of the Act describes the methods for
determining payments in subsequent years. After the first year of
implementation, the PPS payment rates must be increased by the
percentage increase in the MEI. After the second year of
implementation, PPS rates shall be increased by the percentage increase
in a market basket of FQHC goods and services as established through
regulations, or, if not available, the MEI that is published in the
Physician Fee Schedule (PFS) final rule.
Section 10501(i)(3)(B) of the Affordable Care Act added section
1833(a)(1)(Z) to the Act to specify that Medicare payment for FQHC
services under section 1834(o) of the Act shall be 80 percent of the
lesser of the actual charge or the PPS amount determined under section
1834(o).
Section 10501(i)(3)(C) of the Affordable Care Act added section
1833(a)(3)(B)(i)(II) of the Act to require that FQHCs that contract
with Medicare Advantage (MA) organizations be paid at least the same
amount they would have received for the same service under the FQHC
PPS.
Section 10501(i)(2) of the Affordable Care Act amended the
definition of FQHC services as defined in section 1861(aa)(3)(A) of the
Act by replacing the specific references to services provided under
section 1861(qq) and (vv) of the Act (DSMT and MNT services,
respectively) with preventive services as defined in section
1861(ddd)(3) of the Act, as established by section 4014(a)(3) of the
Affordable Care Act. These changes were effective for services provided
on or after January 1, 2011. Accordingly, in the CY 2011 Medicare PFS
final rule (75 FR 73417 through 73419, November 29, 2010) we adopted
conforming regulations by adding a new Sec. 405.2449, which added the
new preventive services definition to the definition of FQHC services
effective for services provided on or after January 1, 2011 (see that
rule for a detailed discussion regarding preventive services covered
under the FQHC benefit and the requirements for waiving coinsurance for
such services).
Section 1833(b)(4) of the Act stipulates that the Medicare Part B
deductible shall not apply to FQHC services. The Affordable Care Act
made no change to this provision; therefore Medicare will continue to
waive the Part B deductible for all FQHC services in the FQHC PPS,
including preventive services added by the Affordable Care Act.
6. Approach to the FQHC PPS
To enhance our understanding of the services furnished by FQHCs and
the unique role of FQHCs in providing services to people from medically
underserved areas and populations, we worked closely with HRSA in the
development of this proposed rule. They provided valuable expertise on
the challenges facing FQHCs in increasing access to health care for
underserved populations and the importance of Medicare reimbursement to
the overall financial viability of the health centers. In addition to
providing patient population and services data from their UDS, HRSA
also enabled us to gain additional data on insurance coverage among a
subset of FQHC patients from the Community Health Applied Research
Network. We believe that the proposals in this proposed rule benefited
greatly from their assistance.
Our goal for the FQHC PPS is to create a system in accordance with
the statute whereby FQHCs are fairly reimbursed for the services they
provide to Medicare patients in the least burdensome manner possible,
so that they may continue to provide primary and preventive health
services to the communities they serve. We will continue to evaluate
our approach based on the comments we receive to this proposed rule in
the context of balancing payment requirements, regulatory burden, and
the need for appropriate accountability and oversight.

II. Establishment of the Federally Qualified Health Center Prospective
Payment System (FQHC PPS)

A. Design and Data Sources for the FQHC PPS

1. Overview of the PPS Design
In developing the new PPS for FQHCs, we considered the statutory
requirements at 1834(o)(1)(A) of the Act requiring that the new PPS
take into account the type, intensity, and duration of services
furnished by FQHCs, and allows for adjustments, including geographic
adjustments, as determined appropriate by the Secretary. We explored
several approaches to the methodology and modeled options for
calculating payment rates and adjustments under a PPS based on data
from Medicare FQHC cost reports and Medicare FQHC claims. Each option
was evaluated to determine which approach would result in the most
appropriate payment structure with the least amount of reporting
requirements and administrative burden for the FQHCs.
One approach we considered would align payment for FQHCs with
payment for services typically furnished in physician offices, making
separate payment for each coded service and adopting the relative
values from the PFS. While this approach follows established payment
policy for services furnished in an outpatient clinic setting, it
unbundles a FQHC encounter-based payment into a fee schedule structure,
which could encourage excess utilization in the long-term, and would
increase coding and billing requirements for FQHCs.
Another approach for the PPS would be to pay a single encounter-
based rate per beneficiary per day. The encounter-based rate would be
based on an average cost per visit, which would be calculated by
aggregating the data for all FQHCs and dividing their total costs by
their total visits incurred during a specified time period. An
encounter-based payment rate is consistent with the agency's commitment
to greater bundling of services, which gives FQHCs the flexibility to
implement efficiencies to reduce over-utilization of services. FQHCs
are accustomed to billing for a single visit, as they are currently
paid through an AIR that is based on a FQHC's own average cost per
visit. An encounter-based payment is also similar to Medicaid payment
systems, and Medicaid constitutes a large portion of FQHC billing
(approximately 47 percent, compared to

[[Page 58392]]

approximately 9 percent for Medicare). We believe an encounter-based
payment rate for the FQHC PPS would provide appropriate payment while
remaining administratively simple. Therefore, we propose an encounter-
based rate per beneficiary per day as the basis for payment under the
proposed FQHC PPS. Additional details regarding the encounter-based
rate setting methodology, including adjustments to the encounter-based
rate, are discussed in section II. C. of this proposed rule.
2. Medicare FQHC Cost Reports
As required by section 1834(o)(2)(B)(i) of the Act, initial
payments (Medicare and coinsurance) under the FQHC PPS must equal 100
percent of the estimated amount of reasonable costs, as determined
without the application of the current system's UPLs or productivity
standards that can reduce a FQHC's per visit rate. In order to estimate
100 percent of reasonable costs, we obtained Medicare cost report data
for free-standing FQHCs (Form CMS 222-92) from the March 31, 2013,
Healthcare Cost Report Information System (HCRIS) quarterly update. We
included in our analysis FQHC costs reports that had allowable costs
(excluding pneumococcal and influenza vaccines) and Medicare visits,
and we used one cost report for each FQHC cost reporting entity. For 69
percent of cost reporting entities, the only available cost report
covered 1 full year (with cost reporting periods ending between June
30, 2011 and June 30, 2012). For the remaining 31 percent of cost
reporting entities, there were multiple cost reports available or the
cost reporting period was not exactly 1 year. For cost reporting
entities with multiple cost reports available, we selected the most
recent cost report, unless an earlier cost report provided us with a
better match to the FQHC claims data that was used to model potential
adjustments. Because FQHCs with multiple sites can file consolidated
cost reports, we also ensured that we selected only one cost report for
each delivery site.
As required by statute, we estimated 100 percent of reasonable
costs that would have occurred for this period prior to the application
of copayments, per visit limits, or productivity adjustments (see
discussion of the baseline for the PPS in section II. D. of this
proposed rule). We also note that, under section 1833(c) of the Act,
outpatient mental health services will be paid on the same basis as
other Part B services as of January 1, 2014. As the FQHC PPS is to be
implemented for cost reporting periods beginning on or after October 1,
2014, we adjusted the cost report data to remove the application of the
outpatient mental health limitations that were in effect when these
reported services were incurred.
After eliminating the current payment limits and adjustments, we
calculated the average cost per visit for each cost reporting entity by
dividing the total estimated Medicare costs (excluding vaccines)
reported by the total number of Medicare visits reported. We found that
the mean cost per visit for all cost reporting entities was about 11
percent higher than the median cost per visit.
In developing the FQHC PPS, section 1834(o)(1)(A) of the Act allows
for adjustments determined appropriate by the Secretary. Consistent
with this authority, we excluded statistical outliers from the sample.
We identified all cost reporting entities with an average cost per
visit that was greater than three standard deviations above or below
the geometric mean of the overall average cost per visit among cost
reporting entities, and we excluded their data from our sample. In the
aggregate, after trimming the data for outliers and before adjustments
for price inflation, we estimate that eliminating current payment
limits and adjustments would increase payments to FQHCs by about 28
percent. For additional information on the impact of the FQHC PPS, see
section VII. of this proposed rule.
3. Medicare FQHC Claims
In developing the Medicare FQHC PPS, section 1834(o)(1)(A) of the
Act requires us to take into account the type, intensity, and duration
of FQHC services, and allows other adjustments, such as geographic
adjustments. Section 1834(o)(1)(B) of the Act also granted the
Secretary of HHS (the Secretary) the authority to require FQHCs to
submit such information as may be required in order to develop and
implement the Medicare FQHC PPS, including the reporting of services
using HCPCS codes. The provision requires that the Secretary impose
this data collection submission requirement no later than January 1,
2011.
Beginning with dates of service on or after January 1, 2011, when
billing Medicare, FQHCs are required to report all pertinent services
provided and list the appropriate HCPCS code for each line item along
with revenue code(s) for each FQHC visit. The additional line item(s)
and HCPCS code reporting were for informational and data gathering
purposes to inform development of the PPS rates and potential
adjustments. Other than for calculating the amount of coinsurance to
waive for preventive services for which the coinsurance is waived,
these HCPCS codes are not utilized to determine current Medicare
payment to FQHCs. We propose to use the HCPCS codes in the FQHC claims
data to support the development of the FQHC PPS rate and adjustments
and for making payment under the PPS.
In order to model potential adjustments, we obtained final action
Medicare FQHC claims (type of bill 73X and 77X) from the CMS Integrated
Data Repository (IDR) with dates of service between January 2010 and
December 2012. We excluded claims that did not list a revenue code or
HCPCS code that represented a face-to-face encounter, as these services
would not qualify for an AIR payment. We also excluded claim lines with
revenue codes that did not correspond to FQHC services or that lacked
valid HCPCS codes.
In 2011, approximately 90 percent of FQHC claims listed a single
HCPCS code that defined the overall type of encounter (for example, a
mid-level office visit (HCPCS code 99213)). We found similar reporting
trends in 2012 FQHC claims. We sought to validate the completeness of
HCPCS reporting by analyzing coding on primary care physician claims
for PFS data. When compared, the findings from the simulated PFS data
and actual FQHC data were similar in the type and distribution of the
reported encounter code (that is, the HCPCS code that represents the
visit that qualifies the FQHC encounter for an AIR payment). When
ancillary services (services that are not separately billable in a
FQHC) were billed with an office visit code, both FQHC and analogous
primary care physician office claims demonstrated a tendency to include
only one to two ancillary services in addition to the encounter code
about 35 percent of the time, and FQHCs billed only a single ancillary
service about 10 percent of the time.
We believe that the reporting trends in the FQHC claims are
consistent with the coding of analogous primary care physician office
claims, thereby suggesting that the limited number of ancillary
services listed on FQHC claims appropriately describe the services
furnished during an encounter.
4. Linking Cost Reports and Claims To Compute the Average Cost per
Visit
In order to compute the adjusted charges or ``estimated cost'' for
determining the average cost per visit, we linked claims to cost
reports by delivery site, as determined by the CMS Certification Number
(CCN) reported on the claim. Since the HCPCS code reporting requirement
on claims did not go into effect until January 1, 2011,

[[Page 58393]]

claims for earlier dates of service did not include the detail required
to model adjustments based on type, intensity, or duration of services.
Cost reports with reporting periods that began on or after January 1,
2011, accounted for 81 percent of the sample, and we linked these cost
reports to Medicare FQHC claims with service dates that matched their
respective cost reporting periods. For cost reports that were at least
1 full year in length and with a cost reporting period that began in
2010, we linked these cost reports to 2011 Medicare FQHC claims.
The linked cost report and claims data were then used to calculate
a cost-to-charge ratio (CCR) for each cost-reporting entity. To
approximate data not available on the cost report, we developed these
CCRs to convert each FQHC's charge data, as found on its claims, to
costs. We calculated an average cost per visit by dividing the total
allowable costs (excluding pneumococcal and influenza vaccinations) by
the total number of visits reported on the cost report. We calculated
an average charge per visit by dividing the total charges of all visits
for all sites under a cost-reporting entity and dividing that sum by
the total number of visits for that cost-reporting entity. We
calculated a cost-reporting entity-specific CCR by dividing the average
cost per visit (based on cost report data) by the average charge per
visit (based on claims data). We multiplied the submitted charges for
each claim by these cost-reporting entity-specific CCRs to estimate
FQHC costs per visit. We note that other Medicare payment systems
calculate CCRs based on total costs and total charges reported on
Medicare cost reports. However, this information is not currently
available on the free-standing FQHC cost report, Form CMS-222-92.
We found that the mean estimated cost per visit in the linked
claims data was about 9 percent higher than the median estimated cost
per visit. In developing the FQHC PPS, section 1834(o)(1)(A) of the Act
allows for adjustments determined appropriate by the Secretary.
Consistent with this authority, we excluded statistical outliers from
the linked claims sample. We identified visits with estimated costs
that were greater than three standard deviations above or below the
geometric mean of the overall average estimated cost per visit, and we
excluded those visits from our sample.
After trimming the linked claims data for outliers, the final data
set included 5,245,961 visits from 5,236,607 distinct claims
encompassing 6,135,830 claim lines. This included 5,223,512 daily
visits furnished to 1,244,873 beneficiaries that visited 3,509 delivery
sites under 1,141 cost-reporting entities.

B. Policy Considerations for Developing the FQHC PPS Rates and
Adjustments

In developing the FQHC PPS rates and adjustments, we considered
existing payment policies to determine potential interactions with the
implementation of the FQHC PPS. We discuss these policies and our
proposed changes below.
1. Multiple Visits on the Same Day
The current all-inclusive payment system was designed to reimburse
FQHCs for services furnished to Medicare beneficiaries at a rate that
would take into account all costs associated with the provision of
services (for example, space, supplies, practitioners, etc.) and
reflect the aggregate costs of providing services over a period of
time. In some cases, the per visit rate for a specific service is
higher than what would be paid based on the PFS, and in some cases it
is lower than what would be paid based on the PFS, but at the end of
the reporting year when the cost report is settled, the Medicare
payment is typically higher for FQHCs than if the services were billed
separately on the PFS.
The current payment system was also designed to minimize reporting
requirements, and as such, the all-inclusive payment reflects all the
services that a FQHC provides in a single day to an individual
beneficiary, regardless of the length or complexity of the visit or the
number or type of practitioners seen. This would include situations
where a FQHC patient has a medically-necessary face-to-face visit with
a FQHC practitioner, and is then seen by another FQHC practitioner,
including a specialist, for further evaluation of the same condition on
the same day, or is then seen by another FQHC practitioner (including a
specialist) for evaluation of a different condition on the same day.
Except for certain preventive services that have coinsurance
requirements waived, FQHCs have not been required to submit coding of
each service in order to determine Medicare payment.
Although the all-inclusive payment system was designed to provide
enhanced reimbursement that reflects the costs associated with a visit
in a single day by a Medicare beneficiary, an exception to the one
encounter payment per day policy was made for situations when a patient
comes into the FQHC for a medically-necessary visit, and after leaving
the FQHC, has a medical issue that was not present at the visit earlier
that day, such as an injury or unexpected onset of illness. In these
situations, the FQHC has been permitted to be paid separately for two
visits on the same day for the same beneficiary.
In response to a comment to the June 12, 1992 final rule with
comment period (57 FR 24961), in the April 3, 1996 final rule (61 FR
14640), we revised the regulations to allow separate payment for mental
health services furnished on the same day as a medical visit. The CY
2007 PFS final rule (71 FR 69665) subsequently revised the regulations
to allow FQHCs to receive separate payment for DSMT and MNT. The
ability to bill separately for Medicare's IPPE is in manuals only and
not in regulation, with the manual language noting this is a once in a
lifetime benefit. There are no statutory requirements to pay FQHCs
separately for these services when they occur on the same day as
another billable visit.
In developing the new PPS for FQHCs, we reviewed all existing
policies for FQHC payments to determine if the policies should remain
the same as under the current system, or if the policies should be
updated or in some cases revised. As part of this process, we reviewed
the existing regulations and policies that allow separate payment for
subsequent illness or injury, mental health services, DSMT/MNT, or IPPE
when they occur on the same day as an otherwise billable visit. To do
this, we examined 2011 Medicare FQHC claims data in order to determine
the frequency of FQHCs billing for more than one visit per day for a
beneficiary. We then analyzed the potential financial impact on FQHCs
and the potential impact on access to care if billing for more than 1
visit per day for these specific situations was no longer permitted. We
also considered several alternative options, such as an adjustment of
the per visit rate when multiple visits occur in the same day, or the
establishment of a separate per visit rate for subsequent visit due to
illness or injury, mental health services, DSMT/MNT, or IPPE.
An analysis of data from Medicare FQHC claims with dates of service
between January 1, 2011 and June 30, 2012, indicate that it is uncommon
for FQHCs to bill more than one visit per day for the same beneficiary
(less than 0.5 percent of all visits), even though the ability to do so
has been in place since 1992 for subsequent illness/injury, since 1996
for mental health services, and since 2007 for DSMT/MNT. Even allowing
for any underreporting in the data, it is clear that billing multiple
visits on the same day for an individual

[[Page 58394]]

is a rare event, and eliminating the ability to do so would not
significantly impact either the FQHC payment or a beneficiary's access
to care. Eliminating this ability to bill for multiple visits on the
same day would also simplify billing by removing the need for modifier
59, which signifies that the conditions being treated are totally
unrelated and services are provided at separate times of the day, and
the subsequent claims review that occurs when modifier 59 appears on a
claim.
Because the data show that multiple visits are infrequently
occurring on the same day, we determined that the level of effort
required to develop an adjustment or a separate rate for each of these
services when furnished on the same day as a medical visit would not be
justified. Therefore, we are proposing to revise Sec. 405.2463(b) to
remove the exception to the single encounter payment per day for FQHCs
paid under the proposed PPS. This policy is consistent with an all-
inclusive methodology and reasonable cost principles and would simplify
billing and payment procedures. Thus, the proposed PPS encounter rate
will also reflect a daily (per diem) rate and result in a slightly
higher payment than one calculated based on multiple encounters on the
same day.
Based on the Medicare claims data provided by FQHCs that indicates
a very low occurrence of multiple visits billed on the same day, we
believe this proposal would not significantly impact total payment or
access to care. However, we understand that there may be many possible
reasons why the rate of billing for more than one visit per day has
been low (for example. difficulty in scheduling more than one type of
visit on the same day) and that FQHCs can provide integrated, patient-
centered health care services in a variety of ways. Therefore, we are
interested in comments that address whether there are factors that we
have not considered, particularly in regards to the provision of mental
health services. We invite public comment on whether this change would
impact access to these services or the integration of services in
underserved communities. The benefits of retaining the ability to bill
for more than one visit on the same day should be considered along with
the proposed increased per diem payment rate under the PPS and the
complexity of developing a claims processing system to allow for this
exception in the new PPS.
2. Preventive Laboratory Services and Technical Components of Other
Preventive Services
The core services of the FQHC benefit are generally billed under
the professional component. The benefit categories for laboratory
services and diagnostic tests generally are not within the scope of the
FQHC benefit, as defined under section 1861(aa) of the Act. For
services that can be split into professional and technical components,
we have instructed FQHCs to bill the professional component as part of
the AIR, and separately bill the Part B MAC under different
identification for the technical portion of the service on a Part B
practitioner claim (for example, Form CMS-1500). If the FQHC operates a
laboratory, is enrolled under Medicare Part B as a supplier, and meets
all applicable Medicare requirements related to billing for laboratory
services, it may be able to bill as a supplier furnishing laboratory
services under Medicare Part B. When FQHCs separately bill these
services, they are instructed to adjust their cost reports and carve
out the cost of associated space, equipment, supplies, facility
overhead, and personnel for these services.
As part of the implementation of the FQHC benefit, we used our
regulatory authority to enumerate preventive primary services, as
defined in 42 CFR 405.2448, which may be paid for when provided by
FQHCs (57 FR 24980, June 12, 1992, as amended by 61 FR 14657, April 3,
1996). These preventive primary services include a number of laboratory
tests, such as cholesterol screening, stool testing for occult blood,
dipstick urinalysis, tuberculosis testing for high risk patients, and
thyroid function tests. The preventive services added to the FQHC
benefit pursuant to the Affordable Care Act, as defined by section
1861(ddd)(3) of the Act and codified in 42 CFR 405.2449, include
laboratory test and diagnostic services, such as screening mammography,
diabetes screening tests, and cardiovascular screening blood tests.
Professional services or professional components of primary
preventive services (as defined in Sec. 405.2448) and preventive
services (as defined in Sec. 405.2449) are billed as part of the AIR.
The preventive laboratory tests and technical components of other
preventive tests are not paid under the AIR and FQHCs are instructed to
bill separately for these services. We are not proposing a change in
billing procedures, and we do not intend to include payment for these
services under the FQHC PPS. We note this payment structure simplifies
billing procedures as laboratory tests and technical components of
diagnostic services are always billed separately to Part B and are
never included as part of the FQHC's encounter rate. (Note that both
the professional and technical components of FQHC primary preventive
services and preventive services remain covered under Part B).
An analysis of FQHC claims indicates that FQHCs are listing some
preventive laboratory tests and diagnostic services on their claims. In
2011 through 2012, less than 5 percent of Medicare FQHC claims listed
HCPCS codes related to laboratory tests or diagnostic services. For
purposes of modeling adjustments to the FQHC PPS rate, we considered
excluding these line items from the encounter charge and
proportionately reducing the cost-reporting entity's related cost
report data. However, it was not always clear whether the line item
charges for these laboratory tests or diagnostic services were included
in the total charge for the claim or were listed for informational
purposes only. As such, we chose not to adjust the claims or cost
report data based on the presence of the related HCPCS codes on the
claims. As part of the implementation of the FQHC PPS, we plan to
clarify the appropriate billing procedures through program instruction.
3. Vaccine Costs
Section 1834(o)(2)(B)(i) of the Act requires that the initial PPS
rates must be set so as to equal in the aggregate 100 percent of the
estimated amount of reasonable costs that would have occurred for the
year if the PPS had not been implemented. This 100 percent must be
calculated prior to application of copayments, per visit limits, or
productivity adjustments. We believe that this language directed us to
develop a PPS to pay for items currently affected by the UPL and the
productivity screen, which would pay for items currently included in
the calculation of reasonable costs and paid under the AIR.
The administration and payment of influenza and pneumococcal
vaccines is not included in the AIR. They are paid at 100 percent of
reasonable costs through the cost report. The cost and administration
of HBV is covered under the FQHC's AIR when furnished as part of an
otherwise qualifying encounter. We are not proposing any changes to
this payment structure. We would continue to pay for the costs of the
influenza and pneumococcal vaccines and their administration through
the cost report, and other Medicare-covered

[[Page 58395]]

vaccines as part of the encounter rate. The costs of hepatitis B
vaccine and its administration were included in the calculation of
reasonable costs used to develop the FQHC PPS rates, and we would pay
for these services under the FQHC PPS when furnished as part of an
otherwise qualifying encounter.

C. Risk Adjustments

Section 1834(o)(1)(A) of the Act provides that the FQHC PPS may
include adjustments, including geographic adjustments, that are
determined appropriate by the Secretary. We discuss our proposed
adjustments below.
1. Alternative Calculations for Average Cost per Visit
As discussed in section II. of this proposed rule, we used the
claims data to calculate an average cost per visit by dividing the
total estimated costs ($788,547,531) by the total number of daily
visits (5,223,512).

Average cost per daily visit = $788,547,531/5,223,512 = $150.96

We also examined how the average cost per visit would differ under
current policy, which allows separate payment for subsequent illness or
injury, mental health services, DSMT/MNT or IPPE when they occur on the
same day as an otherwise billable visit. While the total estimated cost
was the same ($788,547,531), the total number of visits in the
denominator (5,245,961) did not combine multiple visits on the same day
of service into 1 daily visit.

Average cost per visit = $788,547,531/5,245,961 = $150.32

We also derived an average cost per visit from the cost reports by
dividing the total estimated Medicare costs (excluding vaccines)
reported ($832,387,663) by the total number of Medicare visits reported
(5,374,217). Unlike the previous calculations based on claims data, the
variables derived from the cost reports summarize total costs and
visits by cost reporting entity and could not be trimmed of individual
visits with outlier values. Also, we note that the total number of
Medicare visits reported on the cost reports reflects current policy
which allows for multiple visits on the same day of service, and we
could not calculate an average cost per daily visit using only cost
report data.

Average cost per visit from cost report data = $832,387,663/5,374,217 =
$154.89

Consistent with our proposal to remove the exception to the single
encounter payment per day, we propose to use the average cost per daily
visit of $150.96, as calculated based on adjusted claims data as the
PPS rate prior to any risk adjustment. We note that the alternative
calculations yield an average cost per visit that differs from $150.96
by less than 3 percent. We also note that these calculations were
derived based on the cost report and claims data available during our
development of this proposed rule and are subject to change in the
final rule based on more current data.
2. Geographic Adjustment Factor
We propose to adjust the FQHC PPS rate for geographic differences.
This adjustment will be made to the cost of inputs by applying an
adaptation of the GPCIs used to adjust payment under the PFS.
Established in 1848(e) of the Act, GPCIs adjust payments for geographic
variation in the costs of providing services and consist of three
component GPCIs: the physician work GPCI, the practice expense GPCI,
and the malpractice insurance GPCI.
Because FQHCs furnish services that are analogous to those
furnished by physicians in outpatient clinic settings, we believe it
would be consistent to apply geographic adjustments similar to those
applied to services furnished under the PFS. We calculated a geographic
adjustment factor (GAF) for each encounter based on the delivery site's
locality using the proposed CY 2014 work and practice expense GPCIs and
the proposed cost share weights for the CY 2014 GPCI update, as
published in the CY 2014 PFS proposed rule (July 19, 2013 (78 FR
43282)).
For modeling geographic adjustments for this FQHC PPS proposed
rule, we did not use the proposed CY 2015 work and practice expense
GPCIs that also were published in the CY 2014 PFS proposed rule. We
note that the FQHC PPS GAFs are subject to change in the final FQHC PPS
rule based on more current data, including the finalized PFS GPCI and
cost share weight values.
We excluded the PFS malpractice GPCI from the calculation of the
GAF as FQHCs that receive section 330 grant funds are eligible to apply
for medical malpractice coverage under FSHCAA of 1992 and FSHCAA of
1995. Without the cost share weight for the malpractice GPCI, the sum
of the proposed PFS work and PE cost share weights (0.50866 and
0.44839, respectively) is less than one. In calculating the FQHC GAFs,
prior to applying the proposed work and PE cost share weights to the
GPCIs, we scaled these proposed cost share weights so they would total
100 percent while still retaining weights relative to each other
(0.53149 and 0.46851, respectively).
We calculated each locality's GAF as follows:

Geographic adjustment factor = (0.53149 x Work GPCI) + (0.46851 x PE
GPCI)

We included the GAF adjustment when modeling all other potential
adjustments. The GAF will be applied based on where the services are
furnished and may vary among FQHCs that are part of the same
organization. The list of proposed GAFs by locality is in Addendum A of
this proposed rule and is also available as a downloadable file at
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.
3. New Patient or Initial Medicare Visit
Based on an analysis of claims data, we found that the estimated
cost per encounter was approximately 33 percent higher when a FQHC
furnished care to a patient that was new to the FQHC or to a
beneficiary receiving a comprehensive initial Medicare visit (that is,
an IPPE or an initial AWV). We propose to adjust the encounter rate to
reflect the 33 percent increase in costs when FQHCs furnish care to new
patients or when they furnish a comprehensive initial Medicare visit,
which could account for the greater intensity and resource use
associated with these types of services. Our proposed risk adjustment
factor is 1.3333 (as discussed further in section V. of this proposed
rule).
4. Other Adjustment Factors Considered
We considered multiple other adjustments such as demographics (age
and sex), clinical conditions, duration of the encounter, etc. However,
we found many of these other adjustments to have limited impact on
costs or to be too complex and largely unnecessary for the FQHC PPS.
We modeled whether there were differences in resource use for
mental health visits and preventive care visits when compared to
medical care visits. We found that mental health encounters had
approximately 1 percent lower estimated costs per visit relative to
medical care visits, and we did not consider this a sufficient basis
for proposing a payment adjustment. We found that preventive care
encounters had approximately 18 percent higher estimated costs per
visit. This difference in resource use declines to an 8 percent higher
estimated cost per visit after adjusting for the GAF and the proposed
1.3333 risk adjustment factor for a patient that is new to the FQHC or
for

[[Page 58396]]

a beneficiary receiving a comprehensive initial Medicare visit (that
is, an IPPE or an initial AWV), indicating that a significant amount of
preventive care visits were IPPEs or initial AWVs. We are not proposing
a payment reduction for preventive care encounters and we note that a
significant amount of the more costly preventive care encounters would
otherwise be recognized and paid for with the proposed 1.3333 risk
adjustment factor for a beneficiary receiving a comprehensive initial
Medicare visit. We note that an 8 percent adjustment would increase
payment for preventive visits, and we welcome comments on whether an
adjustment for preventive care encounters would be appropriate, noting
that there would be redistributive effect which would result in a
decrease in the payment rate for other visits.
We considered patient age and sex as potential adjustment factors
as these demographic characteristics have the advantage of being
objectively defined. However, both of these characteristics had a
limited association with estimated costs, which did not support the use
of these demographic characteristics as potential adjustment factors.
We tested for an association between commonly reported clinical
conditions and the estimated cost per visit. A number of clinical
conditions were found to be associated with approximately 5 to 10
percent higher costs per visit, but we are concerned that claims might
not include all potentially relevant secondary diagnoses. In addition,
we would need to consider how to minimize the complexity of such an
adjustment with a limited number of clinically meaningful groupings.
We considered the duration of encounters (in minutes) as a
potential adjustment factor. Many of the evaluation and management (E/
M) codes commonly seen on FQHC claims are associated with average or
typical times, and there was a strong association between these
associated times and the estimated cost per encounter. However, these
minutes are guidelines that reflect the face-to-face time between the
FQHC practitioner and the beneficiary for that E/M service, and they
would not indicate the total duration of the FQHC encounter. Moreover,
many of the codes used to describe the face-to-face visit that
qualifies an encounter, such as a subsequent annual wellness visit, are
not associated with average or typical times.
We considered adjusting payment based on the types of services
furnished during a FQHC encounter. Our analysis of FQHC claims data
indicates that information regarding ancillary services provided by
FQHCs appears to be limited. As a result, there is a risk that
adjustments for the types of services being provided would be based on
incomplete information and result in payments under the PPS that do not
accurately reflect the cost of providing those services.
5. Report on PPS Design and Models
We contracted with Arbor Research for Collaborative Health to
assist us in designing a PPS for FQHCs. Arbor Research modeled options
for calculating payment rates and adjustments under a PPS based on data
from Medicare FQHC cost reports and Medicare FQHC claims. A report
detailing the options modeled in the development of the PPS will be
available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.

D. Base Rate Calculation

We calculated a base rate for the FQHC PPS by adjusting the average
cost per visit to account for the proposed adjustment factors. We
calculated an average payment multiplier using the average GAF (0.9944)
multiplied by the average risk adjustment for non-new patient/initial
visits (1.0), as weighted by the percent of encounters that represented
non new patient/initial visits (0.9722), and we added this to the
average GAF (0.9944) multiplied by the average risk adjustment for new
patient/initial visits (1.3333), as weighted by the percent of
encounters that represented new patient/initial visits (0.0278):

Average payment multiplier = 0.9721(1.00)(0.9944) +
0.0279(1.3333)(0.9944) = 1.0036

We calculated a base rate amount by multiplying the reciprocal of
the average payment multiplier by the average cost per visit. Using the
average cost per daily visit:

Base rate per daily visit = $150.96 x (1/1.0036) = $150.42

The base rate per daily visit of $150.42 reflects costs through
June 30, 2012, and does not include an adjustment for price inflation.
As the FQHC PPS is to be implemented beginning October 1, 2014, we
propose to update the base rate to account for the price inflation
through September 30, 2014. We propose to use the MEI as finalized in
the CY 2011 PFS final rule (75 FR 73262 through 73270). The MEI is an
index reflecting the weighted-average annual price change for various
inputs involved in furnishing physicians' services. The MEI is a fixed-
weight input price index, with an adjustment for the change in economy-
wide, private nonfarm business multifactor productivity.
We propose to inflate the base rate by approximately 1.8 percent,
reflecting the growth in the MEI from July 1, 2012 through September
30, 2014. We also propose to use a forecasted MEI update of 1.7 percent
for the 15-month period of October 1, 2014, through December 31, 2015,
to calculate the first year's base payment amount under the PPS. The
15-month update factor is based on the 2013Q2 forecast of the 2006-
based MEI, the most recent forecast available at the time of this
proposed rule. The adjusted base payment that reflects the MEI
historical updates and forecasted updates to the MEI is $155.90. This
payment rate incorporates a combined MEI update factor of 1.0364 that
trends dollars forward from July 1, 2012 through December 31, 2015. We
also propose if more recent data became available (for example, a more
recent estimate of the FY 2006-based MEI), we would use such data, if
appropriate, to determine the 15-month FQHC PPS update factor for the
final rule.

Table 1--Base Rate per Daily Visit
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated base rate
Total estimated Daily encounters Average payment Average cost per without adjustment MEI update factor MEI-adjusted base
costs multiplier daily visit for price inflation payment rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
$788,547,531 5,223,512 1.0036 $150.96 $150.42 1.0364 $155.90
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 58397]]

MEI-adjusted base payment rate = $150.96 x (1/1.0036) x 1.0364 =
$155.90

Thus, we propose a base payment rate of $155.90 per beneficiary per
day for the proposed FQHC PPS. We note that this base rate is subject
to change in the final rule based on more current data. (See the Impact
Analysis in section VII of this proposed rule for comparisons of the
PPS rates to payments under the AIR.)
Payments to FQHCs would be calculated as follows:

Base payment rate x GAF = PPS payment

In calculating the payment, the proposed base payment rate is
$155.90, and the GAF would be based on the locality of the delivery
site. (See section II.C. of this proposed rule for a discussion of the
GAF and the Addendum to this proposed rule for the list of proposed
GAFs.)
If the patient is new to the FQHC, or the FQHC is furnishing an
initial comprehensive Medicare visit, the payment would be calculated
as follows:

Base payment rate x GAF x 1.3333 = PPS payment

In calculating the payment, 1.3333 represents the risk adjustment
factor applied to the PPS payment when FQHCs furnish care to new
patients or when they furnish a comprehensive initial Medicare visit.
(See section II.C. of this proposed rule for a discussion of the risk
adjustment for new patients or initial comprehensive Medicare visits.)

E. Implementation

1. Transition Period and Annual Adjustment
Section 1834(o)(2) of the Act requires implementation of the FQHC
PPS for FQHCs with cost reporting periods beginning on or after October
1, 2014. Cost reporting periods are typically 12 months, and do not
usually exceed 13 months. Therefore, we expect that all FQHCs would be
transitioned to the PPS by the end of 2015, or 15 months after the
October 1, 2014 implementation date.
FQHCs would transition into the PPS based on their cost reporting
periods. We note that a change in cost reporting periods that is made
primarily to maximize reimbursement would not be acceptable under
established cost reporting policy (see 42 CFR 413.24(f)(3) and the
Provider Reimbursement Manual Part I, section 2414, and Part II,
section 102.3). The claims processing system will maintain the current
system and the PPS until all FQHCs have transitioned to the PPS.
We propose to transition the PPS to a calendar year update for all
FQHCs, beginning January 1, 2016, because many of the PFS files we are
proposing to use are updated on a calendar year basis. Section
1834(o)(2)(B)(ii)(I) of the Act requires us to adjust the FQHC PPS rate
by the percentage increase in the MEI for the first year after
implementation. However, while transitioning the PPS to a calendar
year, we propose to defer the first MEI statutory adjustment to the PPS
rate from October 1, 2015, to December 31, 2015 (we note that our
proposed base payment rate incorporates a forecasted percentage
increase in the MEI through December 31, 2015).
2. Medicare Claims Payment
Claims processing systems would need to be revised through program
instruction to accommodate the new rate and associated adjustments.
Medicare currently pays 80 percent of the AIR for all FQHC claims,
except for mental health services that are subject to the mental health
payment limit. Section 1833(a)(1)(z) of the Act requires that Medicare
payment under the FQHC PPS should be 80 percent of the lesser of the
provider's charge or the PPS rate. We are considering revisions to the
claims processing system that would reject claims in which the
qualifying visit describes a service that is outside of the FQHC
benefit, such as inpatient hospital E/M services or group sessions of
DSMT and MNT. We are considering revisions that would reject line items
for technical components such as x-rays, laboratory tests, and durable
medical equipment which will not be paid as part of the FQHC PPS and
would be billed separately to Medicare Part B. We also are considering
revisions that would allow for the informational reporting of influenza
and pneumococcal vaccines and their administration, while excluding the
line item charges, as these items would continue to be paid through the
cost report.
3. Beneficiary Coinsurance
Section 1833(a)(1)(Z) of the Act requires that FQHCs be paid up to
80 percent of their reasonable costs by Medicare after subtracting
beneficiary coinsurance. Under the current reasonable cost payment
system, beneficiary coinsurance for FQHC services is assessed based on
the FQHC's charge, which can be more than coinsurance based on the AIR,
which is based on costs. An analysis of a sample of FQHC claims data
for dates of service between January 1, 2011 through June 30, 2012
indicated that beneficiary coinsurance based on 20 percent of the
FQHCs' charges was approximately $23 million higher, or 18 percent
more, than if coinsurance had been assessed based on 20 percent of the
lesser of the FQHC's charge or the applicable all-inclusive rate.
Section 1833(a)(1)(Z) of the Act requires that Medicare payment
under the FQHC PPS should be 80 percent of the lesser of the actual
charge or the PPS rate. The statute makes no specific provision to
revise the coinsurance. We propose that coinsurance would be 20 percent
of the lesser of the FQHC's charge or the PPS rate. We believe that the
proposal to change the method to determine coinsurance is consistent
with the statutory change to the FQHC Medicare payment and is
consistent with statutory language in section 1866(a)(2)(A) and
1833(a)(3)(A) of the Act and elsewhere that addresses coinsurance
amounts and Medicare cost principles. If finalized, total payment to
the FQHC, including both Medicare and beneficiary liability, would not
exceed the FQHC's charge or the PPS rate.
4. Waiving Coinsurance for Preventive Services
Effective January 1, 2011, Medicare waives beneficiary coinsurance
for eligible preventive services furnished by a FQHC. Medicare requires
detailed HCPCS coding on FQHC claims to ensure that coinsurance is not
applied to the line item charges for these preventive services.
For FQHC claims that include a mix of preventive and non-preventive
services, we propose that Medicare contractors compare payment based on
the FQHC's charge to payments based on the PPS encounter rate and pay
the lesser amount. However, the current approach to waiving coinsurance
for preventive services, which relies solely on FQHC reported charges,
would be insufficient under the FQHC PPS. As Medicare payment under the
FQHC PPS is required to be 80 percent of the lesser of the FQHCs charge
or the PPS rate, we also need to determine the coinsurance waiver for
payments based on the PPS rate.
We considered using the proportion of the FQHC's line item charges
for preventive services to total claim charges to determine the
proportion of the FQHC PPS rate that would not be subject to
coinsurance. This approach would preserve the encounter-based rate
while basing the coinsurance reduction on each FQHC's relative
assessment of resources for preventive services. However, the charge
structure among

[[Page 58398]]

FQHCs varies, and beneficiary liability for the same mix of FQHC
services could differ significantly based on the differences in charge
structures.
Where preventive services are coded on a claim, we propose to use
payments under the PFS to determine the proportional amount of
coinsurance that should be waived for payments based on the PPS
encounter rate. While physician-administered Part B drugs and routine
venipuncture will be paid under the FQHC PPS rate, we note that the
Medicare Part B rates for these items are not included in the PFS
payment files. Therefore, when determining this proportionality of
payments, we would also consider PFS payment limits for Part B drugs,
as listed in the Medicare Part B Drug Pricing File, and the national
payment amount for routine venipuncture (HCPCS 36415). Although FQHCs
might list HCPCS for which we do not publish a payment rate in these
files, a review of 2011 claims data indicated that the vast majority of
line items with HCPCS representing services that will be paid under the
FQHC PPS were priced in these sources. As such, we believe that
referencing only the payment rates listed in these sources would be
both sufficient and appropriate for determining the amount of
coinsurance to waive for preventive services provided in FQHCs, without
changing the total payment (Medicare and coinsurance). Since Medicare
payment under the FQHC PPS is required to be 80 percent of the lesser
of the FQHC's charges or the PPS rate, we would continue to use FQHC-
reported charges to determine the amount of coinsurance that should be
waived for payments based on the FQHC's charge. Total payment to the
FQHC, including both Medicare and beneficiary liability, would not
exceed the FQHC's charge or the PPS rate.
Our proposed approach for waiving coinsurance for preventive
services preserves an encounter-based rate, and the calculation is
similar to the current coinsurance calculation based on charges.
However, this calculation is fairly complex for the claims processing
systems. It may also be difficult for providers to replicate, and FQHCs
might not know how much coinsurance would be assessed before the MAC
issues the remittance advice.
As an alternative approach, we considered unbundling all services
when a FQHC claim includes a mix of preventive and non-preventive
services, and we would exclude these types of claims from calculation
of the FQHC base encounter rate. We would use payments under the
Medicare PFS to pay separately for every service listed on the claim.
While this approach is inconsistent with an all-inclusive payment, it
would simplify waiving coinsurance for preventive services and pay
preventive services comparably to PFS settings. However, the vast
majority of FQHC claims list only one HCPCS, and unbundling all
services introduces coding complexity that might underpay FQHCs for an
encounter if they do not code all furnished ancillary services. In
addition, payment for preventive services under the PFS will be less,
in many cases, than the PPS encounter rate.
Instead of unbundling all services when a FQHC claim includes a mix
of preventive and nonpreventive services, we considered the use of PFS
payment rates to pay separately for preventive services billed on the
FQHC claim, while paying for the non-preventive services under the FQHC
PPS rate. However, this would be problematic when the preventive
services represent the service that would qualify the claim as a FQHC
encounter (for example, IPPE, AWV, MNT). Under current payment policy,
the remaining ancillary services would not be eligible for an encounter
payment without an additional, qualifying visit on the same claim.
We also considered using the dollar value of the coinsurance that
would be waived under the PFS to reduce the FQHC encounter-based
coinsurance amount when preventive services appear on the claim.
However, this could lead to anomalous results, such as negative
coinsurance if the preventive service(s) would have been paid more
under the PFS than the FQHC PPS rate, and the amount of coinsurance
waived under the PFS would exceed 20 percent of the FQHC PPS rate. We
also were concerned that the reduction in coinsurance would seem
insufficient if the payment rate for the preventive service(s) was very
low under the PFS.
We believe that using the proportionality of PFS payments to
determine the coinsurance waiver would facilitate the waiving of
coinsurance while preserving the all-inclusive nature of the encounter-
based rate with the least billing complexity. Therefore, we propose
that where preventive services are coded on a claim, we would use
payments under the PFS to determine the proportional amount of
coinsurance that should be waived for payments based on the PPS
encounter rate. We invite public comment on how this proposal would
impact FQHCs' administrative procedures and billing practices.
5. Cost Reporting
Under section 1815(a) of the Act, providers participating in the
Medicare program are required to submit financial and statistical
information to achieve settlement of costs relating to health care
services rendered to Medicare beneficiaries. This information is
required for determining Medicare payment for FQHC services under 42
CFR 405, Subpart X.
The Medicare cost reporting forms show the costs incurred and the
total number of visits for FQHC services during the cost reporting
period. Using this information, the MAC determines the total payment
amount due for covered services furnished to Medicare beneficiaries.
The MAC compares the total payment due with the total payments made for
services furnished during the reporting period. If the total payment
due exceeds the total payments made, the difference is made up by a
lump sum payment. If the total payment due is less than the total
payments made, the overpayment is collected.
Under the FQHC PPS, Medicare payment for FQHC services will be made
based on a predetermined national rate. For services included in the
FQHC PPS rate, Medicare cost reports would not be used to reconcile
Medicare payments with FQHC costs. However, the statute does not exempt
FQHCs from submitting cost reports. In addition, Medicare payments for
the reasonable costs of the influenza and pneumococcal vaccines and
their administration, allowable graduate medical education costs, and
bad debts would continue to be determined and paid through the cost
report. We are also considering revisions to the cost reporting forms
and instructions that would provide us with information that would
improve the quality of our cost estimates, such as the reporting of a
FQHC's overall and Medicare specific CCR. We are also considering the
types of cost data that would facilitate the potential development of a
FQHC market basket that could be used in base payment updates after the
second year of the PPS. We also are exploring whether we have audit
resources to include FQHCs in the pool of institutional providers that
are subject to periodic cost report audits.
6. Medicare Advantage Organizations
Section 10501(i)(3)(C) of the Affordable Care Act added section
1833(a)(3)(B)(i)(II) to the Act to require that FQHCs that contract
with MA organizations be paid at least the same amount they would have
received for the same service under the FQHC PPS.

[[Page 58399]]

This provision ensures FQHCs are paid at least the Medicare amount for
FQHC services, whether such amount is set by section 1833(a)(3) of the
Act or section 1834(o) of the Act. Consistent with current policy, if
the MA organization contract rate is lower than the amount Medicare
would otherwise pay for FQHC services, FQHCs that contract with MA
organizations would receive a wrap-around payment from Medicare to
cover the difference. If the MA organization contract rate is higher
than the amount Medicare would otherwise pay for FQHC services, there
is no additional payment from Medicare. We propose to revise Sec.
405.2469 to reflect this provision.

III. Additional Proposed Changes Regarding FQHCs and RHCs

A. Rural Health Clinic Contracting

Due to the difficulty in recruiting and retaining physicians in
rural areas, RHCs have had the option of hiring physicians either as
RHC employees or as contractors. However, in order to promote stability
and continuity of care, the Rural Health Clinic Services Act of 1977
required RHCs to employ a physician assistant or nurse practitioner
(section 1861(aa)(2)(iii) of the Act). We have interpreted the term
``employ'' to mean that the employer issues a W-2 form to the employee.
Section 405.2468(b)(1) currently states that RHCs are not paid for
services furnished by contracted individuals other than physicians, and
Sec. 491.8(a)(3) does not authorize RHCs to contract with RHC
practitioners other than physicians.
In the more than 30 years since this legislation was enacted, the
health care environment has changed dramatically, and RHCs have
requested that they be allowed to enter into contractual agreements
with non-physician RHC practitioners as well as physicians. To provide
RHCs with greater flexibility in meeting their staffing requirements,
we propose to revise Sec. 405.2468(b)(1) by removing the parenthetical
``RHCs are not paid for services furnished by contracted individuals
other than physicians,'' and revising Sec. 491.8(a)(3) to allow non-
physicians to furnish services under contract in RHCs, when at least
one NP or PA is employed.
The ability to contract with NPs, PAs, CNMs, CP, and CSWs would
provide RHCs with additional flexibility with respect to recruiting and
retaining non-physician practitioners. Practitioners should be employed
or contracted to the RHC in a manner that enhances continuity and
quality of care.
RHCs would still be required, under section 1861(aa)(2)(iii) of the
Act, to employ a PA or NP. However, as long as there is at least one PA
or NP employed at all times (subject to the waiver provision for
existing RHCs set forth at section 1861(aa)(7) of the Act), an RHC
would be free to enter into contracts with other PAs, NPs, CNM, CPs or
CSWs.

B. Technical and Conforming Changes

In addition to proposing to codify the statutory requirements for
the FQHC PPS in this proposed rule and proposing to allow RHCs to
contract with non-physician practitioners, we are proposing edits to
correct terminology, clarify policy, delete irrelevant code, and make
conforming changes for existing mandates and the new PPS. Some of these
changes include the following:
Removing the terms ``fiscal intermediary and carriers''
and replacing them with ``Medicare Administrative Contractor'' or
``MAC''. Section 911 of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 established the MACs to administer the
work that was done by fiscal intermediaries and carriers in
administering Medicare programs.
Removing the payment limitations for treatment of mental
psychoneurotic or personality disorders. This payment limitation is
being phased out and will no longer be in effect beginning January 1,
2014.
Updating the regulations to reflect section 410 of the
Medicare Modernization Act of 2003 to exclude RHC and FQHC services
furnished by physicians and certain other specified types of
nonphysician practitioners from consolidated billing under section
1888(e)(2)(A)(ii) of the Act and allows such services to be separately
billable under Part B when furnished to a SNF resident of a skilled
nursing facility (SNF) during a covered Part A stay (see the July 30,
2004 final rule (69 FR 45818 through 45819). This statutory provision
was effective with services furnished on or after January 1, 2005 and
was previously implemented through program instruction (CMS Pub. 100-
04, Medicare Claims Processing Manual, chapter 6, Sec. 20.1.1).

IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)--
Enforcement Actions for Proficiency Testing Referral

A. Background

On October 31, 1988, Congress enacted the Clinical Laboratory
Improvement Amendments of 1988 (CLIA), Pub. L. 100-578. The purpose of
CLIA is to ensure the accuracy and reliability of laboratory testing
for all Americans. Under this authority, which was codified at 42
U.S.C. 263a, the Secretary issued regulations implementing CLIA on
February 28, 1992 at 42 CFR part 493 (57 FR 7002). The regulations
specify the standards and specific conditions that must be met to
achieve and maintain CLIA certification. CLIA certification is required
for all laboratories, including but not limited to those that
participate in Medicare and Medicaid, which test human specimens for
the purpose of providing information for the diagnosis, prevention, or
treatment of any disease or impairment, or the assessment of health, of
human beings.
The regulations require laboratories conducting moderate or high-
complexity testing to enroll in an HHS-approved proficiency testing
(PT) program that covers all of the specialties and subspecialties for
which the laboratory is certified and all analyses listed in Subpart I
of the CLIA regulations. As of June 2013, there were 239,922 CLIA
certified laboratories. Of these laboratories, 35,035 are required to
enroll in an HHS-approved PT program and are subject to all PT
regulations.
Congress emphasized the importance of PT when it drafted the CLIA
legislation. For example, in discussing their motivation in enacting
CLIA, the Committee on Energy and Commerce noted that it ``focused
particularly on proficiency testing because it is considered one of the
best measures of laboratory performance'' and that proficiency testing
``is arguably the most important measure, since it reviews actual test
results rather than merely gauging the potential for good results.''
(See H.R. Rep. No. 100-899, at 15 (1988).) The Committee surmised that,
left to their own devices, some laboratories would be inclined to treat
PT samples differently than their patient specimens, as they would know
that the laboratory would be judged based on its performance in
analyzing those samples. For example, such laboratories might be
expected to perform repeated tests on the PT sample, use more highly
qualified personnel than are routinely used for such testing, or send
the samples out to another laboratory for analysis. As such practices
would undermine the purpose of PT, the Committee noted that the CLIA
statute was drafted to bar laboratories from such practices, and to
impose significant penalties on those who elect to violate those bars
(H.R. Rep. No. 100-899, at 16 and 24 (1988)).
PT is a valuable tool the laboratory can use to verify the accuracy
and

[[Page 58400]]

reliability of its testing. During PT, an HHS-approved PT program sends
samples to be tested by a laboratory on a scheduled basis. After
testing the PT samples, the laboratory reports its results back to the
PT program for scoring. Review and analysis of PT reports by the
laboratory director will alert the director to areas of testing that
are not performing as expected and may also indicate subtle shifts or
trends that, over time, could affect patient results. As there is no
on-site, external proctor for PT testing in a laboratory, the testing
relies in large part on an honor system. The PT program places heavy
reliance on each laboratory and laboratory director to self-police
their analysis of PT samples to ensure that the testing is performed in
accordance with the CLIA requirements. For each PT event, laboratories
are required to attest that PT samples are tested in the same manner as
patient specimens are tested. PT samples are to be assessed by
integrating them into the laboratory's routine patient workload, and
the testing itself is to be conducted by the personnel who routinely
perform such testing, using the laboratory's routine methods. The
laboratory is barred from engaging in interlaboratory communication
pertaining to results prior to the PT program's event cut-off date and
must not send the PT samples or any portion of the PT samples to
another laboratory for testing, even if it would normally send a
patient specimen to another laboratory for testing.
Any laboratory that intentionally refers its PT samples to another
laboratory for analysis risks having its certification revoked for at
least 1 year, in which case, any owner or operator of the laboratory
risks being prohibited from owning or operating another laboratory for
2 years (42 CFR 493.1840(a)(8), (b)). The phrase ``intentionally
referred'' has not been defined by the statute or regulations, but we
have consistently interpreted this phrase from the onset of the program
to mean general intent, as in intention to act. Whether or not acts are
authorized or even known by the laboratory's management, a laboratory
is responsible for the acts of its employees. Among other things,
laboratories need to have procedures in place and train employees on
those procedures to prevent staff from forwarding PT samples to other
laboratories even in instances in which they would normally forward a
patient specimen for testing.
In the February 7, 2013 Federal Register (78 FR 9216), we published
a proposed rule titled Part II--Regulatory Provisions to Promote
Program Efficiency, Transparency and Burden Reduction (hereafter
referred to as the Burden Reduction proposed rule) to propose reforms
to the Medicare and CLIA regulations that we had identified as
unnecessary, obsolete, or excessively burdensome. In that rule, we
proposed changes to the CLIA PT regulations to establish policies under
which certain PT referrals by laboratories would generally not be
subject to revocation of their CLIA certificate or a 2 year prohibition
on laboratory ownership or operation. To do this, we proposed a narrow
exception in our longstanding interpretation of what constitutes an
``intentional'' PT referral.
While that proposed rule was under development but before its
publication, Congress enacted the ``Taking Essential Steps for Testing
Act of 2012'' (Pub. L. 112-202, the ``TEST Act'') on December 4, 2012.
The TEST Act amended section 353 of the PHS Act to provide the
Secretary with discretion as to which sanctions she would apply to
cases of intentional PT referral.
In the Burden Reduction proposed rule (78 FR 9216), we stated that
we would address the TEST Act in future rulemaking, except that to
comply with the TEST Act and begin to align the CLIA regulations with
the amended CLIA statute, we proposed to revise the second sentence of
Sec. 493.801(b)(4) to state that a laboratory may (as opposed to
``must'') have its CLIA certification revoked when CMS determines PT
samples were intentionally referred to another laboratory.
The regulatory changes that we are now proposing would add the
remaining policies and regulatory changes needed to fully implement the
TEST Act.

B. Proposed Changes

As noted earlier, the TEST Act provided the Secretary with the
discretion to substitute intermediate sanctions in lieu of the 2 year
prohibition on the owner and operator when a CLIA certificate is
revoked due to intentional PT referral, and to consider imposing
alternative sanctions in lieu of revocation in such cases as well. The
TEST Act provides the Secretary with the opportunity to frame policies
that will achieve a better correlation between the nature and extent of
intentional PT referrals at a given laboratory, and the scope and type
of sanctions or corrective actions that are imposed on that laboratory
and its owners and operators, as well as any consequences to other
laboratories owned or operated by those owners and operators.
We are proposing to divide the sanctions for PT referral into three
categories based on severity and extent of the referrals. The first
category is for the most serious, egregious violations, encompassing
cases of repeat PT referral or cases where a laboratory reports another
laboratory's test results as its own. In such cases, we do not believe
that alternative sanctions would be appropriate. Therefore, we are
proposing to revoke the CLIA certificate for at least 1 year in
instances in which a laboratory has a repeat proficiency testing
referral, ban the owner and operator from owning or operating a CLIA-
certified laboratory for at least 1 year, and may also impose a civil
monetary penalty (CMP). In keeping with the February 7, 2013 proposed
rule (78 FR 9216), we propose to define, at Sec. 493.2, ``a repeat
proficiency testing referral'' as ``a second instance in which a
proficiency testing sample, or a portion of a sample, is referred, for
any reason, to another laboratory for analysis prior to the
laboratory's proficiency testing program event cut-off date within the
period of time encompassing the two prior survey cycles (including
initial certification, recertification, or the equivalent for
laboratories surveyed by an approved accreditation organization).'' We
believe that a repeat PT referral warrants revocation of a laboratory's
CLIA certificate for at least 1 year because such laboratories have
already been given opportunity to review their policies, correct their
deficiencies and adhere to regulations, and adherence to the
laboratory's established policy, and ensure effective training of their
personnel. As there is no on-site, external proctor for PT testing in a
laboratory, the testing relies in large part on an honor system.
Therefore, when a PT referral has previously occurred prior to the
event cut-off date within the two prior survey cycles, we do not
believe that laboratories should be given additional opportunities to
ensure that they are meeting the CLIA PT requirements and believe that
revocation of the CLIA certificate should consequently occur. We also
propose, in the first category, that the CLIA certificate be revoked,
and the owner and operator banned from owning or operating a CLIA-
certified laboratory for at least 1 year, in cases where the PT sample
was referred to another laboratory, the referring laboratory received
the results from the other laboratory, and the referring laboratory
reported to the PT program the other laboratory's results on or before
the event cut-off date. We note that PT

[[Page 58401]]

programs place heavy reliance on each laboratory and laboratory
director to self-police their analysis of PT samples to ensure that the
testing is performed in accordance with the CLIA requirements. PT
performance and scores must reflect an individual laboratory's
performance, and as such, reporting results from another laboratory is
deceptive to the public. We believe these two scenarios are the most
egregious forms of PT referral and merit the most severe sanctions.
For example, a laboratory may have two distinct sites, Laboratory A
and Laboratory B, that operate under different CLIA numbers, where
Laboratory A has received PT samples to be tested as part of their
enrollment in PT as required by the CLIA regulations. If Laboratory A
were to refer PT samples to Laboratory B, receive test results back at
Laboratory A from Laboratory B prior to the event cutoff date, and
report to the PT program those results obtained from Laboratory B, the
scores for the PT event would not reflect the performance of Laboratory
A, but rather the performance of Laboratory B. Since the PT scores
would actually be reflective of the accuracy and reliability at
Laboratory B rather than A, the purpose of the proficiency testing
would be undermined. Further, as stated in the CLIA regulations at
Sec. 493.801(4)(ii), the laboratory must make PT results available to
the public. In this scenario, any member of the public who sought to
use the reported PT scores to select a high-quality laboratory would be
deceived by the scores for the results submitted to the PT program, as
they would expect that they were provided information about the
performance of Laboratory B when that would not be the case.
In cases of PT referral where the CLIA certificate is revoked, the
TEST Act provides the Secretary with discretion to ban the owner and
operator from owning or operating a CLIA-certified laboratory for less
than 2 years. Prior to the TEST Act, revocation of a CLIA certificate
for PT violation always triggered a 2-year ban on the owner and
operator. We are also proposing that the laboratory owner and operator
would be banned from owning or operating a CLIA-certified laboratory
for at least 1 year for any violation within the first category
involving the revocation of a CLIA certificate.
We believe that a second category of sanctions should be applied to
certain PT referral situations in which the CLIA certificate would be
suspended or limited (rather than revoked), in combination with
alternative sanctions. We propose to use this approach in those
instances in which a laboratory refers PT samples to a laboratory that
operates under a different CLIA number before the PT event close date
and, while the laboratory reports its own results to the PT program, it
receives results from the second laboratory prior to the event close
date. Such a referral situation would allow the referring laboratory an
opportunity to confirm, check, or change its results prior to reporting
its results to the PT program. If, upon investigation, surveyors
determine that the referral does not constitute a repeat PT referral,
we propose to suspend or limit the CLIA certificate for less than 1
year rather than revoke the CLIA certificate, and propose that we also
impose alternative sanctions (as an alternative to revocation of the
CLIA certificate). Further, an alternative sanction would always
include required training of staff.
A suspension of the CLIA certificate means that no testing of human
specimens for health care purposes may be performed by that laboratory
during the period of suspension. In such cases, the owner or operator
typically contracts out for laboratory services, or contracts with
another operator to operate the laboratory under the contracted
laboratory's CLIA certificate. In contrast to revocation of the CLIA
certificate and its accompanying ban on the owner and operator,
suspension usually applies only to the individual laboratory in
question rather than all laboratories that are under the control of the
owner or operator.
A limitation of the CLIA certificate means that the laboratory is
not permitted to perform testing or to bill Medicare or Medicaid for
laboratory work in the specialty or subspecialty that has been limited,
but may continue to conduct all other testing under its own CLIA
certificate.
In determining whether to suspend or limit the CLIA certificate, we
propose to apply the criteria of Sec. 493.1804(d). For example, we
would examine the extent of the PT referral practice as well as its
duration. We propose that if surveyors determine that in the prior two
survey cycles there were prior PT referrals that occurred but were not
cited by CMS, then the CLIA certificate would always be suspended
rather than just limited. The duration of the suspension would reflect
the number of samples referred, the period of time the referrals had
been occurring, the extent of the practice, and other criteria
specified at Sec. 493.1804(d).
Further, for cases in the second category we propose that when the
certificate is suspended or limited, alternative sanctions would be
applied in addition to the principal sanctions of suspension or
limitation. We propose that, at a minimum, the alternative sanctions
would include a CMP to be determined using the criteria set forth in
Sec. 493.1834, as well as a directed plan of correction. Additionally,
if the CLIA certificate is suspended, we propose to also impose state
on-site monitoring of the laboratory.
We believe that a third category of sanctions should be applied to
those PT referral scenarios in which the referring laboratory does not
receive test results prior to the event cut-off date from another
laboratory as a result of the PT referral. We propose that in such
scenarios, at a minimum, the laboratory will always be required to pay
a CMP as calculated according to Sec. 493.1834, as well as comply with
a directed plan of correction. A directed plan of correction would
always include training of staff.
For example, a laboratory may place PT samples in an area where
other patient specimens are picked up by courier to take to a reference
laboratory. The reference laboratory courier may take the PT samples
along with the patients' specimens. The laboratory personnel notice
that the PT samples are missing and contact the reference laboratory to
inquire if they have received the PT samples along with the patients'
specimens. The reference laboratory is instructed to discard the PT
samples and not test them since they were picked up in error. In this
case, the ``referring'' laboratory realized the error, contacted the
receiving laboratory, and did not receive results back for any of the
PT samples. In this scenario, we propose to impose only alternative
sanctions. We welcome comments about other scenarios in which you
believe lesser sanctions may also be appropriate.
In determining whether to impose alternative sanctions, we propose
to rely on the existing considerations at Sec. 493.1804(c) and (d),
Sec. 493.1806(c), Sec. 493.1807(b), Sec. 493.1809 and, in the case
of civil money penalties, Sec. 493.1834(d). These current regulations
have proven effective as enforcement measures over time for CLIA
noncompliance for all circumstances other than PT referral. We
therefore believe these same criteria will be effective in the
imposition of alternative sanctions for PT referral cases.
In summary, we propose to amend Sec. 493.1840 by revising
paragraph (b) to specify three categories for the imposition of
sanctions for PT referrals. We believe these provisions, as amended,
would provide the necessary detail to fairly and uniformly apply the
discretion granted to the Secretary under the TEST Act, without being
so

[[Page 58402]]

specific as to defeat the intent to provide appropriate flexibility
when taking punitive or remedial action in the context of a PT referral
finding.
We also propose to make three conforming changes to the CLIA
regulations at the authority citation for Part 493 and at Sec. 493.1
and Sec. 493.1800(a)(2) to include references to the Public Health
Service Act as amended by the TEST Act.
We invite the public to comment on our proposed categorization of
potential PT referral situations, the criteria we propose for assessing
the scope and severity of any violation, and the types of sanctions
that correspond to each category.

V. Other Required Information

A. Requests for Data From the Public

Commenters can gain access to summarized FQHC data on an expedited
basis by downloading the files listed in this section, which are
available on the Internet without charge. For detailed claims data,
requestors would follow the current research request process which can
be found on the Research Data Assistance Center (ResDAC) Web site at
http://www.resdac.org/.
1. FQHC Summary Data. This file contains data summarized by CCN,
which can be used to model the proposed methodology and calculate
projected payments and impacts under the proposed PPS. The data file is
available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.
2. FQHC Proposed GAFs. This file contains the listed of proposed
GAFs by locality, as published in Addendum A of this proposed rule. The
data file is available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.
3. HCRIS Cost Report Data. The data included in this file was
reported on Form CMS-222-92. The dataset includes only the most current
version of each cost report filed with CMS and includes cost reports
with fiscal year ending dates on or after September 30, 2009. HCRIS
updates this file on a quarterly basis. The data file is available at
http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/CostReports/HealthClinic.html.

B. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment on the information collection
requirements (ICRs) regarding the proposed FQHC rates and adjustments
in Sec. 405.2470.
Section II. of this proposed rule discusses the data that are used
in computing the FQHS PPS rates and adjustments. As discussed, the data
are derived from the RHC/FQHC cost report form CMS-222-92, and claims
form UB-04 CMS 1450 (per CMS Pub. 100-04, Medicare Claims Processing
Manual, Chapter 1). The reporting requirements for FQHCs are inSec.
405.2470 of the Medicare regulations. We note that, while the preamble
does not contain any new ICRs, there is currently an OMB approved
information collection request associated with the RHC/FQHC cost
report. The OMB control number is 0938-0107, with an expiration date of
August 31, 2014.
If you comment on this information collection and recordkeeping
requirement, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this proposed rule; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: CMS Desk Officer,
[CMS-1443-P] Fax: (202) 395-6974; or Email: [email protected].

VI. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

VII. Regulatory Impact Analysis

A. Statement of Need

This proposed rule is necessary to establish a methodology and
payment rates for a PPS for FQHC services under Medicare Part B
beginning on October 1, 2014, in compliance with the statutory
requirements of section 10501(i)(3)(A) of the Affordable Care Act. This
proposed rule also is necessary to make--(1) contracting changes for
RHCs; (2) conforming changes to other policies related to FQHCs and
RHCs; (3) changes to enforcement actions for improper proficiency
testing referrals.

B. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22,
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4,
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100

[[Page 58403]]

million or more in any 1 year). This proposed rule is an economically
significant rule because we estimate that the FQHC PPS will increase
payments to FQHCs by more than $100 million in 1 year. We believe that
this regulation would not have a significant financial impact on RHCs.
We estimate that this rulemaking is ``economically significant'' as
measured by the $100 million threshold, and hence also a major rule
under the Congressional Review Act. Accordingly, we have prepared a RIA
that, to the best of our ability, presents the costs and benefits of
the rulemaking.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government
jurisdictions. All RHCs and FQHCs are considered to be small entities.
The great majority of hospitals and most other health care providers
and suppliers are small entities, either by being nonprofit
organizations or by meeting the SBA definition of a small business
(having revenues of less than $7.0 million to $35.5 million in any 1
year). The provisions in this proposed rule have an average of 30
percent increase in Medicare PPS payment to FQHCs and no financial
impact on RHCs. Individuals and states are not included in the
definition of a small entity.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. As its measure of
significant economic impact on a substantial number of small entities,
HHS uses a change in revenue of more than 3 to 5 percent. We are not
preparing an analysis for section 1102(b) of the Act, because we have
determined that this proposed rule would not have a significant impact
on the operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2013, that
is approximately $141 million. This proposed rule does not include any
mandates that would impose spending costs on state, local, or tribal
governments in the aggregate, or by the private sector, that would
exceed the threshold of $141 million.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct compliance costs on state
and local governments, preempts state law, or otherwise has Federalism
implications. This proposed rule would not have a substantial effect on
state and local governments, preempt state law, or otherwise have
Federalism implications.
This proposed regulation is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress
and the Comptroller General for review.

C. Limitations of Our Analysis

Our quantitative analysis presents the projected effects of our
proposed policy changes, as well as statutory changes effective on
FQHCs for cost reporting periods beginning on or after October 1, 2014.
We estimated the effects of individual proposed policy changes by
estimating payments per visit while holding all other payment policies
constant. We use the best data available, but, generally, we do not
attempt to make adjustments for future changes in such variables as the
number of visits or the prevalence of new patients or comprehensive
initial Medicare visits furnished to Medicare beneficiaries. To the
extent that there are changes in the volume and mix of services
furnished by FQHCs, the actual impact on total Medicare revenues will
be different from those shown in Table 2 (Impact of the PPS on Payments
to FQHCs).

D. Anticipated Effects of the FQHC PPS

1. Effects on FQHCs
As required by section 1834(o)(2)(B)(i) of the Act, initial
payments (Medicare and coinsurance) under the FQHC PPS must equal 100
percent of the estimated amount of reasonable costs, as determined
without the application of the current system's UPLs or productivity
standards that can reduce a FQHC's per visit rate. As discussed in
sections I and II. of this proposed rule, we propose to pay FQHCs a
single encounter-based rate per beneficiary per day, adjusting for
geographic differences in the cost of inputs by applying an adaptation
of the GPCI used to adjust payment under the PFS, and further adjusting
the encounter-based rate when a FQHC furnishes care to a patient that
is new to the FQHC or to a beneficiary receiving a comprehensive
initial Medicare visit (that is, an IPPE an initial AWV).
Based on comparisons of the proposed PPS rate to the AIRs (as
listed on the FQHC cost reports), the proposed FQHC PPS is estimated to
have an overall impact of increasing total Medicare payments to FQHCs
by approximately 30 percent. The FQHC PPS is effective for cost reports
beginning on or after October 1, 2014. This impact is fully implemented
when all FQHCs are paid under the FQHC PPS and reflects the additional
payment rate update based on the MEI for all of 2015 (fiscal year
through the end of the calendar year). (See section II.E. of this
proposed rule for a discussion of the use of the MEI update to
calculate the first year's base payment amount under the FQHC PPS.)
Table 2 shows the impact on cost reporting entities and their
associated delivery sites of the fully implemented proposed FQHC PPS
payments compared to current payments to FQHCs. The analysis is based
on cost reports from freestanding FQHCs with cost reporting periods
ending between June 30, 2011, and June 30, 2012. A FQHC with multiple
sites has the option of filing a consolidated cost report, and this
sample reflects 1,141 cost reporting entities that represent 3,509
delivery sites. The following is an explanation of the information
represented in Table 2:
Column A (Number of cost-reporting entities): This column
shows the number of cost-reporting entities for each impact category.
Urban/rural status and census division were determined based on the
geographic location of the cost reporting entity. Categories for
Medicare volume were defined from cost report data, based on tertiles
for the percent of total visits that were identified as Medicare
visits. Categories for total volume were defined from cost report data,
based on tertiles for the total number of visits for each cost
reporting entity.
Column B (Number of delivery sites): This column shows the
number of delivery sites associated with the cost reporting entities in
each impact category. (Note that delivery sites that are part of a
consolidated cost reporting entity might not fall into the same impact
category if considered individually. For example, a cost reporting
entity could include delivery sites in multiple census division, and
delivery sites were categorized based on the geographic location of the
cost reporting entity).

[[Page 58404]]

Column C (Number of Medicare visits): This column shows
the number of Medicare visits in the final data set that were used to
model payments under the FQHC PPS.
Column D (Effect of statutorily required changes): This
column shows the estimated fully implemented combined impact on
payments to FQHCs of changes to the payment structure that are required
by statute. Removing both the UPL and the productivity screen is
estimated to increase total Medicare payments to FQHCs by about 28
percent. The combined impact in column D also reflects the FQHC PPS
requirement to calculate payment based on the costs of all FQHCs,
rather than on an individual FQHC's costs. We note that the impacts for
column D through H reflect the growth in the MEI from July 1, 2012
through September 30, 2014, prior to the application of the forecasted
MEI update for the 15-month period of October 1, 2014 through December
31, 2015.
Columns E through H (Effects of the Proposed Adjustments
to the Average Cost per Visit): These columns show the estimated fully
implemented impacts on Medicare payments to FQHCs due to the proposed
policy changes. In developing the Medicare FQHC PPS, section
10501(i)(3)(A) of the Affordable Care Act requires CMS to take into
account the type, intensity, and duration of FQHC services, and allows
other adjustments, such as geographic adjustments. As discussed in
section II.C of this proposed rule, the cost report data are
insufficient for modeling these types of adjustments, and we propose to
use the HCPCS codes in the FQHC claims data to support the development
of the FQHC PPS rate and adjustments and for making payment under the
PPS. As demonstrated in columns E-H, the overall effect of these
various adjustments is budget neutral.
Column E (Effect of daily visit (per diem) rate): This
column shows the estimated fully implemented impact on payments to
FQHCs of the proposal to pay a single encounter-based rate per
beneficiary per day, which eliminates the current exceptions that pay
for more than one visit per beneficiary per day. As it is uncommon for
FQHCs to bill more than one visit per day for the same beneficiary
(less than 0.5 percent of visits), this adjustment would have minimal
effect on most FQHCs.
Column F (Effect of new patient/initial visit adjustment):
This column shows the estimated fully implemented impact on payments to
FQHCs of the proposal to adjust the encounter-based rate by 1.3333 when
a FQHC furnished care to a patient that was new to the FQHC or to a
beneficiary receiving a comprehensive initial Medicare visit. As new
patients and initial Medicare visits accounted for approximately 3
percent of all FQHC visits, this adjustment would have limited
reduction on the base encounter rate, after application of budget
neutrality, and a limited redistribution effect among FQHCs.
Column G (Effect of the GAF): This column shows the
estimated fully implemented impact on payments to FQHCs of the proposal
to adjust payments for geographic differences in costs by applying an
adaptation of the GPCIs used to adjust payment for physician work and
practice expense under the PFS.
Column H (Combined effect of all PPS adjustments): This
column shows the estimated fully implemented impact on payments to
FQHCs of the proposed adjustments in columns E through G. Both the
individual and combined effects of these adjustments on overall
Medicare payment to FQHCs would be zero percent as the effects of these
adjustments would be redistributive and would not change Medicare
payments in the aggregate.
Column I (Combined effect of all policy changes and MEI
adjustment): This column shows the estimated fully implemented impact
on payments to FQHCs of removing the UPL and productivity screen in
Column D, the adjustments to the PPS rates in the preceding columns,
and the application of the forecasted MEI update for the 15-month
period of October 1, 2014 through December 31, 2015.

Table 2--Impact of the PPS on Payments to FQHCs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Combined
Effect of Effect of Effect of Effect of Combined effect of
Number of Number of statutorily daily visit new patient/ geographic effect of all policy
Number of cost[dash]reporting entities delivery Medicare required (per diem) initial adjustment all PPS changes and
sites visits changes rate visit factor adjustments MEI
(percent) (percent) adjustment (GAF) (percent) adjustment
(percent) (percent) (percent)
(A)............................................................... (B) (C) (D) (E) (F) (G) (H) (I)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All FQHCs 1,141............................................................. 3,509 5,245,961 28.0 0.0 0.0 0.0 0.0 30.2
Urban/
rural
Status:
Urban 647............................................................... 1,756 2,518,395 21.8 -0.2 0.0 3.1 3.0 27.6
Rural 348............................................................... 820 1,385,116 39.3 0.2 -0.9 -3.1 -3.0 37.4
Mixed 146............................................................... 933 1,342,450 29.6 0.2 0.0 -2.7 -2.5 28.5
rura
l-
urba
n...
Medicare
Volume:
Low 380............................................................... 1,039 851,771 22.6 -0.1 0.2 3.3 3.4 28.9
(<6.
9%
of
tota
l
visi
ts).
Mediu 381............................................................... 1,235 1,751,498 25.5 -0.1 0.1 0.0 0.5 28.2
m
(6.9
%-13
.2%
of
tota
l
visi
ts).
High 380............................................................... 1,237 2,642,692 31.7 0.1 -0.2 -1.3 -1.4 32.0
(>13
.2%
of
tota
l
visi
ts).
Total
Volume:
Low 380............................................................... 502 426,346 31.8 0.0 0.1 -0.1 0.0 34.1
(<17
,340
tota
l
visi
ts).
Mediu 381............................................................... 903 1,253,817 29.6 0.0 0.1 -1.6 -1.5 29.8
m
(17,
340-
42,7
11
tota
l
visi
ts).
High 380............................................................... 2,123 3,565,798 27.1 0.0 -0.1 0.6 0.5 29.9
(>42
,711
tota
l
visi
ts).
Census
Division
:
New 92................................................................ 236 657,794 25.7 -0.4 -0.2 1.8 1.2 29.3
Engl
and.
Middl 108............................................................... 314 457,798 23.1 0.1 0.0 3.1 3.2 29.1
e
Atla
ntic
East 143............................................................... 460 603,034 29.2 -0.2 0.1 -2.7 -2.7 27.7
Nort
h
Cent
ral.
West 78................................................................ 201 248,891 29.2 0.0 0.1 -5.1 -5.1 24.6
Nort
h
Cent
ral.
South 187............................................................... 688 1,049,755 31.0 0.2 0.0 -3.0 -2.9 29.3
Atla
ntic
East 83................................................................ 317 374,386 36.1 0.1 0.0 -6.8 -6.7 29.2
Sout
h
Cent
ral.
West 107............................................................... 287 337,375 29.4 0.1 0.2 -5.3 -5.0 25.0
Sout
h
Cent
ral.
Mount 87................................................................ 311 368,666 29.2 -0.1 0.3 -2.1 -1.9 28.9
ain.
Pacif 252............................................................... 690 1,145,897 24.8 0.1 -0.1 7.5 7.5 36.4
ic..
US 4................................................................. 5 2,365 36.7 0.4 1.1 -0.5 1.0 41.2
Terr
itor
ies.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 58405]]

2. Effects on RHCs
While we expect that removing the restriction on contracting will
result in cost savings for RHCs that employ an NP or PA and will no
longer need to conduct employment searches to meet their additional
staffing needs, the financial impact on RHCs is expected be small and
cannot be quantified.
There is no Medicare impact on RHCs as a result of the
implementation of the FQHC PPS.
3. Effects on Other Providers and Suppliers
There would be no financial impact on other providers or suppliers
as a result of the implementation of the FQHC PPS.
4. Effects on the Medicare and Medicaid Programs
We estimate that annual Medicare spending for FQHCs during the
first 5 years of implementation would increase as follows:

Table 3--Estimated Increase in Annual Medicare Payments to FQHCs
------------------------------------------------------------------------
Estimated increase
Calendar year in payments ($ in
millions)
------------------------------------------------------------------------
2014.............................................. 33
2015.............................................. 204
2016.............................................. 226
2017.............................................. 236
2018.............................................. 248
------------------------------------------------------------------------

We intend for estimated aggregate payments under the proposed FQHC
PPS to equal 100 percent of the estimated amount of reasonable costs,
as determined without the application of the current system's UPLs or
productivity standards. We note that the estimated increase in payments
for CY 2014 is significantly smaller than for subsequent years,
primarily due to the implementation date of October 1, 2014, which will
affect payments for only 3 months of CY 2014. In addition, an analysis
of 2010 cost reporting data indicates that approximately 6 percent of
FQHC cost reporting entities had cost reporting periods that began
between October 1 and December 31, which indicates that we would expect
a small percentage of cost reporting entities to be paid under the FQHC
PPS between October 1, 2014 and December 31, 2014.
After the first year of implementation, the PPS payment rates must
be increased by the percentage increase in the MEI. After the second
year of implementation, PPS rates shall be increased by the percentage
increase in a market basket of FQHC goods and services as established
through regulations, or, if not available, the MEI. While we will
consider the merits of estimating a FQHC market basket for use in base
payment updates after the second year of the PPS, payment estimates
were updated annually by the MEI for purposes of this analysis.
There is no financial impact on the Medicaid program as a result of
the implementation of the Medicare FQHC PPS.
5. Effects on Medicare Beneficiaries
FQHC PPS: As discussed in section II.E. of this proposed rule, we
propose that coinsurance under the FQHC PPS would be 20 percent of the
lesser of the FQHC's charge or the PPS rate. Under the current
reasonable cost payment system, beneficiary coinsurance for FQHC
services is assessed based on the FQHC's charge, which can be more than
coinsurance based on the AIR. An analysis of a sample of FQHC claims
data for dates of service between January 1, 2011 through June 30, 2012
indicated that beneficiary coinsurance based on 20 percent of the
FQHC's charges was approximately $23 million higher, or 18 percent
more, than if coinsurance had been assessed based on 20 percent of the
lesser of the FQHC's charge or the applicable all-inclusive rate.
Based on comparisons of the proposed PPS rate to the AIRs, the
proposed FQHC PPS is estimated to have an overall impact of increasing
total Medicare payments to FQHCs by approximately 30 percent. This
overall 30 percent increase translates to a 30 percent increase to
beneficiary coinsurance if it were currently assessed based on the
FQHC's AIR and if, under the PPS, it would always be assessed based on
the PPS rate. Because the charge structure among FQHCs varies, and
beneficiary liability for the same mix of FQHC services could differ
significantly based on the differences in charge structures, we have
insufficient data to estimate the change to beneficiary coinsurance due
to the FQHC PPS.

E. Effects of Other Policy Changes

1. Effects of Policy Changes for FQHC's and RHC's
a. Effects of RHC Contracting Changes
In section III.A. of this proposed rule we discuss our proposal to
remove the restrictions on RHCs contracting with nonphysician
practitioners when the statutory requirement to employ an NP or a PA is
met would provide RHCs with greater flexibility in meeting their
staffing requirements. The ability to contract with NPs, PAs, CNMs, CP,
and CSWs would provide RHCs with additional flexibility with respect to
recruiting and retaining non-physician practitioners, which may result
in increasing access to care in rural areas. There is no cost to the
Federal government and we cannot estimate a cost savings for RHCs.
b. Effects of the FQHC and RHC Conforming Changes
In section III.B. of this proposed rule, we present our proposals
regarding clarifying, technical, conforming changes to the FQHC and RHC
regulations that are necessary for implementation of the FQHC PPS. We
believe that are no costs associated with these changes.
2. Effects of CLIA Changes for Enforcement Actions for Proficiency
Testing Referral
As discussed in section IV. of this proposed rule, we would make a
number of clarifications and changes pertaining to the regulations
governing adverse actions for PT referral under CLIA to ensure
conformance between the TEST Act and our regulations. The TEST Act
provides the Secretary with the discretion to apply alternative
sanctions in lieu of potential principal sanctions in cases of
intentional PT referral. Alternative sanctions may include any
combination of civil money penalties, directed plan of correction (such
as required remedial training of staff), temporary suspension of
Medicare or Medicaid payments, or state onsite monitoring. From 2007
through 2011 there were 41 cases of cited, intentional PT referral. Of
these 41 cases (averaging 8 per year), we estimate that 28 (or 6 per
year on average) may have fit the terms of this rule to have
alternative sanctions applied. Based on discussions with the most
recently affected laboratories that were cited for PT violations, we
estimate that the average cost of the sanctions applicable under
current regulations is approximately $578,400 per laboratory. The
largest single type of cost is the expense to the laboratory or
hospital to contract out for management of the laboratory, and to pay
laboratory director fees, due to the 2-year ban that prohibits the
owner and operator from owning or operating a CLIA-certified laboratory
in accordance with revocation of the CLIA certificate. We have not
included legal expenses in this cost estimate, as it is not possible to
estimate the extent to which laboratories may still appeal the
imposition of the alternative sanctions in this proposed

[[Page 58406]]

rule. If the expense of alternative sanctions averaged $150,000 per
laboratory, we estimate the annual fiscal savings of the changes to
average $2.6 million ($578,400 minus $150,000 for 6 laboratories).
While the total savings may not be large, the savings to the individual
laboratory or hospital that is affected can be significant. However, we
note that the $2.6 million estimate may overstate or understate the
provision's savings to laboratories. For example, if under current
regulations the prior management is fired instead of being reassigned
to other duties for the 2-year period, some of the costs of paying for
the new management's salaries, benefits and training may be able to be
drawn from funding that had previously been earmarked to pay those
expenses for their predecessors. That is, the costs associated with the
new employee could be offset by the savings gained when the former
employee is terminated. Any such offset will result in lower savings
than is estimated earlier. However, there are also unknowns that may
result in larger savings than estimated earlier. For example, we have
no data on whether terminated management historically received
severance packages. If they did, those savings would have to be added
to the savings we noted earlier. Such changes in severance payments
would represent transfer effects of the proposed rule, rather than net
social costs or benefits. In general, it is only to the extent that new
laboratory directors put forth more effort than temporarily-banned
laboratory directors (due, for example, to the need to familiarize
themselves with laboratories they have not previously operated) or that
support staff put forth more effort to make the new management
arrangements than they would addressing alternative sanctions that
society's resources would be freed for other uses by the proposed
provision; thus, a comprehensive estimate of laboratory savings would
represent some combination of transfers and net social benefits. While
we recognize these potential inaccuracies in our estimates, we lack
data to account for these considerations.

F. Alternatives Considered

This proposed rule contains a range of policies, including some
provisions related to specific statutory provisions. The preceding
sections of this proposed rule provide descriptions of the statutory
provisions that are addressed, identifies those policies when
discretion has been exercised, presents rationale for our final
policies and, where relevant, alternatives that were considered.

G. Accounting Statement and Table

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/), we have prepared an
accounting statement table showing the classification of the impacts
associated with implementation of this proposed rule.

Table 4--Accounting Statement--Classification of Proposed Estimated Expenditures Under the FQHC PPS
----------------------------------------------------------------------------------------------------------------
Units
-----------------------------------------------
Category Estimates Discount rate Period
Year dollar (percent) covered
----------------------------------------------------------------------------------------------------------------
Transfers:
Federal Annualized Monetized Transfers (in 183 2014 7 2014-2018
millions).................................. 187 2014 3 2014-2018
---------------------------------------------------------------
From Whom to Whom........................... Federal Government to FQHCs that receive payments under
Medicare.
----------------------------------------------------------------------------------------------------------------

H. Conclusion

The previous analysis, together with the remainder of this
preamble, provides an initial Regulatory Flexibility Analysis. The
previous analysis, together with the remainder of this preamble,
provides a Regulatory Impact Analysis.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medical devices, Medicare reporting and
recordkeeping requirements, Rural areas and X-rays.

42 CFR Part 491

Grant programs--health, Health facilities, Medicaid, Medicare,
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 493

Administrative practice and procedure, Grant programs--health,
Health facilities, Laboratories, Medicaid, Medicare, Penalties,
Reporting and recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR parts 405, 491, and 493 as
set forth below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0
1. The authority for citation for part 405 continues to read as
follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

0
2. Section 405.2400 is revised to read as follows:

Sec. 405.2400 Basis.

Subpart X is based on the provisions of the following sections of
the Act: Section 1833--Amounts of payment for supplementary medical
insurance services. Section 1861(aa)--Rural health clinic services and
Federally qualified health center services covered by the Medicare
program. Section1834(o)--Federally qualified health center prospective
payment system beginning October 1, 2014.
0
3. In Sec. 405.2401, paragraph (b) is amended as follows:
0
A. Removing the definition of ``Act''.
0
B. Revising the definition of ``Allowable costs''.
0
C. Removing the definition of ``Carrier''.
0
D. Adding the definitions of ``Certified nurse midwife (CNM),''
``Clinical psychologist (CP)'', and ``Clinical social worker (CSW)''.
0
E. Revising the definitions of ``Coinsurance'' and ``Deductible''.
0
F. Adding the definition of ``Employee'' and ``HRSA.
0
G. Revising paragraphs (1) through (3) of the definition of ``Federally
qualified health center''.
0
H. Removing the definition of ``Intermittent nursing care''.

[[Page 58407]]

0
I. Adding the definition of ``Medicare Administrative Contractor
(MAC)''.
0
J. Removing the definitions of ``Nurse-midwife'', ``Nurse practitioner
and physician assistant'', and Part-time nursing care''.
0
K. Adding the definitions of ``Physician assistant (PA)'' and
``Prospective payment system (PPS)''.
0
L. Revising the definitions of ``Reporting period'' and ``Rural health
clinic''.
0
M. In the definition of ``Visiting nurse services,'' removing the
phrase ``registered nurse'' and adding in its place the phrase
``registered professional nurse''.
The revisions and additions read as follows:

Sec. 405.2401 Scope and definitions.

* * * * *
(b) * * *
Allowable costs means costs that are incurred by a RHC or FQHC that
is authorized to bill based on reasonable costs and are reasonable in
amount and proper and necessary for the efficient delivery of RHC and
FQHC services.
* * * * *
Certified nurse midwife (CNM) means an individual who meets the
applicable education, training experience and other requirements of
Sec. 410.77(a) of this chapter.
Clinical psychologist (CP) means an individual who meet the
applicable education, training experience and other requirements of
Sec. 410.71(d) of this chapter.
Clinical social worker (CSW) means an individual who meet the
applicable education, training experience and other requirements of
Sec. 410.73(a) of this chapter.
* * * * *
Coinsurance means that portion of the RHC's charge for covered
services or that portion of the FQHC's charge or PPS rate for covered
services for which the beneficiary is liable (in addition to the
deductible, where applicable).
* * * * *
Deductible means the amount incurred by the beneficiary during a
calendar year as specified in Sec. 410.160 and Sec. 410.161 of this
chapter.
Employee means any individual who, under the common law rules that
apply in determining the employer-employee relationship (as applied for
purposes of section 3121(d)(2) of the Internal Revenue Code of 1986),
is considered to be employed by, or an employee of, an entity.
(Application of these common law rules is discussed in 20 CFR 404.1007
and 26 CFR 31.3121(d)-1(c).)
Federally qualified health center (FQHC) * * *
(1) Is receiving a grant under section 330 of the Public Health
Service (PHS) Act, or is receiving funding from such a grant under a
contract with a recipient of such a grant and meets the requirements to
receive a grant under section 330 of the PHS Act;
(2) Is determined by the HRSA to meet the requirements for
receiving such a grant;
(3) Was treated by CMS, for purposes of part B, as a comprehensive
federally funded health center as of January 1, 1990; or
* * * * *
HRSA means the Health Resources and Services Administration.
* * * * *
Medicare Administrative Contractor (MAC) means an organization that
has a contract with the Secretary to administer the benefits covered by
this subpart.
Nurse practitioner (NP) means individuals who meet the applicable
education, training experience and other requirements of Sec.
410.75(b) of this chapter.
* * * * *
Physician assistant (PA) means an individual who meet the
applicable education, training experience and other requirements of
Sec. 410.74(c) of this chapter.
Prospective payment system (PPS) means a method of payment in which
Medicare payment is made based on a predetermined, fixed amount.
Reporting period generally means a period of 12 consecutive months
specified by the MAC as the period for which a RHC or FQHC must report
required costs and utilization information. The first and last
reporting periods may be less than 12 months.
Rural health clinic means a facility that has--
(1) Been determined by the Secretary to meet the requirements of
section 1861(aa)(2) of the Act and part 491 of this chapter concerning
RHC services and conditions for approval; and
(2) Filed an agreement with CMS that meets the requirements in
Sec. 405.2402 to provide RHC services under Medicare.
* * * * *
0
4. Section 405.2402 is amended as follows:
0
A. Revising the section heading.
0
B. Revising paragraphs (b) introductory text and (c) introductory text.
0
C. Revising paragraph (d).
0
D. Removing paragraph (e).
0
E. Redesignating paragraph (f) as paragraph (e).
0
F. Revising newly redesignated paragraph (e).
The revisions read as follows:

Sec. 405.2402 Rural health clinic basic requirements.

* * * * *
(b) Acceptance of the clinic as qualified to furnish RHC services.
If the Secretary, after reviewing the survey agency or accrediting
organization recommendation, as applicable, and other evidence relating
to the qualifications of the clinic, determines that the clinic meets
the requirements of this subpart and of part 491 of this chapter, the
clinic is provided with--
* * * * *
(c) Filing of agreement by the clinic. If the clinic wishes to
participate in the program, it must--
* * * * *
(d) Acceptance by the Secretary. If the Secretary accepts the
agreement filed by the clinic, the Secretary returns to the clinic one
copy of the agreement with a notice of acceptance specifying the
effective date.
(e) Appeal rights. If CMS declines to enter into an agreement or if
CMS terminates an agreement, the clinic is entitled to a hearing in
accordance with Sec. 498.3(b)(5) and (6) of this chapter.
0
5. Section 405.2403 is amended as follows:
0
A. Revising the section heading.
0
B. Amending paragraphs (a) introductory text and (a)(2) by removing the
term ``rural health clinic'' and by adding in its place the term
``RHC''.
0
C. Amending paragraph (a)(3)(ii)(B) by removing the term ``rural health
clinic's'' and adding in its place the term ``RHC's''.
0
D. Amending paragraphs (a)(1), (a)(2) introductory text, (a)(3)(i), and
(a)(4)(i) and (ii) by removing the term ``clinic'' and adding in its
place the term ``RHC''.
The revision reads as follows:

Sec. 405.2403 Rural health clinic content and terms of the agreement
with the Secretary.

* * * * *
0
6. Section 405.2404 is amended as follows:
0
A. Revising the section heading.
0
B. Amending paragraphs (a) introductory text, (b)(1) introductory text,
(b)(2), (b)(3), (c), (e) introductory text, by removing the term
``rural health clinic'' each time it appears and by adding in its place
the term ``RHC''.
0
C. Amending paragraph (a)(1), (a)(2)(i), (a)(2)(ii)(A), (a)(3), and
(d)(1) by removing the term ``clinic'' each time it appears and adding
in its place the term ``RHC''.
0
D. Amending paragraph (a)(2)(i) by removing the term ``clinic's'' and
adding in its place the term ``RHC's''.
0
E. In paragraph (a)(2)(ii) introductory text, removing the phrase ``if
he

[[Page 58408]]

determines'' and adding place ``if the Secretary determines''.
0
F. In paragraph (a)(3), removing the phrase ``that shall be deemed''
and adding in its place the phrase ``The Secretary deems it''.
0
G. In paragraph (b)(2), removing the phrase ``The Secretary will give''
and adding in its place the phrase ``The Secretary gives''.
The revisions read as follows:

Sec. 405.2404 Termination of rural health clinic agreements.

* * * * *

Sec. 405.2410 [Amended]

0
7. Section 405.2410 is amended as follows:
0
A. In paragraph (a)(1), removing the term ``rural health clinic'' and
adding in its place the term ``RHC''.
0
B. In paragraph (a)(2), removing the term ``Federally qualified health
center'' and adding in its place the term ``FQHC''.
0
C. Revising paragraph (b).
The revision reads as follows:

Sec. 405.2410 Application of Part B deductible and coinsurance.

* * * * *
(b) Application of coinsurance. The beneficiary's responsibility is
based on either of the following:
(1) For RHCs and FQHCs that are not being paid in accordance with
section 1834(o) of the Act --
(i) A coinsurance amount that does not exceed 20 percent of the
RHC's or FQHC's reasonable customary charge for the covered service;
and
(ii)(A) For any one item or service furnished by the RHC, a
deductible and coinsurance liability that does not exceed twenty
percent of a reasonable customary charge by the RHC for that particular
item or service; or
(ii) For any one item or service furnished by a FQHC, a coinsurance
liability that does not exceed 20 percent of a reasonable customary
charge by the FQHC for that particular item or service.
(2) For FQHCs authorized to bill under the PPS, a coinsurance
amount which is 20 percent of the lesser of--
(i) The FQHC's charge; or
(ii) The PPS rate for the covered service.
0
8. Section 405.2411 is amended as follows:
0
A. Revising paragraph (a) introductory text.
0
B. In paragraphs (a)(1) through (a)(3), removing ``;'' and adding in
its place ``.''.
0
C. Revising paragraphs (a)(4) and (5).
0
D. Adding a new paragraph (a)(6).
0
E. Revising paragraph (b).
The revisions and addition read as follows:

Sec. 405.2411 Scope of benefits.

(a) The following RHC services are reimbursable under this subpart:
* * * * *
(4) Services and supplies furnished as incident to a nurse
practitioner, physician assistant, certified nurse midwife, clinical
psychologist, or clinical social worker service.
(5) Visiting nurse services when provided in accordance with
1861(aa)(1) of the Act and Sec. 405.2416.
(6) Clinical psychologists and clinical social worker services as
specified in Sec. 405.2450.
(b) Rural health clinic services are--
(1) Covered when furnished in a RHC setting or other outpatient
setting, including a patient's place of residence;
(2) Covered when furnished during a Part A stay in a skilled
nursing facility only when provided by a physician, nurse practitioner,
physician assistant, certified nurse midwife or clinical psychologist
employed or under contract with the RHC at the time the services are
furnished; and
(3) Not covered in a hospital as defined in section 1861(e) of the
Act; or critical access hospital as defined in 1861(mm)(1) of the Act).
0
9. Section 405.2412 is revised to read as follows:

Sec. 405.2412 Physicians' services.

Physicians' services are professional services that are furnished
by either of the following:
(a) By a physician at the RHC or FQHC.
(b) Away from the RHC or FQHC by a physician whose agreement with
the RHC or FQHC provides that he or she will be paid by the RHC or FQHC
for such services and certification and cost reporting requirements are
met.

Sec. 405.2413 [Amended]

0
10. Section 405.2413 is amended as follows:
0
A. Amending paragraphs (a)(2) and (a)(5) by removing the term
``clinic's'' and by adding in its place the term ``RHC's''.
0
B. Amending paragraph (a)(5) by removing the term ``clinic'' and by
adding in its place the term ``RHC''.
0
11. Section 405.2414 is amended as follows:
0
A. Revising paragraphs (a) introductory text and (a)(1).
0
B. In paragraphs (a)(2) and (3), removing ``;'' and adding in its place
``.''.
0
C. Revising paragraph (a)(4).
0
D. In paragraph (a)(5), removing the phrase ``They would'' and adding
in its place the phrase ``The services would''.
0
E. In paragraph (c), removing the phrase ``physician assistants, nurse
midwives or specialized nurse practitioners'' and adding in its place
the phrase ``physician assistants or certified nurse midwives''.
The revisions read as follows:

Sec. 405.2414 Nurse practitioner, physician assistant, and certified
nurse midwife services.

(a) Professional services are payable under this subpart if the
services meet all of the following:
(1) Furnished by a nurse practitioner, physician assistant, or
certified nurse midwife who is employed by, or receives compensation
from, the RHC or FQHC.
* * * * *
(4) The services are of a type which the nurse practitioner,
physician assistant, or certified nurse midwife who furnished the
service is legally permitted to perform by the State in which the
service is rendered.
0
12. Section 405.2415 is revised to read as follows:

Sec. 405.2415 Services and supplies incident to nurse practitioner,
physician assistant, certified nurse midwife, clinical psychologist, or
clinical social worker services.

(a) Services and supplies incident to a nurse practitioner,
physician assistant, certified nurse midwife, clinical psychologist, or
clinical social worker service are payable under this subpart if the
service or supply is all of the following:
(1) Of a type commonly furnished in physicians' offices.
(2) Of a type commonly rendered either without charge or included
in the RHC's bill.
(3) Furnished as an incidental, although integral part of
professional services furnished by a nurse practitioner, physician
assistant, certified nurse midwife, clinical psychologist, or clinical
social worker.
(4) Furnished under the direct, personal supervision of a
physician, nurse practitioner, physician assistant, certified nurse
midwife, clinical psychologist, or clinical social worker.
(5) In the case of a service, furnished by a member of the RHC's
health care staff who is an employee of the RHC.
(b) The direct personal supervision requirement is met in the case
of any of the following persons only if the person is permitted to
supervise these services under the written policies governing the RHC:

[[Page 58409]]

(1) Nurse practitioner.
(2) Physician assistant.
(3) Certified nurse midwife.
(4) Clinical psychologist.
(5) Clinical social worker.
(c) Only drugs and biologicals which cannot be self-administered
are included within the scope of this benefit.
0
13. Section 405.2416 is amended as follows:
0
A. Revising paragraphs (a) introductory text and (a)(1).
0
B. In paragraph (a)(2), removing the semicolon and adding a period in
its place.
0
C. Revising paragraphs (a)(3) and (4).
0
D. Revising paragraphs (b) introductory text and (b)(1).
The revisions read as follows:

Sec. 405.2416 Visiting nurse services.

(a) Visiting nurse services are covered if the services meet all of
the following:
(1) The RHC or FQHC is located in an area in which the Secretary
has determined that there is a shortage of home health agencies.
* * * * *
(3) The services are furnished by a registered professional nurse
or licensed practical nurse that is employed by, or receives
compensation for the services from the RHC or FQHC.
(4) The services are furnished under a written plan of treatment
that is both of the following:
(i)(A) Established and reviewed at least every 60 days by a
supervising physician of the RHC or FQHC; or
(B) Established by a nurse practitioner, physician assistant, or
certified nurse midwife and reviewed at least every 60 days by a
supervising physician.
(ii) Signed by the supervising physician, nurse practitioner,
physician assistant or certified nurse midwife of the RHC or FQHC.
(b) The nursing care covered by this section includes the
following:
(1) Services that must be performed by a registered professional
nurse or licensed practical nurse if the safety of the patient is to be
assured and the medically desired results achieved.
* * * * *

Sec. 405.2417 [Amended]

0
14. Section 405.2417 is amended as follows:
0
A. In the introductory text, removing the phrase ``rural health
clinic'' and adding in its place ``RHC or FQHC''.
0
B. In paragraph (a), removing the phrase ``rural health clinic'' and
adding in its place ``RHC or FQHC''.
0
C. In paragraph (b), removing ``; or'' and adding in its place ``.''.
0
15. Section 405.2430 is amended as follows:
0
A. Revising paragraphs (a)(1) introductory text and (a)(1)(i) and (ii).
0
B. In paragraph (a)(4), removing the phrase ``Federally qualified
health center'' and adding in its place the term ``FQHC''.
0
C. Revising paragraph (b).
0
D. Removing paragraph (c).
0
E. Redesignating paragraph (d) as paragraph (c).
The revisions read as follows:

Sec. 405.2430 Basic requirements.

(a) * * *
(1) In response to a request from an entity that wishes to
participate in the Medicare program, CMS enters into an agreement with
an entity when all of the following occur:
(i) HRSA approves the entity as meeting the requirements of section
330 of the PHS Act.
(ii) The entity assures CMS that it meets the requirements
specified in this subpart and part 491, as described in Sec.
405.2434(a).
* * * * *
(b) Prior HRSA FQHC determination. An entity applying to become a
FQHC must do the following:
(1) Be determined by HRSA as meeting the applicable requirements of
the PHS Act, as specified in Sec. 405.2401(b).
(2) Receive approval by HRSA as a FQHC under section 330 of the PHS
Act (42 U.S.C. 254b).
* * * * *
0
16. Section 405.2434 is amended as follows:
0
A. In the introductory text, removing the phrase ``Federally qualified
health center'' and adding in its place the term ``FQHC''.
0
B. In paragraph (a)(1), removing the phrase ``Federally qualified
health center'' and adding in its place the term ``FQHC'' each time it
appears.
0
C. In paragraph (a)(2), removing the term ``Centers'' and adding in its
place the term ``FQHCs''.
0
D. Revising paragraphs (b) and (c)(1).
0
E. In paragraph (c)(3), removing the phrase ``Federally qualified
health center'' and adding in its place the term ``FQHC'' each time it
appears.
0
F. Revising paragraph (c)(4).
0
G. In paragraphs (d)(1), (d)(3) introductory text, and (e)(1) through
(3) by removing the phrase ``Federally qualified health center'' and
adding in its place the term ``FQHC''.
0
H. In paragraphs (d)(3)(ii) and (e)(2) by removing the phrase
``Federally qualified health center's'' and adding in its place the
term ``FQHC's'' .
The revisions read as follows:

Sec. 405.2434 Content and terms of the agreement.

* * * * *
(b) Effective date of agreement. The effective date of the
agreement is determined in accordance with the provisions of Sec.
489.13.
(c) * * *
(1) For non-FQHC services that are billed to Part B, the
beneficiary is responsible for payment of a coinsurance amount which is
20 percent of the amount of Part B payment made to the center for the
covered services.
* * * * *
(4) The FQHC may charge the beneficiary for items and services that
are not FQHC services. If the item or service is covered under Medicare
Part B, the FQHC may not charge the beneficiary more than 20 percent of
the Part B payment amount.
* * * * *

Sec. 405.2436 [Amended]

0
17. Section 405.2436 is amended as follows:
0
A. In paragraphs (a) introductory text, (a)(2), (b)(1)(i), (b)(3),
(c)(1) introductory text, (c)(2), (c)(3), and (d) by removing the
phrase ``Federally qualified health center'' each time it appears and
adding in its place the term ``FQHC''.
0
B. In paragraphs (b)(1) introductory text, (b)(1)(ii), (b)(2)
introductory text, and (d) by removing the phrase ``Federally qualified
health center's'' and adding in its place the term ``FQHC's''.
0
18. Section 405.2440 is amended by revising the introductory text to
read as follows.

Sec. 405.2440 Conditions for reinstatement after termination by CMS.

When CMS has terminated an agreement with a FQHC, CMS does not
enter into another agreement with the FQHC to participate in the
Medicare program unless CMS--
* * * * *

Sec. 405.2442 [Amended]

0
19. Section 405.2442 is amended as follows:
0
A. In paragraph (a) introductory text by removing the phrase
``Federally qualified health center'' and adding in its place the term
``FQHC''.
0
B. In paragraph (b) by removing the phrase ``Federally qualified health
center's'' and adding in its place the term ``FQHC's''.

Sec. 405.2444 [Amended]

0
20. Section 405.2444 is amended as follows:

[[Page 58410]]

0
A. In paragraph (c), removing the phrase ``Federally qualified health
center'' and adding in its place the term ``FQHC'' each time it
appears.
0
B. In paragraphs (a)(2) and (c) by removing the term ``center'' each
time it appears, and by adding in its place the term ``FQHC'' .
0
21. Section 405.2446 is amended as follows:
0
A. Revising paragraphs (a), (b)(2), (3), (4), and (6).
0
B. Removing paragraph (b)(8).
0
C. Redesignating paragraphs (b)(9) and (10) as (b)(8) and (9),
respectively.
0
D. In paragraphs (c) and (d), removing the phrase ``Federally quality
health center'' and adding in its place the term ``FQHC''.
The revisions read as follows:

Sec. 405.2446 Scope of services.

(a) For purposes of this section, the terms rural health clinic and
RHC when they appear in the cross references in paragraph (b) of this
section also mean Federally qualified health centers and FQHCs.
(b) * * *
(2) Services and supplies furnished as incident to a physician's
professional service, as specified in Sec. 405.2413.
(3) Nurse practitioner, physician assistant or certified nurse
midwife services as specified in Sec. 405.2414.
(4) Services and supplies furnished as incident to a nurse
practitioner, physician assistant, or certified nurse midwife service,
as specified in Sec. 405.2415.
* * * * *
(6) Services and supplies furnished as incident to a clinical
psychologist or clinical social worker service, as specified in Sec.
405.2452.
* * * * *
0
22. Section 405.2448 is amended as follows:
0
A. Revising paragraphs (a) introductory text and (a)(1) through (3).
0
B. In paragraph (b) introductory text, removing the phrase ``Federally
quality health centers'' and adding in its place the term ``FQHCs''.
0
C. In paragraph (d), removing the phrase ``a Federally qualified health
center service, but may be provided at a Federally qualified health
center if the center'' and adding in its place the phrase ``FQHC
service, but may be provided at a FQHC if the FQHC''.
The revisions read as follows:

Sec. 405.2448 Preventive primary services.

(a) Preventive primary services are those health services:
(1) A FQHC is required to provide as preventive primary health
services under section 330 of the PHS Act.
(2) Furnished by or under the direct supervision of a physician,
nurse practitioner, physician assistant, certified nurse midwife,
clinical psychologist or clinical social worker.
(3) In the case of a service, furnished by a member of the FQHC's
health care staff who is an employee of the FQHC or by a physician
under arrangements with the FQHC.
* * * * *

Sec. 405.2449 [Amended]

0
23. Section 405.2449 is amended as follows:
0
A. In the introductory text, removing the phrase ``Federally qualified
health center'' and adding in its place the term ``FQHC''.
0
B. In paragraph (b), removing ``; and'' and adding in its place ``.''.

Sec. 405.2452 [Amended]

0
24. Section 405.2452 is amended as follows:
0
A. In paragraph (a)(2), by removing the phrase ``Federally quality
health center's'' and adding in its place the term ``FQHC's''.
0
B. In paragraph (b), by removing the phrase ``Federally quality health
center'' and adding in its place the term ``FQHC''.
0
C. In paragraph (a)(5), removing the term ``center'' and adding in its
place the term ``FQHC''.
0
25. Section 405.2460 is revised to read as follows:

Sec. 405.2460 Applicability of general payment exclusions.

The payment conditions, limitations, and exclusions set out in
subpart C of this part, part 410 and part 411 of this chapter are
applicable to payment for services provided by RHCs and FQHCs, except
that preventive primary services, as defined in Sec. 405.2448, are
statutorily authorized in FQHCs and not excluded by the provisions of
section 1862(a) of the Act.
0
26. Section 405.2462 is revised to read as follows:

Sec. 405.2462 Payment for RHC and FQHC services.

(a) Payment to provider-based RHCs and FQHCs that are authorized to
bill under the reasonable cost system. A RHC or FQHC that is authorized
to bill under the reasonable cost system is paid in accordance with
parts 405 and 413 of this subchapter, as applicable, if the RHC or FQHC
is--
(1) An integral and subordinate part of a hospital, skilled nursing
facility or home health agency participating in Medicare (that is, a
provider of services); and
(2) Operated with other departments of the provider under common
licensure, governance and professional supervision.
(b) Payment to independent RHCs and freestanding FQHCs that are
authorized to bill under the reasonable cost system. (1) RHCs and FQHCs
that are authorized to bill under the reasonable cost system are paid
on the basis of an all-inclusive rate for each beneficiary visit for
covered services. This rate is determined by the MAC, in accordance
with this subpart and general instructions issued by CMS.
(2) The amount payable by the MAC for a visit is determined in
accordance with paragraphs (e)(1) and (2) of this section.
(c) Payment to FQHCs that are authorized to bill under the
prospective payment system. A FQHC that is authorized to bill under the
prospective payment system is paid a single, per diem rate based on the
prospectively set rate for each beneficiary visit for covered services.
This rate is adjusted for the following:
(1) Geographic differences in cost based on the Geographic Practice
Cost Indices (GPCIs) in accordance with 1848(e) of the Act and 42 CFR
414.2 and 414.26 and used to adjust payment under the physician fee
schedule, limited to only the work and practice expense GPCIs.
(2) Furnishing of care to a new patient with respect to the FQHC,
including all sites that are part of the FQHC, or to a beneficiary
receiving a comprehensive initial Medicare visit (that is an initial
preventive physical examination or an initial annual wellness visit). A
new patient is one that has not been seen in the FQHC's organization
within the previous 3 years.
(d) For FQHC visits, Medicare pays 80 percent of the all-inclusive
rate for FQHCs that are authorized to bill under the reasonable cost
system, and 80 percent of the lesser of the FQHC's charge or the PPS
encounter rate for FQHCs authorized to bill under the PPS. No
deductible is applicable to FQHC services.
(e) For RHCs visits, payment is made in accordance with one of the
following:
(1) If the deductible has been fully met by the beneficiary prior
to the RHC, Medicare pays 80 percent of the all-inclusive rate.
(2) If the deductible has not been fully met by the beneficiary
before the visit, and the amount of the RHC's reasonable customary
charge for the services that is applied to the deductible is less than
the all-inclusive rate, the amount applied to the deductible is
subtracted from the all-

[[Page 58411]]

inclusive rate and 80 percent of the remainder, if any, is paid to the
RHC.
(3) If the deductible has not been fully met by the beneficiary
before the visit, and the amount of the RHC's reasonable customary
charge for the services that is applied to the deductible is equal to
or exceeds the all-inclusive rate, no payment is made to the RHC.
(f) To receive payment, the FQHC or RHC must do all of the
following:
(1) Furnish services in accordance with the requirements of subpart
X of part 405 of this chapter and subpart A of part 491 of this
chapter.
(2) File a request for payment on the form and manner prescribed by
CMS.
27. Section 405.2463 is revised to read as follows:

Sec. 405.2463 What constitutes a visit.

(a) Visit. (1) General. (i) For RHCs, a visit is a face-to-face
encounter between a RHC patient and one of the following:
(A) Physician.
(B) Physician assistant.
(C) Nurse practitioner.
(D) Certified nurse midwife.
(E) Visiting registered professional or licensed practical nurse.
(G) Clinical psychologist.
(H) Clinical social worker.
(I) Qualified transitional care management service.
(ii) For FQHCs, a visit is either of the following:
(A) A face-to-face encounter as described in paragraph (a)(1)(i) of
this section.
(B) A face-to-face encounter between a patient and one of the
following:
(1) A qualified provider of medical nutrition therapy services as
defined in part 410 subpart G of this chapter.
(2) A qualified provider of outpatient diabetes self-management
training services as defined in part 410 subpart H of this chapter.
(2) Medical visit. (i) A medical visit is a face-to-face encounter
between a RHC or FQHC patient and one of the following:
(A) Physician.
(B) Physician assistant.
(C) Nurse practitioner.
(D) Certified nurse midwife.
(E) Visiting registered professional or licensed practical nurse.
(i) A medical visit for FQHCs may also include a--
(A) Medical nutrition therapy visit; or
(B) Diabetes outpatient self-management training visit.
(3) Mental health visit. A mental health visit is a face-to-face
encounter between a RHC or FQHC patient and one of the following:
(i) Clinical psychologist.
(ii) Clinical social worker.
(iii) Other RHC or FQHC practitioner for mental health services.
(b) Encounters and Payment for RHCs and FQHCs that are not being
paid under section 1834(o) of the Act. (1) For RHCs and FQHCs that are
authorized to bill under the reasonable cost system, encounters with
more than one health professional and multiple encounters with the same
health professional that take place on the same day and at a single
location constitute a single visit, except when one of the following
conditions exist:
(i) The patient, subsequent to the first visit, suffers an illness
or injury that requires additional diagnosis or treatment on the same
day.
(ii) The patient has a medical visit and a mental health visit on
the same day.
(iii) The patient has an initial preventive physical exam visit and
a separate medical or mental health visit on the same day.
(2) For RHCs and FQHCs that are authorized to bill under the
reasonable cost system. Medicare pays RHCs and FQHCs that are not being
paid under section 1834(o) of the Act for more than 1 visit per day
when the conditions in paragraph (b) of this section are met.
0
28. Section 405.2464 is revised to read as follows:

Sec. 405.2464 Payment rate.

(a) Determination of the payment rate for RHCs and FQHCs that are
authorized to bill on the basis of reasonable cost. (1) An all-
inclusive rate is determined by the MAC at the beginning of the cost
reporting period.
(2) The rate is determined by dividing the estimated total
allowable costs by estimated total visits for RHC or FQHC services.
(3) The rate determination is subject to any tests of
reasonableness that may be established in accordance with this subpart.
(4) The MAC, during each reporting period, periodically reviews the
rate to assure that payments approximate actual allowable costs and
visits and adjusts the rate if:
(i) There is a significant change in the utilization of services;
(ii) Actual allowable costs vary materially from allowable costs;
or
(iii) Other circumstances arise which warrant an adjustment.
(5) The RHC or FQHC may request the MAC to review the rate to
determine whether adjustment is required.
(b) Determination of the payment rate for FQHCs billing under the
prospective payment system. (1) An encounter-based rate is calculated
by CMS by dividing total FQHC costs by total FQHC encounters to
establish an average cost per encounter.
(2) The exceptions in Sec. 405.2463(b) do not apply.
(3) The encounter-based rate is adjusted--
(i) For geographic differences in the cost of inputs according to
Sec. 405.2462(c)(1).
(ii) When the FQHC furnishes services to a new patient, as defined
in Sec. 405.2462(b)(3)(ii).
(iii) When a beneficiary receives a comprehensive initial Medicare
visit (that is, an initial preventive physical examination or an
initial annual wellness visit).
0
29. Section 405.2466 is amended as follows:
0
A. By revising paragraph (a) and the paragraph (b) heading.
0
B. In paragraph (b)(1) introductory text by removing the term
``intermediary'' each time it appears and by adding in its place the
term ``MAC''.
0
C. In paragraphs (b)(1)(i), and (b)(1)(ii) by removing the term ``rural
health clinic'' each time it appears and by adding in its place the
term ``RHC''.
0
D. Revising paragraph (b)(1)(iii).
0
E. In paragraph (b)(1)(iv) by removing the term ``rural health
clinics'' and by adding in its place the term ``RHCs''.
0
F. In paragraphs (b)(1)(i), and (b)(1)(ii) by removing the term
``Federally qualified health center'' and by adding in its place the
term ``FQHC''.
0
G. In paragraphs (b)(1) introductory text, (b)(2), (c)(1), and (c)(2)
by removing the word ``clinic'' each time it appears and by adding in
its place the term ``RHC''.
0
H. In paragraphs (b)(1) introductory text, (b)(2), (c)(1), (c)(2), and
(d)(2) by removing the word ``center'' each time it appears and by
adding in its place the term ``FQHC''.
0
I. Revising paragraphs (c) introductory text, and (d)(1).
0
J. In paragraph (d)(2) by removing the term ``intermediary'' each time
it appears and by adding in its place the term ``MAC''.
The revisions read as follows:

Sec. 405.2466 Annual reconciliation.

(a) General. Payments made to RHCs or FQHCs that are authorized to
bill under the reasonable cost system during a reporting period are
subject to annual reconciliation to assure that those payments do not
exceed or fall short of the allowable costs attributable to covered
services furnished to Medicare beneficiaries during that period.
(b) Calculation of reconciliation for RHCs or FQHCs that are
authorized to bill under the reasonable cost system.
(1) * * *

[[Page 58412]]

(iii) The total payment due the RHC is 80 percent of the amount
calculated by subtracting the amount of deductible incurred by
beneficiaries that is attributable to RHC services from the cost of
these services. FQHC services are not subject to a deductible and the
payment computation for FQHCs does not include a reduction related to
the deductible.
* * * * *
(c) Notice of program reimbursement. The MAC notifies the RHC or
FQHC that is authorized to bill under the reasonable costs system:
* * * * *
(d) * * *
(1) Underpayments. If the total reimbursement due the RHC or FQHC
that is authorized to bill under the reasonable cost system exceeds the
payments made for the reporting period, the MAC makes a lump-sum
payment to the RHC or FQHC to bring total payments into agreement with
total reimbursement due the RHC or FQHC.
* * * * *
0
30. Add Sec. 405.2467 to read as follows:

Sec. 405.2467 Requirements of the FQHC PPS.

(a) Cost reporting. For cost reporting periods beginning on or
after October 1, 2014, FQHCs are paid on a PPS basis that does all of
the following:
(1) Includes a process for appropriately describing the services
furnished by FQHCs.
(2) Establishes payment rates for specific payment codes based on
such appropriate descriptions of services.
(3) Takes into account the type, intensity and duration of services
furnished by FQHCs.
(4) May include adjustments (such as geographic adjustments)
determined by the Secretary.
(b) HCPCS coding. FQHCs are required to submit HCPCS codes in
reporting services furnished.
(c) Initial payments. (1) Beginning October 1, 2014, for the first
fifteen months of the PPS, the estimated aggregate amount of PPS rates
is equal to 100 percent of the estimated amount of reasonable costs
that would have occurred for that period if the PPS had not been
implemented.
(2) Payment amount is calculated prior to any FQHC payments based
on the reasonable cost system.
(d) Payments in subsequent years. (1) Beginning January 1, 2016,
PPS payment rates will be increased by the percentage increase in the
Medicare economic index.
(2) Beginning January 1, 2017, PPS rates will be increased by the
percentage increase in a market basket of FQHC goods and services as
established through regulations, or, if not available, the Medicare
economic index.
0
31. Section 405.2468 is amended:
0
A. In paragraph (a) by removing the word ``intermediary'', and by
adding in its place the word ``MAC''.
0
B. In paragraphs (b) introductory text and (c) by removing the term
``rural health clinic'' and by adding in its place the term ``RHC''.
0
C. In paragraph (b) introductory text by removing the term ``Federally
qualified health center'' and by adding in its place the term ``FQHC''.
0
D. In paragraphs (b)(4), (b)(5), (d)(2)(iv), and (d)(2)(v) by removing
the word ``clinic'' each time it appears and by adding in its place the
term ``RHC''.
0
E. In paragraphs (b)(4), (b)(5), (d)(2)(iv), (d)(2)(v) by removing the
word ``center'' each time it appears and by adding in its place the
term ``FQHC''.
0
F. Revising paragraphs (b)(1), (c), and (d)(1).
The revisions read as follows:

Sec. 405.2468 Allowable costs.

* * * * *
(b) * * *
(1) Compensation for the services of a physician, physician
assistant, nurse practitioner, certified nurse-midwife, visiting
registered professional or licensed practical nurse, clinical
psychologist, and clinical social worker who owns, is employed by, or
furnishes services under contract to a FQHC or RHC.
* * * * *
(c) Tests of reasonableness of cost and utilization. Tests of
reasonableness authorized by sections 1833(a) and 1861(v)(1)(A) of the
Act may be established by CMS or the MAC with respect to direct or
indirect overall costs, costs of specific items and services, or costs
of groups of items and services. For RHCs and FQHCs that are authorized
to bill under the reasonable cost system, these tests include, but are
not limited to, screening guidelines and payment limits.
(d) Screening guidelines. (1) Costs in excess of amounts
established by the guidelines are not included unless the RHC or FQHC
that is authorized to bill under the reasonable cost system provides
reasonable justification satisfactory to the MAC.
* * * * *
0
32. Section 405.2469 is revised by to read as follows:

Sec. 405.2469 Federally qualified health centers (FQHCs) supplemental
payments.

(a) Eligibility for supplemental payments. FQHCs under contract
(directly or indirectly) with MA organizations are eligible for
supplemental payments for FQHC services furnished to enrollees in MA
plans offered by the MA organization to cover the difference, if any,
between their payments from the MA plan and what they would receive
either:
(1) Under the reasonable cost payment system if the FQHC is
authorized to bill under the reasonable cost payment system, or
(2) The PPS rate if the FQHC is authorized to bill under the PPS.
(b) Calculation of supplemental payment. The supplemental payment
for FQHC covered services provided to Medicare patients enrolled in MA
plans is based on the difference between--
(1) Payments received by the FQHC from the MA plan as determined on
a per visit basis and the FQHCs all-inclusive cost-based per visit rate
as set forth in this subpart, less any amount the FQHC may charge as
described in section 1857(e)(3)(B) of the Act, or.
(2) Payments received by the FQHC from the MA plan as determined on
a per visit basis and the FQHC PPS rate as set forth in this subpart,
less any amount the FQHC may charge as described in section
1857(e)(3)(B) of the Act.
(c) Financial incentives. Any financial incentives provided to
FQHCs under their MA contracts, such as risk pool payments, bonuses, or
withholds, are prohibited from being included in the calculation of
supplemental payments due to the FQHC.
(d) Per visit supplemental payment. A supplemental payment required
under this section is made to the FQHC when a covered face-to-face
encounter occurs between a MA enrollee and a practitioner as set forth
in Sec. 405.2463.

Sec. 405.2470 [Amended]

0
33. Section 405.2470 is amended by:
0
A. In paragraphs (a)(1), (b)(1), and (c)(3) through (5) by removing the
word ``intermediary'', and by adding in its place the word ``MAC''.
0
B. In paragraphs (b)(2), by removing the word ``intermediary's'' and
adding in its place the word ``MAC's''.
0
C. In paragraphs (a) introductory text, (c)(1), and (c)(2)(i) and (ii)
by removing the term ``rural health clinic'' and by adding in its place
the term ``RHC''.
0
D. In paragraphs (a) introductory text, (c)(1), and (c)(2)(i) and (ii)
by removing the term ``Federally qualified health center'' and by
adding in its place the term ``FQHC''.
0
E. In paragraphs (b)(1) and (2), (c)(1), (c)(2) introductory text, and
(c)(3) through (6) by removing the word ``clinic'' and by adding in its
place the term ``RHC''.

[[Page 58413]]

0
F. In paragraphs (b)(1) and (2), (c)(1), (c)(2) introductory text, and
(c)(3) through (6) by removing the word ``center'' each time it appears
and by the term ``FQHC''.
0
34. Section 405.2472 is amended by revising paragraph (a) to read as
follows:

Sec. 405.2472 Beneficiary appeals.

* * * * *
(a) The beneficiary is dissatisfied with a MAC's determination
denying a request for payment made on his or her behalf by a RHC or
FQHC;
* * * * *

PART 491--CERTIFICATION OF CERTAIN HEALTH FACILITIES

0
35. The authority citation for part 491 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302); and sec. 353 of the Public Health Service Act (42 U.S.C.
263a).

0
36. Section 491.8 is amended by revising paragraph (a)(3).

Sec. 491.8 Staffing and staff responsibilities.

(a) * * *
(3) The physician assistant, nurse practitioner, nurse-midwife,
clinical social worker or clinical psychologist member of the staff may
be the owner or an employee of the clinic or center, or may furnish
services under contract to the clinic or center. In the case of a
clinic, at least one physician assistants or nurse practitioner must be
an employee of the clinic.
* * * * *

PART 493--LABORATORY REQUIREMENTS

0
37. The authority citation for Part 493 is revised to read as follows:

Authority: Sec. 353 of the Public Health Service Act, secs.
1102, 1861(e), the sentence following sections 1861(s)(11) through
1861(s)(16) of the Social Security Act (42 U.S.C. 263a, 1302,
1395x(e), the sentence following 1395x(s)(11) through 1395x(s)(16)),
and the Public Law 112-202 amendments to 42 U.S.C 263a.

0
38. Section 493.1 is amended by revising the second sentence to read as
follows:

Sec. 493.1 Basis and scope.

* * * It implements sections 1861 (e) and (j), the sentence
following section 1861(s)(13), and 1902(a)(9) of the Social Security
Act, and section 353 of the Public Health Service Act, as amended by
section 2 of the Taking Essential Steps for Testing Act of 2012. * * *
0
39. Section 493.2 is revised by adding the definition of ``Repeat
proficiency testing referral'' in alphabetical order to read as
follows:

Sec. 493.2 Definitions.

* * * * *
Repeat proficiency testing referral means a second instance in
which a proficiency testing sample, or a portion of a sample, is
referred, for any reason, to another laboratory for analysis prior to
the laboratory's proficiency testing program event cut-off date within
the period of time encompassing the two prior survey cycles (including
initial certification, recertification, or the equivalent for
laboratories surveyed by an approved accreditation organizations).
* * * * *
0
40. Section 493.1800 is amended by revising paragraph (a)(2)
introductory text to read as follows:

Sec. 493.1800 Basis and scope.

(a) * * *
(2) The Clinical Laboratories Improvement Act of 1967 (section 353
of the Public Health Service Act) as amended by CLIA 1988, as amended
by section 2 of the Taking Essential Steps for Testing Act of 2012.
* * * * *
0
41. Section 493.1840 is amended by revising paragraph (b) to read as
follows:

Sec. 493.1840 Suspension, limitation, or revocation of any type of
CLIA certificate.

* * * * *
(b) Adverse action based on improper referrals in proficiency
testing. If CMS determines that a laboratory has intentionally referred
its proficiency testing samples to another laboratory for analysis, CMS
does one of the following:
(1) Revokes the laboratory's CLIA certificate for at least 1 year,
prohibits the owner and operator from owning or operating a CLIA-
certified laboratory for at least 1 year, and may also impose a civil
money penalty in accordance with Sec. 493.1834(d), if CMS determines
that--
(i) A proficiency testing referral is a repeat proficiency testing
referral as defined at Sec. 493.2; or
(ii) On or before the proficiency testing event close date, a
laboratory reported proficiency testing results obtained from another
laboratory to the proficiency testing program.
(2) Suspends or limits the CLIA certificate for less than 1 year
based on the criteria in Sec. 493.1804(d), and also impose alternate
sanctions as appropriate, in accordance with Sec. Sec. 493.1804(c) and
(d), 493.1806(c), 493.1807(b), 493.1809 and, in the case of civil money
penalties, Sec. 493.1834(d), when CMS determines that paragraph
(b)(1)(i) or (ii) of this section does not apply but that the
laboratory obtained test results for the proficiency testing samples
from another laboratory on or before the proficiency testing event
close date. Among other possibilities, alternative sanctions will
always include a civil money penalty and a directed plan of correction
that includes required training of staff.
(3) Imposes alternate sanctions in accordance with Sec. Sec.
493.1804(c) and (d), 493.1806(c), 493.1807(b), 493.1809 and, in the
case of civil money penalties, Sec. 493.1834(d), when CMS determines
that paragraph (b)(1) or (2) of this section do not apply, and a PT
referral has occurred, but no test results are received prior to the
event close date by the referring laboratory from the laboratory that
received the referral. Among other possibilities, alternative sanctions
will always include a civil money penalty and a directed plan of
correction that includes required training of staff.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare
Supplementary Medical Insurance Program)

Dated: September 5, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
Approved: September 10, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

Note: The following Addendum will not appear in the Code of
Federal Regulations.

Addendum: Proposed Geographic Adjustment Factors (GAFs) for the FQHC
PPS

As described in section II.C.2. of this proposed rule, the
proposed GAFs for the FQHC PPS are based on the proposed CY 2014
work and practice expense GPCIs and the proposed cost share weights
for the CY 2014 GPCI update, as published in the CY 2014 PFS
proposed rule. These GAFs are subject to change in the final FQHC
PPS rule based on more current data, including the finalized PFS
GPCI and cost share weight values.

------------------------------------------------------------------------
Locality name GAF
------------------------------------------------------------------------
1 Alabama...................................................... 0.933
2 Alaska....................................................... 1.306
3 Arizona...................................................... 0.984
4 Arkansas..................................................... 0.919
5 Anaheim/Santa Ana, CA........................................ 1.122
6 Los Angeles, CA.............................................. 1.095
7 Marin/Napa/Solano, CA........................................ 1.154
8 Oakland/Berkeley, CA......................................... 1.152
9 San Francisco, CA............................................ 1.215
10 San Mateo, CA............................................... 1.209
11 Santa Clara, CA............................................. 1.203
12 Ventura, CA................................................. 1.104
13 Rest of California.......................................... 1.053
14 Colorado.................................................... 1.002
15 Connecticut................................................. 1.066

[[Page 58414]]

16 DC + MD/VA Suburbs.......................................... 1.120
17 Delaware.................................................... 1.024
18 Fort Lauderdale, FL......................................... 1.013
19 Miami, FL................................................... 1.016
20 Rest of Florida............................................. 0.973
21 Atlanta, GA................................................. 1.005
22 Rest of Georgia............................................. 0.940
23 Hawaii/Guam................................................. 1.075
24 Idaho....................................................... 0.935
25 Chicago, IL................................................. 1.032
26 East St. Louis, IL.......................................... 0.962
27 Suburban Chicago, IL........................................ 1.040
28 Rest of Illinois............................................ 0.944
29 Indiana..................................................... 0.947
30 Iowa........................................................ 0.929
31 Kansas...................................................... 0.933
32 Kentucky.................................................... 0.925
33 New Orleans, LA............................................. 0.983
34 Rest of Louisiana........................................... 0.929
35 Southern Maine.............................................. 0.998
36 Rest of Maine............................................... 0.940
37 Baltimore/Surr. Cntys, MD................................... 1.058
38 Rest of Maryland............................................ 1.023
39 Metropolitan Boston......................................... 1.081
40 Rest of Massachusetts....................................... 1.037
41 Detroit, MI................................................. 1.009
42 Rest of Michigan............................................ 0.957
43 Minnesota................................................... 1.005
44 Mississippi................................................. 0.916
45 Metropolitan Kansas City, MO................................ 0.968
46 Metropolitan St Louis, MO................................... 0.974
47 Rest of Missouri............................................ 0.905
48 Montana..................................................... 0.974
49 Nebraska.................................................... 0.938
50 Nevada...................................................... 1.026
51 New Hampshire............................................... 1.021
52 Northern NJ................................................. 1.108
53 Rest of New Jersey.......................................... 1.070
54 New Mexico.................................................. 0.954
55 Manhattan, NY............................................... 1.107
56 NYC Suburbs/Long I., NY..................................... 1.123
57 Poughkpsie/N NYC Suburbs, NY................................ 1.038
58 Queens, NY.................................................. 1.122
59 Rest of New York............................................ 0.965
60 North Carolina.............................................. 0.953
61 North Dakota................................................ 0.982
62 Ohio........................................................ 0.959
63 Oklahoma.................................................... 0.913
64 Portland, OR................................................ 1.024
65 Rest of Oregon.............................................. 0.975
66 Metropolitan Philadelphia, PA............................... 1.043
67 Rest of Pennsylvania........................................ 0.957
68 Puerto Rico................................................. 0.808
69 Rhode Island................................................ 1.035
70 South Carolina.............................................. 0.945
71 South Dakota................................................ 0.974
72 Tennessee................................................... 0.936
73 Austin, TX.................................................. 1.001
74 Beaumont, TX................................................ 0.941
75 Brazoria, TX................................................ 1.002
76 Dallas, TX.................................................. 1.013
77 Fort Worth, TX.............................................. 0.995
78 Galveston, TX............................................... 1.009
79 Houston, TX................................................. 1.009
80 Rest of Texas............................................... 0.952
81 Utah........................................................ 0.945
82 Vermont..................................................... 0.991
83 Virginia.................................................... 0.986
84 Virgin Islands.............................................. 1.000
85 Seattle (King Cnty), WA..................................... 1.083
86 Rest of Washington.......................................... 1.003
87 West Virginia............................................... 0.901
88 Wisconsin................................................... 0.972
89 Wyoming..................................................... 0.989
------------------------------------------------------------------------

[FR Doc. 2013-22821 Filed 9-18-13; 2:00 pm]
BILLING CODE 4120-01-P