[Federal Register Volume 79, Number 85 (Friday, May 2, 2014)]
[Rules and Regulations]
[Pages 25435-25482]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09908]



[[Page 25435]]

Vol. 79

Friday,

No. 85

May 2, 2014

Part V





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 410, et al.





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; Final Rule

Federal Register / Vol. 79 , No. 85 / Friday, May 2, 2014 / Rules and 
Regulations

[[Page 25436]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 491, and 493

[CMS-1443-FC]
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: Final rule with comment period.

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SUMMARY: This final rule with comment period implements 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. In addition, it establishes a policy which allows 
rural health clinics (RHCs) to contract with nonphysician practitioners 
when statutory requirements for employment of nurse practitioners and 
physician assistants are met, and makes other technical and conforming 
changes to the RHC and FQHC regulations. Finally, this final rule with 
comment period implements changes to the Clinical Laboratory 
Improvement Amendments (CLIA) regulations regarding enforcement actions 
for proficiency testing (PT) referrals.

DATES: Effective Dates: The provisions of this final rule with comment 
period are effective on October 1, 2014, except for amendments to Sec.  
405.2468(b)(1), Sec.  491.8(a)(3), Sec.  493.1, Sec.  493.2, Sec.  
493.1800, and Sec.  493.1840 which are effective July 1, 2014.
    Comment Period: We will consider comments on the subjects indicated 
in sections II.B.1., E.2. and E.4. of this final rule with comment 
period received at one of the addresses provided below, no later than 5 
p.m. on July 1, 2014.

ADDRESSES: In commenting, please refer to file code CMS-1443-FC. 
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-FC, 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-FC, 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.

    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.

SUPPLEMENTARY INFORMATION:

Acronyms

ACS American Community Survey
AI/AN American Indian/Alaskan Native
AIR All-Inclusive Rate
APCP Advanced Primary Care Practice
BLS Bureau of Labor Statistics
CCM Chronic Care Management
CCN CMS Certification Number
CCR Cost-To-Charge Ratio
CFR Code of Federal Regulations
CLIA Clinical Laboratory Improvement Amendments of 1988
CMP Civil Monetary Penalty
CMS Centers for Medicare & Medicaid Services
CNM Certified Nurse Midwife
CP Clinical Psychologist
CR Change Request
CSW Clinical Social Worker
CY Calendar Year
DSMT Diabetes Self-Management Training
EHR Electronic Health Record
E/M Evaluation and Management
FQHC Federally Qualified Health Center
FSHCAA Federally Supported Health Centers Assistance Act
FTCA Federal Tort Claims 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

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MCO Managed Care Organization
MEI Medicare Economic Index
MIPPA Medicare Improvements for Patients and Providers Act
MNT Medical Nutrition Therapy
MSA Metropolitan Statistical Area
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
RIA Regulatory Impact Analysis
RHC Rural Health Clinic
SNF Skilled Nursing Facility
UDS Uniform Data System
UPL Upper Payment Limit

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose and Legal Authority
    2. Summary of Major Provisions
    a. FQHC PPS
    b. Other FQHC and RHC Provisions
    c. CLIA Enforcement Actions for Proficiency Testing Referral 
Provisions
    3. Summary of Cost and Benefits
    a. For the FQHC PPS
    b. For Other FQHC and RHC Changes
    c. For the CLIA Enforcement Actions for Proficiency Testing 
Referral
    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 Reasonable 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 Services and Technical Components of 
Other Preventive Services
    3. Vaccine Costs
    C. Risk Adjustments
    1. Alternative Calculations for Average Cost per Visit
    2. FQHC 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
    1. Proposed Technical and Conforming Changes
    2. Additional Technical and Conforming Changes
    C. Comments Outside of the Scope of the Proposed Rule
IV. Clinical Laboratory Improvement Amendments of 1988 (CLIA)--
Enforcement Actions for Proficiency Testing Referral
    A. Background
    B. Proposed and Final Regulatory Changes
V. Other Required Information
    A. Requests for Data from the Public
    B. Collection of Information Requirements
VI. Waiver of Proposed Rulemaking
VII. Response to Comments
VIII. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Limitations of Our Analysis
    D. Anticipated Effects of the FQHC 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
    a. Effects of RHC Contracting Changes
    b. Effects of the FQHC and RHC Conforming Changes
    2. Effects of CLIA Changes for Enforcement Actions for 
Proficiency Testing Referral
    F. Alternatives Considered
    G. Accounting Statement and Table
    H. Conclusion
Regulations Text
ADDENDUM--FQHC PPS Geographic Adjustment Factors (FQHC GAFs)

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    Section 10501(i)(3)(A) of the Affordable Care Act (Pub. L. 111-148 
and Pub. L. 111-152) 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 final rule with comment period is to 
implement a methodology and payment rates for the new FQHC PPS.
    This rule also implements our proposal to allow RHCs to contract 
with non-physician practitioners, consistent with statutory 
requirements in section 1861(aa) of the Act that require at least one 
nurse practitioner (NP) or physician assistant (PA) be employed by the 
RHC, and makes other technical and conforming changes to the RHC and 
FQHC regulations.
    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 violation of the prohibition on proficiency testing (PT) 
referrals. This final rule with comment period adopts changes to the 
CLIA regulations to implement the TEST Act.
2. Summary of the Major Provisions
a. FQHC PPS
    In accordance with the provisions of the Affordable Care Act, we 
proposed in the September 23, 2013 Federal Register (78 FR 58386) to 
establish a national, encounter-based prospective payment rate for all 
FQHCs, to be determined based on an average of reasonable costs of 
FQHCs in the aggregate, and pay FQHCs the lesser of their actual 
charges for services or a single encounter-based rate for professional 
services furnished per beneficiary per day. As required by section 
1834(o)(1)(A) of the Act, we proposed to establish payment codes based 
on an appropriate description of FQHC services, and taking into account 
the type, intensity, and duration of services provided by FQHCs. We 
also proposed adjustments to the encounter-based payment rate for 
geographic differences in the cost of inputs by applying an adaptation 
of the geographic practice cost indices (GPCIs) used to adjust payments 
under the Physician Fee Schedule (PFS). These provisions are being 
finalized as proposed. We also proposed adjustments when a FQHC 
furnishes care to a patient who 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)). These provisions have been revised based on comments 
received and are being finalized to allow the proposed adjustments as 
well as an adjustment for subsequent AWVs.
    We also proposed not to include adjustments or exceptions to the 
single, encounter-based payment when an illness or injury occurs 
subsequent to

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the initial visit, or when mental health, diabetes self-management 
training/medical nutrition therapy (DSMT/MNT), or the IPPE are 
furnished on the same day as the medical visit. These provisions have 
been revised based on the comments received and are being finalized to 
allow an exception to the single, encounter-based payment when an 
illness or injury occurs subsequent to the initial visit, or when a 
mental health visit is furnished on the same day as the medical visit.
    We also proposed that coinsurance would be 20 percent of the lesser 
of the actual charge or the PPS rate. Most preventive services are 
exempt from beneficiary coinsurance in accordance with section 4104 of 
the Affordable Care Act. Accordingly, for FQHC claims that include a 
mix of preventive and non-preventive services, we proposed 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 to use provider-reported charges 
to determine the amount of coinsurance that should be waived for 
payments based on the provider's charge. This provision has been 
revised based on comments received and is being finalized to allow a 
simpler method for calculating coinsurance when there is a mix of 
preventive and non-preventive services.
    The statute requires implementation of the FQHC PPS for FQHCs with 
cost reporting periods beginning on or after October 1, 2014. We 
proposed that FQHCs would transition into the PPS based on their cost 
reporting periods and that the claims processing system would maintain 
the current system and the PPS until all FQHCs transitioned to the PPS. 
We also proposed to transition the PPS to a calendar year update for 
all FQHCs, beginning January 1, 2016, to be consistent with many of the 
PFS rates that are updated on a calendar year basis. We are finalizing 
these provisions as proposed.
b. Other FQHC and RHC Changes
    In addition to our proposals to codify the statutory requirements 
for the FQHC PPS, we proposed to allow RHCs to contract with non-
physician practitioners, consistent with statutory requirements that 
require at least one NP or PA be employed by the RHC. We also proposed 
edits to correct terminology, clarify policy, and make other conforming 
changes for existing mandates and the new PPS.
c. 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 are amending the 
CLIA regulations to add 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 payment 
rates (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 upper payment limits 
(UPL) or productivity standards. In the proposed rule, we estimated the 
overall impact, based on the estimated PPS rate, would increase total 
Medicare payments to FQHCs by approximately 30 percent, with an 
annualized cost to the federal government between $183 million and $186 
million, based on 5 year discounted flows using 3 percent and 7 percent 
factors. Based on current data, our final estimate is an overall impact 
of increasing total Medicare payments to FQHCs by approximately 32 
percent, based on payment at the FQHC PPS. (Note that this does not 
take into account the application of ``lesser of'' provision in section 
1833(a)(1)(Z) of the Act. For more information, see sections II.E.2 and 
VII.D.1 of this final rule with comment period). The annualized cost to 
the federal government associated with the final FQHC PPS is estimated 
to be between $200 million and $204 million, based on 5 year discounted 
flows using 3 percent and 7 percent factors. These estimates also 
reflect the policy modifications that are noted in section I.A.2 and 
discussed in more detail in sections II.B. and II.C. of this preamble.
b. For Other FQHC and RHC Changes
    We estimated that there would be no costs associated with the 
removal of the contracting restrictions for RHCs or for technical and 
conforming regulatory changes that would be made in conjunction with 
the establishment of the FQHC PPS.
c. For the CLIA Enforcement Actions for Proficiency Testing Referral 
Provisions
    We estimated that an average of 6 cases per year may have fit the 
terms described in the proposed rule to have alternative sanctions 
applied. Based on experience with laboratories that engaged in 
proficiency testing referral in the past, we estimated that the average 
cost experienced by laboratories for which we imposed a revocation of 
the CLIA certificate as a result of a PT referral violation was 
$578,000 per laboratory. We estimated that the average cost of 
alternative sanctions, based on comparable violations for which 
alternative sanctions have been imposed, would be $150,000 per 
laboratory. Therefore, we projected that the aggregate annual savings 
would be approximately $2.6 million per year ($578,000 minus $150,000 
for 6 laboratories), resulting in net average savings per affected 
certificate holder of $428,000 ($578,000 minus $150,000). We continue 
to consider these to be reasonable estimates.

B. Overview and Background

1. FQHC Description and General Information
    FQHCs are facilities that furnish services that are typically 
furnished in an outpatient clinic setting. They are currently paid an 
all-inclusive rate (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).
    FQHCs are also entities that were treated by the Secretary for 
purposes of Medicare Part B as a comprehensive federally funded health 
center as of

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January 1, 1990 (see section 1861(aa)(4)(C) of the Act).
    Section 330 Health Centers are the most common 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 1,200 health centers 
operating approximately 9,000 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 or medically underserved population 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 with 
discounts adjusted on the basis of the patient's ability to pay and 
being governed by a board of directors that represent the individuals 
being served by the FQHC and a majority of whom 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 remaining 15 percent were privately insured or had other 
public insurance. Medicare and Medicaid accounted for approximately 9 
percent and 47 percent of their total billing in dollars, 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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    The 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 furnish other services. All FQHCs are eligible 
to participate in the 340B Drug Pricing Program which is a program that 
requires drug manufacturers to provide outpatient drugs to eligible 
health care organizations/covered entities at significantly reduced 
prices. 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 health 
centers receiving grant funds under section 330). HRSA administers the 
Health Center 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 began on 
October 1, 1991. It was authorized by section 1861(aa) of the Act 
(which amended 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 Part 405 
and Part 491.
    FQHC covered services and supplies include the following:
     Physician, NP, PA, Certified Nurse-Midwife (CNM), Clinical 
Psychologist (CP), and Clinical Social Worker (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 DSMT and 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 the 
UPL and productivity standards that were established in 1978 and 1982 
for RHCs (43 FR 8260 and 47 FR 54165, respectively) and adopted for 
FQHCs in 1992 and 1996 (57 FR 24967 through 24970 and 61 FR 14650 
through 14652, respectively), 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 section 1842(i)(3) 
of the Act. Authority to apply productivity standards is found in 
section 1833(a) and 1861(v)(1)(A) of the Act. Section 151(a) 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 also 
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. 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 wrap-around 
payment equal to the difference, if any, between the PPS rate and the 
payment from the managed care organization.

[[Page 25440]]

    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 for cost 
reporting periods beginning on or after 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.5. of this final rule 
with comment period.
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 (Sec.  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 our regulations at Sec.  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 continue to be 
eligible to be certified as provider-based FQHCs. Provider-based 
designations are not made for FQHCs that do not already have this 
status.
    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. 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 2014 payment limits per visit for urban and rural FQHCs are $129.02 
and $111.67, respectively. FQHCs with multiple sites may elect to file 
a consolidated cost report (CMS Pub. 100-04, Medicare Claims Processing 
Manual, chapter 9, section 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)(4) 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.
    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.
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 system must 
establish payment rates for specific payment codes 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 Healthcare 
Common Procedure Coding System (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

[[Page 25441]]

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) of the Act.
    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 furnished 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 
furnished 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 furnished 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 and 
others in the development of the proposed rule. We are aware of the 
challenges facing FQHCs in increasing access to health care for 
underserved populations and the importance of Medicare payments to the 
overall financial viability of FQHCs. Our goal for the FQHC PPS is to 
implement a system in accordance with the statute whereby FQHCs are 
fairly paid for the services they furnish to Medicare patients in the 
least burdensome manner possible, so that they may continue to furnish 
primary and preventive health services to the communities they serve.
    We have evaluated our approach based on the comments we received to 
the proposed rule in the context of balancing payment requirements, 
regulatory burden, and the need for appropriate accountability and 
oversight. We received approximately 100 timely comments on the 
proposed FQHC PPS. The following sections describe the comments we 
received, our response to the comments, and the final decisions on our 
proposals.

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 section 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. The statute 
also requires us to ``establish payment rates for specific payment 
codes based on . . . appropriate description of services.'' 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 fewest reporting requirements 
and least 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 we believe could encourage excess utilization in the long-term, 
and could 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 approximately 9 percent for 
Medicare). We believe an encounter-based payment rate (with a few 
adjustments as discussed in section II.C. of this final rule with 
comment period), for the FQHC PPS would provide appropriate payment 
while remaining administratively simple.
    Also, our analysis of Medicare claims data supported an encounter-
based payment rate. As discussed in section II.A.3 of this final rule 
with comment period, our analysis determined that FQHC Medicare claims 
listed a single HCPCS code that defined the overall type of encounter 
(for example, a mid-level office visit (HCPCS code 99213)). The vast 
majority of FQHC encounters were defined as evaluation and management 
(E/M) office visits (HCPCS codes 99201 through 99215). Other codes were 
used more sporadically, and we believe that the administrative burden 
associated with developing and maintaining a payment system composed of 
multiple rates (for example, a fee schedule) far outweighs the minor 
variations in reimbursement. Therefore, we developed an encounter-based 
rate, with a few adjustments, as the basis for payment under the FQHC 
PPS. We believe the description of FQHC services that we proposed in 
the proposed rule, and the development of payment codes that are based 
on the costs of groups of FQHC services (as discussed in section 
II.E.2. of this final rule with comment period), meets the requirement 
of the statute.
    Comment: A large number of commenters were strongly supportive of a 
single, bundled encounter-based PPS rate, and many noted that this 
approach encourages comprehensive and

[[Page 25442]]

integrated care. Some of the commenters who supported a bundled 
encounter-based rate also recommended that CMS develop multiple rates 
to reflect additional payment adjustments.
    Response: We agree with the commenters that a bundled encounter-
based rate would provide appropriate payment while remaining 
administratively simple. We will address the recommendations for 
additional payment adjustments in section II.C.4. of this final rule 
with comment period.
    After consideration of the public comments received, we are 
finalizing our proposal to pay FQHCs using an encounter-based rate.
2. Medicare FQHC Cost Reports
    As required by section 1834(o)(2)(B)(i) of the Act, initial payment 
rates (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 for the proposed rule, 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, and we identified cost reports with cost 
reporting periods that ended between June 30, 2011, and June 30, 2012. 
We stated in the proposed rule that we would use the most recent 
available data for the final rule. Therefore, in estimating 100 percent 
of reasonable costs for this final rule with comment period, we used 
cost report data from December 31, 2013, HCRIS quarterly update, and we 
supplemented this with data from the three prior HCRIS quarterly 
updates (that is, September 30, 2013, June 30, 2013, and March 31, 
2013). We also obtained HCRIS data for hospital-based FQHCs (Form 2552-
10) and HHA-based FQHCs (Form 1728-94), which added data from provider-
based FQHCs. In the expanded sample that we used for this final rule 
with comment period, we identified cost reports with cost reporting 
periods ending between June 30, 2011, and June 30, 2013. 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. (A cost reporting 
entity is a FQHC delivery site that files either an individual or a 
consolidated cost report.) For 63 percent of cost reporting entities, 
there were either multiple cost reports available or the cost reporting 
period was not exactly 1 year. For the remaining 37 percent of cost 
reporting entities, the only available cost report covered 1 full year. 
Compared to the characteristics of the cost report data used for the 
proposed rule, the significant increase in the percentage of FQHCs with 
multiple cost reports is due mostly to the expanded time period that we 
used for the final rule to identify cost reports available for 
analysis. 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. We also 
note that, under section 1833(c) of the Act, effective January 1, 2014, 
outpatient mental health services are paid on the same basis as other 
Part B services. 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.
    For this final rule with comment period, we used the methodology 
described in the proposed rule to estimate 100 percent of reasonable 
costs. After eliminating the current payment limits, outpatient mental 
health limitations, and productivity 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.
    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 
of cost reports used for the proposed rule. 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. We believe that removing 
statistical outliers is consistent with standard practice and results 
in a more accurate estimation of costs overall. In this final rule with 
comment period, we used the same approach to exclude statistical 
outliers from the cost report sample.
    Comment: Several commenters objected to the exclusion of outlier 
cost reports and claims in calculating the base rate. Some of these 
commenters opined that the authority in section 1834(o)(1)(A) of the 
Act, to ``include adjustments . . . determined appropriate by the 
Secretary'' cannot override the requirement in section 1834(o)(2)(B) of 
the Act that the aggregate amount of initial PPS rates equal ``100 
percent of the estimated amount of reasonable costs (determined without 
the application of a per visit payment limit or productivity screen).'' 
Commenters suggested that the exclusion of outliers results in a lower 
base rate and would not represent all appropriate costs, such as higher 
costs of visits furnished to complex Medicare patients, or for 
furnishing costly, but necessary items, such as expensive drugs and 
biologicals, whose costs may be beyond a FQHC's control. Some of the 
commenters also urged CMS to compute the base PPS rate without the 
exclusion of outliers.
    Response: We respectfully disagree with the assertion that the 
exclusion of outliers is inconsistent with statutory authority. Under 
section 1834(o)(2)(B) of the Act, we are required to set the initial 
payment rates to equal ``100 percent of the estimated amount of 
reasonable costs.'' The statute does not require us to set initial 
payment rates based on the inclusion of every cost report or claim 
submitted. We analyzed the most current available FQHC cost report and 
claims data, and consistent with standard practice, trimmed the data 
for outliers so that the estimates are not skewed by unusual data. 
Outliers were defined based on two criteria: (1) Cost reports with an 
average cost per visit value more than 3 standard deviations from the 
geometric mean of all average costs per visit; and (2) encounters with 
an adjusted charge value more than 3 standard deviations from the 
geometric mean of all adjusted charges. This trim methodology of three 
standard deviations from the geometric mean is a relatively 
conservative approach, and the two trims together exclude less than 3 
percent of the overall sample. We believe that removing statistical 
outliers results in a more accurate estimation of costs overall.
    Comment: Several commenters from tribal organizations recommended 
that CMS not exclude outliers in calculating the base rate, as they 
believe that they may be disproportionately impacted because their 
costs are unusually high.

[[Page 25443]]

    Response: Of the approximately 69 tribal FQHCs furnishing services 
at approximately 114 separate sites, there were 8 tribal FQHCs whose 
costs were considered statistical outliers. Although tribal FQHCs have 
a higher rate of statistical outliers than non-tribal FQHCs, the number 
of tribal FQHCs whose costs were more than three standard deviations 
from the geometric mean is still quite low. As previously noted, the 
statute does not require the rate to reflect actual costs for each 
individual FQHC. The per diem rate that is established reflects the 
national average cost of a FQHC visit.
    Comment: A commenter noted that FQHCs count multiple visits per day 
on their cost reports, and FQHCs should be given a one-time opportunity 
to adjust their reported FQHC visits to a per diem to avoid an undue 
reduction in the estimated cost per FQHC visit.
    Response: As stated in the proposed rule, we used the adjusted 
claims data to calculate an average cost per diem in order to 
accurately capture all costs and did not rely solely on cost report 
data. We used the same approach for this final rule with comment 
period.
    Comment: Some commenters were concerned that costs related to 
electronic health record (EHR) implementation would not be adequately 
reflected in 2012 cost report data as many FQHCs adopted EHRs in 2012.
    Response: We used the most recent available data for this final 
rule, and we updated our sample to include cost reports with reporting 
periods ending June 30, 2013. We do not believe it is appropriate to 
adjust the calculation of reasonable cost based on anticipated future 
costs.
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. The requirement for FQHCs to submit HCPCS codes was implemented 
through program instructions (CMS Change Request (CR) 7038).
    Beginning with dates of service on or after January 1, 2011, FQHCs 
are required to report all pertinent services furnished and list the 
appropriate HCPCS code for each line item along with revenue code(s) 
for each FQHC visit when billing Medicare. 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 currently used to determine current Medicare 
payment to FQHCs. We proposed 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 for the proposed rule, 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. To model potential adjustments 
for this final rule with comment period, we obtained final action 
Medicare FQHC claims from the CMS IDR with dates of service between 
January 2011 and December 2013. Of these claims, only those with dates 
of service between January 1, 2011, and June 30 2013, were retained for 
analysis and linking with Medicare cost reports, as described further 
in section II.A.4. of this final rule with comment period. 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 Medicare 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 Medicare claims. For this final rule with 
comment period, we updated our analysis of HCPCS reporting trends and 
found they are relatively similar in 2013 FQHC Medicare 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 by 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.
    Comment: Commenters supported the use of 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. Some commenters 
recommended that we incorporate additional payment adjustments based on 
the HCPCS codes in the FQHC claims data.
    Response: We agree with the commenters that it is appropriate 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 
PFS. We will address the recommendations for additional payment 
adjustments in section II.C.4. of this final rule with comment period.
    Comment: Some commenters were concerned that services that were 
more recently recognized as payable to FQHCs would not be reflected in 
the claims sample as it did not include claims with dates of service 
beyond June 30, 2012.
    Response: We used the most recent available data for this final 
rule with comment period. We updated our sample to include claims with 
dates of service through June 30, 2013, to the extent that an 
associated cost report was included in our cost report sample (as 
discussed previously and in section II.A.2. of this final rule with 
comment period).
    Comment: A commenter was concerned that a FQHC market basket of 
goods and services would not reflect the variety of non-billable 
ancillary services furnished during a FQHC visit.
    Response: Market baskets developed for other Medicare payment 
systems typically utilize cost report data, and the costs of covered 
services provided incident to a billable visit may be included on the 
FQHC cost report.

[[Page 25444]]

    Comment: Some commenters opined that the implementation of HCPCS 
reporting for FQHCs was confusing, resulting in claims with significant 
errors in line item reporting, and questioned the credibility of 
analyses based on claims submitted in 2011 and 2012.
    Response: Since data used for the proposed rule included final 
action claims with dates of service through June 2012 that were 
obtained from the IDR in 2013, we believe that any initial errors in 
the coding or adjustment of claims were corrected or were not present 
in the majority of the claims used for modeling adjustments in the 
proposed rule. (see CMS CRs 7038 and 7208, which updated CMS Pub 100-
04, Claims Processing Manual, Chapter 9). For this final rule with 
comment period, we updated our sample to include final action claims 
with dates of services through June 2013, which are even less likely to 
have significant coding or adjustment errors.
    After consideration of the public comments received, we are 
finalizing our proposal 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 PFS.
4. Linking Cost Reports and Claims To Compute the Average Cost per 
Visit
    In this final rule with comment period we used the same methodology 
described in the proposed rule 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, claims for earlier dates of service did not include 
the detail required to model adjustments based on type, intensity, or 
duration of services. In the sample used for the proposed rule, cost 
reports with reporting periods that began on or after January 1, 2011, 
accounted for 81 percent of the sample. In the updated sample used for 
this final rule with comment period, cost reports with reporting 
periods that began on or after January 1, 2011, accounted for 98 
percent of the sample. 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 
(Medicare and non-Medicare) 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, and that this information is 
not currently available on the free-standing FQHC cost report, Form 
CMS-222-92.
    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 used for the proposed rule. 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. We believe that 
removing statistical outliers is consistent with standard practice and 
results in a more accurate estimation of costs overall. For this final 
rule with comment period, we used the same approach to exclude 
statistical outliers from the linked claims sample.
    After trimming the linked claims data for outliers, the final data 
set used for this final rule with comment period included 5,468,852 
visits from 5,458,632 distinct claims encompassing 6,533,716 claim 
lines. This included visits furnished to 1,297,013 beneficiaries at 
3,778 delivery sites under 1,215 cost-reporting entities. For this 
final rule with comment period, we modified the definition of a daily 
visit to be consistent with our revised policy to allow an exception to 
the per diem PPS payment for subsequent injury or illness and mental 
health services furnished on the same day as a medical visit. 
Separately payable encounters for the same beneficiary at the same FQHC 
were combined into a single daily visit, while allowing for a separate 
medical visit, mental health visit, and subsequent illness/injury 
visit, which could result in up to three encounters per beneficiary per 
day. The final data set yielded 5,462,670 daily visits.
    Comment: A commenter suggested that using CCRs to measure the cost 
of furnishing FQHC services is not appropriate for FQHCs because 
certain types of FQHC care management services are not captured in the 
billed charges; the CCRs would not be uniform among medical and mental 
health services; and the CCRs would be affected by the pricing 
strategies of FQHCs that keep their charges low to minimize the 
copayment impact on uninsured and indigent patients. The commenter 
recommended that CMS use PFS relative value units or other metrics to 
adjust FQHC average cost per visit.
    Response: We used Medicare cost report data to measure the 
aggregate reasonable cost of furnishing FQHC services. However, as 
discussed in the proposed rule, the cost report data is insufficient 
for modeling the types of adjustments considered for the FQHC PPS. The 
CCRs for each cost-reporting entity were used to approximate data not 
available on the cost report and to convert each FQHC's charge data, as 
found on its claims, to costs. The use of the CCRs was primarily for 
modeling the adjustments and does not substantially impact our measure 
of the aggregate reasonable cost of furnishing FQHC services. 
Therefore, in this final rule with comment period, we plan to continue 
to use the CCR to adjust charges in order to estimate costs.
    Comment: A commenter requested that CMS clarify whether a 
statistically significant number of outlier visits were for FQHCs in a 
particular state or for a particular service.
    Response: The average range of outliers based on the adjusted 
charge for the encounter was approximately 1.3 percent of FQHC visits, 
with higher rates in U.S. territories (4 percent) and the Pacific 
census division (3 percent). Slightly more than 1 percent of all office 
visits were outliers.

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

    In developing the FQHC PPS rates and adjustments, we considered 
existing payment policies regarding payment for multiple visits on the 
same day, preventive laboratory services and technical components of 
other preventive services, and vaccine costs to

[[Page 25445]]

determine potential interactions with the implementation of the FQHC 
PPS.
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 all-inclusive payment system was also designed to minimize 
reporting requirements, and as such, it reflects all the services that 
a FQHC furnishes 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 includes 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 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 69624) subsequently revised the regulations to allow FQHCs 
to receive separate payment for DSMT/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.
    To determine if these exceptions should be included, updated, or 
revised in the new PPS, in the September 23, 2013 proposed rule (78 FR 
58386) we discussed that 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.
    In the September 23, 2013 proposed rule (78 FR 58386) proposed 
rule, we discussed that an analysis of data from Medicare FQHC claims 
with dates of service between January 1, 2011 and June 30, 2012, 
indicated 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 is a rare event, and we stated that eliminating the ability 
to do so would not significantly impact either the FQHC payment or a 
beneficiary's access to care. We also suggested this policy would also 
simplify billing by removing the need for modifier 59, which signifies 
that the conditions being treated are totally unrelated and services 
are furnished 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 rarely occur 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, 
in the proposed rule, we proposed to revise Sec.  405.2463(b) to remove 
the exception to the single encounter payment per day for FQHCs paid 
under the proposed PPS and we stated that 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 reflected a daily (per diem) rate and resulted in a 
slightly higher payment than one calculated based on multiple 
encounters on the same day.
    Based on the Medicare claims data furnished by FQHCs that indicates 
minimal incidence of multiple visits billed on the same day, we 
concluded in the proposed rule that not including these exceptions in 
the PPS would not significantly impact total payment or access to care. 
However, because 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 furnish integrated, patient-centered 
health care services in a variety of ways, we asked for comments to 
address whether there are factors that we have not considered, 
particularly in regards to the provision of mental health services, and 
whether this change would impact access to these services or the 
integration of services in underserved communities.
    We received many comments on our proposal not to include these 
exceptions in the new PPS for FQHCs. None of the commenters were 
supportive of the proposal.
    Comment: Some commenters said that we should continue to allow 
mental health or other visits to be furnished on the same day as a 
medical visit because their patients have transportation, mobility, 
work, or childcare issues.
    Response: We wish to clarify that we did not propose to prohibit 
mental health visits from occurring on the same day as a medical visit. 
We did propose not to include an exception to the per diem payment 
system to allow for multiple billing when mental health (or subsequent 
illness/injury, DSMT/MNT or IPPE) is furnished on the same as a medical 
visit, as discussed later.
    Comment: Some commenters suggested that if we do not allow separate 
billing for mental health services that are furnished on the same day 
as a medical service, we should instead develop an adjustment that 
would increase the PPS per diem base payment rate when a mental health 
visit occurs on the same day as another billable visit. Other 
commenters suggested an adjustment for mental

[[Page 25446]]

health, behavioral health, DSMT, and MNT.
    Response: As we discussed in earlier, we did not propose to include 
adjustments to the PPS per diem payment rate except for new patient and 
initial Medicare visits. While we considered an adjustment for mental 
health services and DSMT/MNT, our analysis of the claims data did not 
support such adjustments. Also, including additional adjustments would 
result in a lower PPS rate, which would impact FQHC payments for all 
visits.
    Comment: Some commenters acknowledged that the incidence of 
Medicare billing for more than 1 visit per beneficiary per day in FQHCs 
is extremely low, but argued that their FQHC often billed multiple 
visits on the same day, particularly for mental health visits that 
occur on the same day as a medical visit, and that this proposal would 
have a significant impact on their FQHC payments and their patient's 
access to care.
    Response: Based on our analysis of national Medicare claims data, 
we believe there would be a very minimal impact if the exception 
allowing multiple billing on the same day was to be eliminated, 
especially for mental health services. We analyzed the claims data of 
the FQHCs that provided the most detailed comments that they would be 
significantly or disproportionately impacted if they could not bill 
separately for mental health visits that occur on the same day as a 
medical visit. A commenter from a large FQHC in the southeastern part 
of the U.S. with more than 23,000 total visits per year described how 
they are a fully integrated primary care FQHC and every patient has a 
team of professionals that includes behavioral health. Yet a review of 
the Medicare claims data for this FQHC showed that out of a yearly 
total of more than 23,000 total visits, only 74 mental health visits, 
or 0.32 percent, were billed on the same day as a medical visit. A 
review of Medicare claims data for a large FQHC in the western part of 
the U.S. showed that 2.0 percent had a mental health visit on the same 
day as another visit, but of those 2.0 percent, only 0.5 percent of 
these were billable visits. A large multisite FQHC in the southern part 
of the U.S. stated that as a result of their integrated model of 
behavioral care and same day billing, there was a reduction in visits 
to the emergency room. The claims data for this FQHC showed a rate of 
same day billing for mental health visits of 0.5 percent, and no 
evidence was provided to link this to a reduction in emergency room 
visits. While this is slightly higher than the average of 0.3 percent, 
it is still a very low rate.
    We do not know why these and other FQHCs believe that they are 
billing more same-day mental health visits than indicated by their 
claims data. Perhaps the FQHC may be considering all their patients, 
not just Medicare beneficiaries who comprise an average of 8 percent of 
all FQHC patients. Another possibility is that the FQHC may be 
considering some behavioral health services that are beyond the scope 
of Medicare-covered services, or are including services furnished by 
non-FQHC practitioners. Based on the claims data and the information 
provided in the comments, we do not agree that removal of the 
exceptions to allow for multiple billing would have a significant 
impact on the financial viability of these FQHCs or reduce access to 
care for Medicare beneficiaries.
    Comment: Several commenters acknowledged that their use of the 
exception for multiple billing on the same day was low or non-existent 
for Medicare beneficiaries, but wanted us to retain this exception so 
that they could use this to leverage Medicaid in their state to pay 
separately for mental health.
    Response: We do not believe that Medicare policy should be 
determined in order to influence state Medicaid policies.
    Comment: Some commenters disputed our data which showed that only 
0.5 percent of all claims were for multiple same day visits. The 
commenters suggested the following reasons for the low number of 
multiple same day visits: FQHCs did not code correctly; FQHCs did not 
know they could bill for multiple visits; FQHC billing systems are not 
set up for multiple billing because other payment systems do not 
reimburse for it; and that the MACs do not allow it.
    Response: Section 1834(o)(1)(B) of the Act, as added by the 
Affordable Care Act required FQHCs to utilize HCPCS codes on their 
Medicare claims in order to inform the development of the FQHC PPS. 
FQHCs have also been required to use HCPCS codes for payment purposes 
when a preventive service for which coinsurance is waived is on the 
same claim as a service that has a coinsurance requirement. Other 
payment systems may also require HCPCS coding on claims. We are aware 
that some FQHCs have limited experience with coding and that the coding 
submitted on Medicare claims may not have been accurate or complete in 
all cases. However, even if the rate shown in the claims data was 
doubled or tripled, the rate of billing for multiple visits on the same 
day would still be extremely low.
    As we stated in the September 23, 2013 proposed rule, the ability 
to bill for multiple visits on the same day for subsequent illness or 
injury has been allowed since the beginning of the FQHC program. We 
also noted that the ability to bill for multiple visits on the same day 
for mental health services has been allowed since 1996, and the ability 
to bill for multiple visits on the same day has been allowed for DSMT/
MNT since 2007. While it is possible that some FQHCs were not aware 
that this option existed, we know from the claims data that mental 
health, IPPE, and DSMT/MNT services constitute a small percentage of a 
FQHC's total Medicare services.
    We understand that billing systems vary among FQHCs and that some 
billing systems are more adept at managing tasks such as multiple same-
day billing. However, we believe that if the inability to bill for 
multiple visits presented a significant loss of payment for a FQHC, the 
FQHC would have upgraded its system to allow for this type of billing. 
We are also not aware of any MACs that do not allow for multiple same 
day billing for the circumstances in which they are allowable.
    Medicare comprises only 8 percent of FQHC patient population, and 
not all Medicare beneficiaries require mental health or DSMT/MNT 
services. Particularly for mental health services, it is often 
difficult to schedule appointments on the same day as a medical visit, 
and most mental health conditions require ongoing treatment which would 
likely be at a frequency that differs from the need for primary care 
visits. Therefore, we would expect the rate of same day billing to be 
low, despite the availability of the exceptions.
    Comment: Some commenters requested that FQHCs be allowed to bill 
separately for other services such as optometry and dental care when 
furnished on the same day as another visit.
    Response: Other services, such as optometry and dental care, cannot 
be billed separately on the same day as another medical visit under the 
current AIR system. We did not propose and we are not considering 
expanding the type of services that can be billed separately when 
furnished on the same day as another visit. The PPS rate and its 
adjustments reflect the total cost of furnishing services to Medicare 
beneficiaries.
    Comment: Some commenters were concerned that removing the ability 
to bill separately for mental health services that are furnished on the 
same day as a medical visit would create an incentive

[[Page 25447]]

for FQHCs to schedule these encounters on separate days.
    Response: Under both the all-inclusive payment system and the PPS 
per diem system, there is a risk that a FQHC could deliberately 
schedule patient visits over a period of time in order to maximize 
payment. We expect FQHCs and other providers of care to Medicare 
beneficiaries to act in the best interests of their patients, which 
includes scheduling visits in a manner that maximizes the health and 
safety of their patients.
    Comment: A few commenters stated that FQHCs will not be able to 
continue working with community mental health centers if we do not 
allow separate billing for mental health services furnished on the same 
day as a medical visit.
    Response: Commenters did not provide enough supporting information 
as to why this proposal would negatively or adversely affect FQHC 
relationships with community mental health centers to allow us to 
respond meaningfully to this comment.
    Comment: Some commenters suggested that removing the ability to 
bill separately for mental health and other services is inconsistent 
with the Affordable Care Act's focus on value over volume.
    Many commenters wrote that the ability to bill separately for 
mental health and other visits on the same day as a primary care visit 
would help them to furnish integrated and coordinated care and would 
benefit their patients. Many of them stated that allowing separate 
payment for mental health services furnished on the same day as a 
medical visit would provide incentives to furnish integrated care for 
Medicare patients with complex health conditions. Others were concerned 
that not allowing this exception would send a message that we do not 
value mental health care. Commenters also suggested that people with 
mental illness are less likely to return for a mental health visit if a 
primary care visit is not also scheduled, and that furnishing mental 
health visits on the same day as a medical visit helps to increase 
compliance with medications.
    Response: We agree with commenters about the importance of 
promoting and furnishing coordinated and integrated care, which can be 
especially challenging in underserved areas. Based on Medicare claims 
data and the comments we received, there is no evidence that access to 
care would be reduced if exceptions to the per diem PPS are not 
allowed.
    However, we agree that separate payment for mental health services 
furnished on the same day as a medical visit has the potential to 
increase access to mental health services in underserved areas and that 
this would help to demonstrate the value of mental health services, 
especially in areas where need is high and utilization is low. We 
acknowledge that FQHCs furnish services to underserved and vulnerable 
populations that often have had difficulty accessing mental health 
services, and that commenters overwhelmingly support separate payment 
for mental health services furnished on the same day as a medical 
visit. Therefore, in this final rule with comment period, we are 
modifying our original proposal to allow an exception to the per diem 
payment system so that FQHCs can bill separately for mental health 
services that are furnished on the same day as a medical visit.
    We will also allow an exception to the per diem payment system to 
allow FQHCs to bill separately when an illness or injury occurs on the 
same day in which a FQHC visit has already occurred. This exception is 
available for situations where a Medicare beneficiary has a FQHC visit, 
leaves the FQHC, and later in the day has an illness or injury that was 
not present during the initial visit. While it does not happen often, 
when it does occur we believe the FQHC should be able to bill 
separately because it is a unique situation that could not be planned 
or anticipated and the FQHC would not benefit from the economies of 
scale that can occur when multiple medical issues are addressed in the 
same visit.
    We do not believe that the circumstances that justify allowing same 
day billing for a subsequent injury or illness or a mental health visit 
that occurs on the same day as a medical visit also applies to DSMT/
MNT. A DSMT/MNT visit is part of the broad category of primary care 
services that are included in the services of a FQHC and are part of 
the PPS per diem payment. Visits with multiple practitioners that occur 
on the same day, including visits for different conditions or visits 
with a specialist physician, are not separately payable in a FQHC under 
the all-inclusive payment methodology or the PPS methodology. We do not 
see any reason why these DSMT/MNT visits should be considered 
differently. Additionally, the cost of a DSMT/MNT visit is far lower 
than the cost of a medical or mental health visit, so it would not be 
justified to pay separately for those visits at the PPS rate. We also 
did not include IPPE as a separately billable visit, because we are 
already allowing an adjustment to the PPS rate for a new patient or 
initial Medicare visit.
    We are allowing the exception to the per diem PPS payment for 
mental health services that occur on the same day as a medical visit to 
promote access to these services in FQHCs. While this may also 
contribute to the coordination of care, this alone will not achieve the 
goals of the Affordable Care Act to furnish integrated and coordinated 
services. Instead, we believe that these goals may be supported through 
an adaptation of the Chronic Care Management (CCM) services program 
that will be implemented for physicians billing under the PFS in 2015. 
We encourage FQHCs to review the CCM information in the CY 2014 PFS 
final rule with comment period titled, ``Medicare Program; Revisions to 
Payment Policies under the Physician Fee Schedule, Clinical Laboratory 
Fee Schedule & Other Revisions to Part B for CY 2014'' (December 10, 
2013 (78 FR 74230)) and submit comments to us on how the CCM services 
payment could be adapted for FQHCs in CY 2015 to promote integrated and 
coordinated care in FQHCs. We also invite RHCs to submit comments on 
how CCM services could be adapted for RHCs in CY 2015 to promote 
integrated and coordinated care.
    In this final rule with comment period, we are modifying our 
proposal not to allow an exception to the per diem PPS payment for 
subsequent injury or illness and for mental health services furnished 
on the same day as a medical visit, and we invite public comments on 
this modification. We are adopting as final our proposal not to allow 
an exception to the per diem PPS for DSMT/MNT or IPPE.
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,

[[Page 25448]]

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 Sec.  405.2448, which may be paid for when furnished 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 Sec.  405.2449, include 
laboratory tests 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 did not propose a change in 
billing procedures, and we did not propose to include payment for these 
services under the FQHC PPS. We noted this payment structure simplifies 
billing procedures as laboratory tests and technical components of 
diagnostic services are always billed separately to Part B and are not 
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 all-
inclusive rate 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.
    Comment: Most commenters were supportive of our intent to clarify 
appropriate billing procedures through program instruction, and some 
commenters suggested that we also use rulemaking to resolve issues 
concerning Medicare billing. Many of these commenters requested greater 
clarity on billing for the technical components of FQHC services 
separately under Part B.
    Response: As we stated in the proposed rule, we plan to clarify the 
appropriate billing procedures for technical components of FQHC 
services and other billing issues through program instruction, and we 
do not believe that clarifications to billing procedures require 
rulemaking.
    Comment: A commenter disagreed with our conclusion that laboratory 
services and diagnostic tests are by definition excluded from the FQHC 
benefit. The commenter noted that preventive primary health services 
and preventive services, as defined in section 1861(aa)(3) of the Act 
and codified in Sec.  405.2448 and Sec.  405.2449 of the regulations, 
include a variety of screening tests, and neither the statute nor the 
regulations exclude the technical components of these tests from the 
FQHC benefit.
    Response: We respectfully disagree with this commenter and maintain 
that 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)(3) of the Act. We also maintain that 
both the professional and technical components of FQHC primary 
preventive services and preventive services, as defined in section 
1861(aa)(3) of the Act and codified in Sec.  405.2448 and Sec.  
405.2449 of the regulations, are covered under the FQHC benefit. 
Laboratory tests and diagnostic services that do not meet the statutory 
and regulatory definitions of FQHC primary and preventive services, and 
are not otherwise specified in the statute or regulations as within the 
scope of the FQHC benefit, are not covered under the FQHC benefit. We 
agree with the commenter that neither the statute nor the regulations 
specifically exclude the technical components of these tests. We also 
note that the FQHC regulations do not distinguish between the technical 
and professional components of primary or preventive services. As a 
matter of our payment policy, we believe that laboratory tests and 
diagnostic services that do not meet the statutory and regulatory 
definitions of FQHC primary preventive and preventive services, and are 
not otherwise specified in the statute or regulations as within the 
scope of the FQHC benefit, are not covered under the FQHC benefit. As a 
matter of policy, we believe the 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. We note that this payment 
structure does not change the scope of the FQHC benefit.
    Comment: A commenter recommended that FQHCs be allowed to bill all 
Medicare Part B services on an institutional claim, including 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.
    Response: To distinguish services that are not paid as part of the 
encounter rate, we believe that the current billing requirements for 
billing services separately to Medicare Part B on a Part B practitioner 
claim are more appropriate for most services. We note that the 
telehealth originating site facility fee will continue to be billed 
separately on an institutional claim.
    After consideration of the public comments received, we plan to 
clarify the appropriate billing procedures through program instruction, 
as proposed.
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 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.

[[Page 25449]]

We did not propose any changes to this payment structure, rather, we 
stated that 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 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 continue paying for these services under the FQHC PPS when 
furnished as part of an otherwise qualifying encounter.
    Comment: A few commenters requested clarification regarding 
coverage and payment for vaccines recommended by the Advisory Committee 
on Immunization Practices (ACIP) of the Centers for Disease Control and 
Prevention (CDC) that are typically covered and paid under Medicare 
Part D. They believe that these vaccines, when furnished by FQHCs, 
should be covered and paid separately by Part D plans and should not be 
covered and paid for as part of a FQHC encounter.
    Response: Under section 1862(a)(7) of the Act, as codified at 42 
CFR 411.15(e) of our regulations, immunizations other than 
pneumococcal, influenza, and HBV are generally excluded from Medicare 
Part B coverage. Section 4161(a)(3)(C) of OBRA '90 (Pub. L. 101-508) 
amended section 1862(a) of the Act to specify that the FQHC benefit can 
include preventive primary health services, as described in section 
1861(aa)(3)(B) of the Act, that would otherwise be excluded from Part B 
under section 1862(a)(7) of the Act. Preventive primary services, as 
defined in Sec.  405.2448, describes which services may be paid for 
when furnished by FQHCs. (See the June 12, 1992 (57 FR 4980) and April 
3, 1996 (61 FR 4657) final rules). These preventive primary services 
include immunizations (see Sec.  405.2448(b)(8)). This means that when 
FQHCs furnish ACIP-recommended vaccines, they are covered and paid for 
under Part B as part of the FQHC benefit, and are excluded from Part D.
    Except for pneumococcal and influenza vaccines and their 
administration, which are paid at 100 percent of reasonable cost, 
payments to FQHCs for covered FQHC services furnished to Medicare 
beneficiaries are made on the basis of an AIR per covered visit. The 
charges for other Medicare-covered vaccines and their administration 
when furnished by a FQHC can be included as line items for an otherwise 
qualifying encounter, and payment for these other Medicare-covered 
vaccines would be included in the AIR. However, an encounter cannot be 
billed if vaccine administration is the only service the FQHC provides. 
For more information on how to bill under the AIR for services 
furnished incident to a FQHC encounter, see CMS Pub. 100-04, Medicare 
Claims Processing Manual, chapter 9.
    Section 10501(i)(3)(A) of the Affordable Care Act did not amend the 
coverage requirements applicable to the FQHC benefit. We did not 
propose to remove immunizations from the preventive primary services 
set out at Sec.  405.2448, and immunizations furnished by FQHCs after 
implementation of the PPS will continue to be covered under Part B as 
part of the FQHC benefit. We proposed to continue to pay for the costs 
of the influenza and pneumococcal vaccines and their administration 
through the cost report, and other Medicare-covered vaccines as part of 
the encounter rate. As part of the implementation of the FQHC PPS, we 
plan to update the appropriate billing procedures through program 
instruction.
    We note that under 1860D-2(e)(2)(B) of the Act, a drug prescribed 
to a Part D eligible individual that would otherwise be a covered Part 
D drug is excluded from Part D coverage if payment for such drug, as so 
prescribed and dispensed or administered, is available under Part A or 
B for that individual. Consequently, vaccines furnished by FQHCs and 
covered under Part B as part of the FQHC benefit in accordance with 
Sec.  405.2448(b)(8) are not covered or payable under Part D. For more 
information on the exclusion from Part D of drugs covered under Part B, 
see CMS Pub. 100-18, Medicare Prescription Drug Benefit Manual, Chapter 
6. Section 20.2.
    Comment: A few commenters recommended that CMS apply a consistent 
approach to payment for vaccines covered under Part B, which commenters 
asserted would ensure broad access for Medicare beneficiaries. These 
commenters recommended that CMS pay for the cost and administration of 
the HBV at 100 percent of reasonable cost through the cost report. A 
commenter recommended that influenza and pneumococcal vaccines should 
be billed at time of service, either with or without an encounter, and 
be paid using the national MAC fees, with an annual reconciliation on 
the cost report between the payments and the reasonable costs of these 
vaccines. This commenter wished to reduce the time between vaccine 
administration and payment and to document on individual patient claims 
that these vaccines were furnished. However, most commenters supported 
our proposal to continue to reimburse influenza and pneumococcal 
vaccines through the cost report.
    Response: As discussed in the preamble to the April 3, 1996 FQHC 
final rule (61 FR 14651), section 1833(a)(3) of the Act specifies that 
services described in section 1861(s)(10)(A) of the Act are exempt from 
payment at 80 percent of reasonable costs and payment to RHCs and FQHCs 
for influenza and pneumococcal vaccines and their administration is at 
100 percent of reasonable cost. Consistent with section 1833(a)(3) of 
the Act, we used our regulatory authority to codify at Sec.  
405.2466(b)(1)(iv) that for RHCs and FQHCs, payment for pneumococcal 
and influenza vaccine and their administration is 100 percent of 
Medicare reasonable cost paid as part of the annual reconciliation 
through the cost report (61 FR 14657, April 3, 1996). Payment for all 
other Medicare-covered vaccines is included in the AIR, and we proposed 
to continue to pay for all other Medicare-covered vaccines as part of 
the encounter rate under the FQHC PPS. We note that HBV is described in 
section 1861(s)(10)(B) of the Act, and we do not believe that the 
statute directs us to change the payment structure to pay for HBV at 
100 percent of reasonable cost through the cost report.
    We considered the commenter's request to pay for influenza and 
pneumococcal vaccines billed at time of service with an annual 
reconciliation between these payments and reasonable costs and we do 
not believe this would be necessary. FQHCs are accustomed to reporting 
and receiving payment for the reasonable costs for these vaccines and 
their administration through the annual cost report, and we believe 
that an annual reconciliation between vaccine fee amounts and 
reasonable costs would create an additional administrative burden for 
FQHCs and MACs. We also note that as of January 1, 2011, FQHCs have 
been required to report pneumococcal and influenza vaccines and their 
administration on a patient claim with the appropriate HCPCS and 
revenue codes when furnished during a billable visit.
    After consideration of the public comments received, we are 
finalizing these provisions as proposed. We will continue to pay for 
the administration and payment of influenza and pneumococcal vaccines 
at 100 percent of reasonable costs through the cost report, and we will 
continue to pay for other Medicare-covered vaccines under the FQHC PPS 
as part of the encounter rate when furnished as part of an otherwise 
qualifying encounter.

[[Page 25450]]

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 proposed the following 
adjustments.
1. Alternative Calculations for Average Cost per Visit
    For the 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).

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

    For this final rule with comment period, we modified the definition 
of a daily visit, as discussed in section II.A.4. of this final rule 
with comment period and consistent with the policy discussed in section 
II.B.1. of this final rule with comment period, which allows an 
exception to the per diem PPS payment for subsequent injury or illness 
and mental health services furnished on the same day as a medical 
visit. Separately payable encounters for the same beneficiary at the 
same FQHC were combined into a single daily visit, while allowing for a 
separate medical visit, mental health visit, and subsequent illness/
injury visit, which allows for up to three encounters for beneficiary 
per day.
    For this final rule with comment period, we used the updated claims 
data to calculate an average cost per visit by dividing the total 
estimated costs ($846,058,100) by the total number of daily visits 
(5,462,670).

Final average cost per daily visit = $846,058,100/5,462,670 = $154.88

    In the proposed rule, 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.

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

    For this final rule with comment period, we used the updated final 
data set to examine how the average cost per visit would differ under 
current policy. While the total estimated cost was the same 
($846,058,100), the total number of visits in the denominator 
(5,468,852) did not combine multiple visits on the same day of service.

Final average cost per visit = $846,058,100/5,468,852 = $154.70

    In the proposed rule, 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 noted 
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.

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

    For this final rule with comment period, we used the current data 
set to update the average cost per visit derived from the cost reports 
by dividing the total estimated Medicare costs (excluding vaccines) 
reported ($897,330,363) by the total number of Medicare visits reported 
(5,634,602).

Final average cost per visit from cost report data = $897,330,363/
5,634,602 = $159.25

    Consistent with our proposal to remove the exception to the single 
encounter payment per day, we proposed 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 noted that the 
alternative calculations yield an average cost per visit that differs 
from $150.96 by less than 3 percent. We also noted that these 
calculations were derived based on the cost report and claims data 
available during our development of the proposed rule and were subject 
to change in the final rule based on more current data.
    For this final rule with comment period, consistent with our policy 
to allow an exception to the per diem PPS payment for subsequent injury 
and mental health services furnished on the same day as a medical 
visit, we will use the average cost per daily visit of $154.88, as 
calculated above based on adjusted claims data, as the final PPS rate 
prior to any risk adjustment. We note that the alternative calculations 
yield an average cost per visit that differs from $154.88 by less than 
3 percent.
2. FQHC Geographic Adjustment Factor
    We proposed to adjust the FQHC PPS rate for geographic differences 
and to make this adjustment to the cost of inputs by applying an 
adaptation of the GPCIs used to adjust payment under the PFS. 
Established in section 1848(e) of the Act, GPCIs adjust payments for 
geographic variation in the costs of furnishing services and consist of 
three component GPCIs: The physician work GPCI, the practice expense 
GPCI, and the malpractice insurance GPCI.
    Since 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 FQHC geographic 
adjustment factor (FQHC 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 on July 19, 2013 (78 FR 
43282).
    For modeling geographic adjustments for the 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 noted 
that the FQHC 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 
FQHC 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 FQHC GAF as follows:

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

    We included the FQHC GAF adjustment when modeling all other 
potential adjustments. We proposed to apply the FQHC GAF based on where 
the services are furnished, and we noted the FQHC GAF may vary among 
FQHCs

[[Page 25451]]

that are part of the same organization. The list of proposed FQHC GAFs 
by locality was included in the Addendum of the proposed rule and as a 
downloadable file at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.
    Comment: Commenters were supportive of a FQHC GAF adjustment, but 
some suggested changes to the proposed FQHC GAFs. Some commenters 
suggested that the rural FQHC GAFs may not reflect the actual cost of 
furnishing FQHC services in rural areas, and they requested that we 
increase the rural FQHC GAFs. Some of these commenters believe that the 
factors influencing costs for urban versus rural providers are not 
identical for FQHCs and physician practices. Among the concerns raised 
by these commenters are that a rural FQHC's operating costs (such as 
utilities and transportation costs) may be higher than similar costs of 
FQHCs in urban areas; predominantly rural FQHCs often have fewer sites 
than urban FQHCs and benefit less from economies of scale; and FQHCs 
located in rural areas may incur additional costs if they offer payment 
incentives in order to recruit and retain qualified physicians and non-
physician practitioners.
    Response: Since FQHCs furnish services that are analogous to those 
furnished by physicians in outpatient clinic settings, we proposed to 
adapt the PFS GPCIs to calculate the FQHC GAFs, as we believe it would 
be consistent to apply geographic adjustments similar to those applied 
to services furnished under the PFS. As discussed in the CY 2014 PFS 
final rule with comment period, we used updated Bureau of Labor 
Statistics (BLS) Occupational Employment Statistics data to calculate 
the work GPCI and purchased services index of the PE GPCI and updated 
U.S. Census Bureau American Community Survey (ACS) data to calculate 
the rent component (which includes utilities) of the PE GPCI. Given 
their reliability, public availability, level of detail and national 
scope with sufficient data coverage in both urban and rural areas, we 
believe that the ACS and BLS data are the most appropriate sources for 
measuring geographic cost differences in operating a medical practice. 
(See our discussion in the CY 2014 PFS final rule with comment period 
(78 FR 74380 through 74381)). We believe that the data used to develop 
the PFS GPCIs are reflective of the costs of furnishing FQHC services, 
including the geographic variation in the costs of furnishing FQHC 
services in rural areas. Moreover, we do not have a comprehensive 
national source that would provide us with a basis for adjusting the 
FQHC GAFs for rural areas independently of the PFS GPCIs while meeting 
data selection criteria similar to the criteria used for selecting the 
PFS GPCI sources. We also note that as discussed later in this section, 
many rural areas would see a substantial decrease in payment amounts if 
they were no longer grouped with urban areas.
    Comment: A commenter was concerned that FQHCs with multiple 
delivery sites with different costs may be penalized if accommodation 
for these different sites is not taken into account.
    Response: We proposed to apply the FQHC GAF based on where the 
services are furnished. Therefore, for FQHCs with multiple delivery 
sites in different areas, the FQHC GAF may vary depending on the 
delivery site.
    Comment: A commenter was concerned that application of the FQHC GAF 
reduces its PPS rate below the proposed base rate, which is below its 
cost of furnishing FQHC services.
    Response: Under the FQHC PPS, Medicare payment for FQHC services is 
based on 100 percent of aggregate reasonable costs, not on an 
individual FQHC's costs. While the FQHC GAF will vary by locality, we 
note that the fully implemented, geographically adjusted PPS rate for 
all FQHCs will be approximately 32 percent higher, based on payment at 
the FQHC PPS rate, when compared to current payments to FQHCs.
    Comment: A commenter noted that FQHC lookalikes do not have access 
to malpractice coverage under the Federal Tort Claims Act (FTCA) and 
therefore incur malpractice expense. The commenter requested that CMS 
incorporate a malpractice adjustment in the FQHC GAFs for FQHC 
lookalikes, or otherwise recognize malpractice expense under the FQHC 
PPS.
    Response: FQHCs that receive section 330 grant funds are the 
predominant type of FQHC, with more than 1,100 centers operating 
approximately 8,900 delivery sites. These FQHCs are eligible to apply 
for medical malpractice coverage under the FTCA. In comparison, there 
were 93 look-alikes in 2012, according to HRSA's UDS. The PPS rate is 
based on aggregate costs, and assumes that not all FQHCs have the same 
costs. It would not be feasible to develop separate PPS rates for FQHCs 
based on differences in malpractice or any other costs. We excluded the 
PFS malpractice GPCI from the calculation of the FQHC GAF as the 
geographic variation in malpractice costs is not relevant for the 
majority of FQHCs that are eligible to apply for medical malpractice 
coverage under the FTCA. We note that FQHCs are required to report 
professional liability insurance on Worksheet A of the FQHC cost report 
(Form CMS-222), and malpractice expense was recognized as a component 
of the reasonable costs used to calculate the FQHC PPS rates.
    Comment: A commenter disagreed with our adaptation of the PFS GPCIs 
and recommended that we adjust the FQHC PPS rate for geographic 
differences based on Metropolitan Statistical Areas (MSAs). The 
commenter believes that use of the current PFS locality structure would 
result in underpayment for FQHC services furnished in several 
California counties.
    Response: As previously noted, 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. Moreover, by adapting the PFS GPCIs for the FQHC PPS, the accuracy 
of FQHC payments also benefits from the ongoing assessment, evaluation, 
and updates to the PFS GPCIs, including the periodic review and 
adjustment of GPCIs as mandated by section 1848(e)(1)(C) of the Act.
    We note that adjusting the FQHC PPS rate for geographic differences 
based on MSAs could result in significant reductions in payment for 
rural FQHCs when compared to geographically adjusted payments using the 
current PFS locality configuration. As discussed in the CY 2014 PFS 
final rule with comment period, published in the Federal Register on 
December 10, 2013 (78 FR 74230), a MSA-based locality structure would 
expand the number of PFS payment localities, and many rural areas would 
see substantial decreases in their GPCI values given that they would no 
longer be grouped together with higher cost counties (78 FR 74380 
through 74391). If the PFS locality structure or GPCI values changed, 
we would make corresponding changes to the FQHC localities and FQHC 
GAFs. As other methodologies emerge for geographic payment adjustment 
under the PFS, they may also eventually apply to the new FQHC PPS.
    Comment: A commenter recommended that after the first year of 
implementation, we use a market basket approach to adjust payments 
based on geographic locations. The commenter suggested that we revise 
the FQHC cost report to capture additional wage data that, in 
conjunction with HRSA's UDS data, could be used to develop a wage

[[Page 25452]]

index to adjust the PPS rate based on reported salary differentials.
    Response: We appreciate the commenter's interest in developing a 
wage index for the FQHC PPS. We believe that a FQHC GAF based on the 
PFS GPCIs is appropriate for FQHC services, as an FQHC's employment mix 
and scope and delivery of services are generally similar to a 
physician's practice. We note that a FQHC GAF based solely on a wage 
index, which is a relative measure of geographic differences in wage 
levels, would not reflect the relative cost difference in the full mix 
of goods and services comprising the PFS practice expense GPCIs (for 
example, purchased services, office rent, equipment, supplies, and 
other miscellaneous expenses). We do not believe that the additional 
reporting burden suggested by the commenter, or the additional 
administrative burden of collecting and validating the type of data 
needed for a reliable FQHC wage index, would justify the potential 
incremental benefit of using a FQHC-specific wage index in calculating 
the FQHC GAFs.
    Comment: A commenter asked why we did not use the CY 2015 GPCI 
values to calculate the FQHC GAFs.
    Response: For modeling geographic adjustments for the FQHC PPS 
proposed rule, we used the CY 2014 work and practice expense GPCIs 
published in the CY 2014 PFS proposed rule. We noted that the FQHC GAFs 
could be subject to change in the final FQHC PPS rule based on more 
current data, including the finalized PFS GPCI and cost share weight 
values.
    As discussed in the CY 2014 PFS final rule with comment period (78 
FR 74380 through 74391), the CY 2015 PFS GPCI values reflect our most 
current updates of the underlying data sources and represent our best 
estimates of the geographic variation in the costs of furnishing 
physician services. In contrast, the CY 2014 GPCI values partially 
reflect the updates to the underlying data and MEI cost weights. 
Therefore, we will use the CY 2015 GPCI values, as published in the CY 
2014 final rule with comment period, to model the geographic 
adjustments for the FQHC PPS rates as they represent the most current 
data. We note that the PFS cost share weights were finalized as 
proposed, and we will use the relative weights of the PFS work and PE 
GPCIs, as proposed and finalized, to calculate each locality's FQHC 
GAF.
    For payments under the FQHC PPS, we believe it most appropriate to 
apply geographic adjustments consistent with those applied to services 
furnished under the PFS during the same period. Therefore, the FQHC 
GAFs and cost share weights will be updated in conjunction with updates 
to the PFS GPCIs, which would maintain consistency between the 
geographic adjustments applied to the PFS and the FQHC PPS in the same 
period. We note that the FQHC GAFs for October 1 through December 31, 
2014, will be adapted from the CY 2014 PFS GPCIs applicable during that 
same period. Subsequent updates to the FQHC GAFs will be made in 
conjunction with updates to the PFS GPCIs for the same period.
    We have considered the public comments we received, and are 
finalizing the FQHC GAF provisions as proposed, with some 
modifications. As proposed, we are revising Sec.  405.2462 to require 
that payments under the FQHC PPS will be adjusted for geographic 
differences by applying an adaptation of the work and practice expense 
GPCIs used to adjust payment under the PFS. We are modifying Sec.  
405.2462 to specify that the FQHC GAFs used for payment will be adapted 
from the GPCIs used to adjust payment under the PFS for that same 
period.
    For modeling geographic adjustments for the FQHC PPS proposed rule, 
we did not use the proposed CY 2014 work and practice expense GPCIs 
that were published in the CY 2014 PFS proposed rule. Instead, for 
modeling the geographic adjustments for this FQHC PPS final rule, we 
used the final CY 2015 work and practice expense GPCIs and cost shares 
that were published in the CY 2014 PFS final rule with comment period 
as the CY 2015 GPCI values represent the most recent fully implemented 
GPCI update and therefore more current data. More information on how we 
modeled the FQHC PPS geographic adjustment is discussed in section 
II.D. of this final rule with comment period.
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 proposed 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 was 1.3333.
    Comment: Commenters supported the proposed adjustments, but some 
recommended that we also apply the adjustment factor to subsequent 
AWVs. Commenters recommended that we allow an adjustment for subsequent 
AWVs in addition to initial AWVs in order to support the goal of 
improving health outcomes and increasing access to subsequent AWVs. 
Commenters also believe that the subsequent AWV is similar to the 
increased intensity of the IPPE and initial AWV, in terms of both the 
duration of the visits and the number of ancillary services furnished.
    Response: Subsequent AWV is a very small percent of total FQHC 
visits (approximately 0.25 percent), but the claims data suggest that 
subsequent AWV is significantly more costly than most other FQHC 
visits. The claims data also suggest that subsequent AWV is somewhat 
less costly than an IPPE or initial AWV, which is consistent with the 
comparatively reduced level of required physician work associated with 
the subsequent AWV. As previously noted, our goal for the FQHC PPS is 
to implement a system in accordance with the statute whereby FQHCs are 
fairly paid for the services they furnish to Medicare patients in the 
least burdensome manner possible. Rather than establish a separate 
adjustment for subsequent AWV, we will add the subsequent AWV to the 
proposed adjustment for new patient or initial Medicare visit. Based on 
current FQHC data, the composite group of new patient visits, IPPEs, 
initial AWVs, and subsequent AWVs is associated with 34.16 percent 
higher estimated costs than other visits.
    In this final rule with comment period, we are modifying our 
proposal, and we will adjust the encounter rate to reflect the 34.16 
increase in costs when FQHCs furnish care to new patients or when they 
furnish an IPPE, initial AWV, or subsequent AWV, which could account 
for the greater intensity and resource use associated with these types 
of services. Our composite risk adjustment factor for these types of 
visits is 1.3416.
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 calculated whether there were differences in resource use for 
mental health visits and preventive care visits when compared to 
medical care visits

[[Page 25453]]

using mathematical modeling techniques. 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 declined to 
an 8 percent higher estimated cost per visit after adjusting for the 
FQHC GAF and the proposed 1.3333 risk adjustment factor for a patient 
that is new to the FQHC or for 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 did not propose a payment reduction for preventive 
care encounters and we noted 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 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, and that 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 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 
AWV, 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.
    Comment: Several commenters recommended that CMS address the 
special circumstances facing Indian health providers by considering the 
inclusion of a low-volume upward adjustment, a population-density 
adjustment, and a service-mix adjustment to the PPS rate. These 
commenters stated that a volume adjustment is necessary because low-
volume tribal FQHCs find it more difficult to spread their costs across 
their patient base, and are less likely to obtain volume discounts and 
benefit from economies of scale. They also stated that many tribal 
FQHCs in rural areas furnish less complex or lower intensity services 
than urban providers, resulting in different payment-to-cost ratios 
that result in reimbursement inequities.
    Response: We appreciate the challenges that tribal FQHCs face in 
furnishing services, especially in rural and isolated areas, and the 
significant health disparities that remain for AI/AN populations. We 
also understand that providers in isolated and rural areas, including 
tribal FQHCs, may have fewer patients than providers in more densely 
populated areas, and may not be able to offer as full of a range or 
level of complexity in their services as other providers, or benefit 
from the economies of scale that providers with higher volume or in 
more densely populated areas may have. In developing the PPS rate, we 
considered various possible adjustments, including a low-volume 
adjustment. When analyzing Medicare claims data, lower overall FQHC 
volume was found to be associated with higher estimated costs (see 
``Results of Research on the Design of a Medicare Prospective Payment 
System for Federally Qualified Health Centers'' by Arbor Research 
Collaborative for Health). However, we did not propose to include a 
low-volume adjustment, because we believe that the PPS rate, along with 
adjustments for new and initial visits and AWV, will provide 
appropriate reimbursement for the costs of services provided.
    Comment: Commenters were generally supportive of a single base rate 
with a geographic adjustment and an adjustment for new patients and 
initial Medicare visits. Some commenters recommended additional 
adjustments, such as: high acuity of patients; visit characteristics; 
multiple chronic conditions; encounters with more than two HCPCS codes 
on the claim; unique geographical differences among FQHCs; and dual 
eligible beneficiaries.
    Response: As discussed in the proposed rule, FQHC claims data 
regarding secondary diagnoses and ancillary services appears to be 
limited. As a result, there is a risk that the recommended adjustments, 
such as increased payments for high acuity, multiple chronic 
conditions, or encounters with multiple HCPCS, could be based on 
incomplete information. Our analyses of clinical conditions, encounter 
duration, and types of service, which considered the same or similar 
types of adjustments, found that these adjustments had limited impact 
on costs or were too complex for the FQHC PPS. Our analysis of more 
current data continues to support these conclusions. As discussed in 
section II.C.2. of this final rule with comment period, we believe it 
is appropriate to adjust for geographic differences among FQHCs using 
the GAF.
    We tested for an association between dual eligibility and the 
estimated cost per visit. On average, the estimated cost of a FQHC 
visit was 4 percent higher among dual eligible beneficiaries. After 
applying the GAF and the new patient/initial visit adjustment to the 
model, the estimated cost of a FQHC visit was, on average, 0.4 percent 
higher among dual eligible beneficiaries. We do not believe that this 
slight variation in estimated cost justifies the added complexity of an 
additional payment adjustment for dual eligible beneficiaries.
    Comment: A commenter recommended that CMS include an upward 
adjustment for FQHCs that provide significant ``enabling services.'' 
The commenter believes that non-clinical services provided to patients 
to support care delivery, enhance health literacy, or facilitate access 
to care can reduce health disparities and improve outcomes for FQHC 
patients.
    Response: While FQHCs, including look-alikes, are required by 
section 330 of the PHS Act to provide services that enable individuals 
to use the required primary health services that they provide, these 
services are not part of the Medicare FQHC benefit.

[[Page 25454]]

    Comment: Some commenters believe that the PPS payment methodology 
removes incentives to provide fewer, more intensive visits and 
recommended that CMS increase payments to high-performing FQHCs that 
furnish efficient, integrated care. Some commenters recommended that 
CMS encourage expanded access to care, the development of medical 
homes, and horizontal networks of care by applying upward adjustments 
to FQHCs that offer value-added services, such as a broader scope of 
services, expanded hours, or teaching health centers.
    Response: While we appreciate the suggestions, neither the cost 
report nor the claims data contains sufficient information to assess 
the validity of commenters' claims with respect to these types of 
adjustments. Moreover, the types of adjustments suggested by these 
commenters are beyond the scope of the FQHC PPS methodology. However, 
we are taking steps to foster innovation in how FQHCs deliver services 
to Medicare beneficiaries. For example, the FQHC Advanced Primary Care 
Practice (APCP) Demonstration, operated by CMS in partnership with 
HRSA, is designed to evaluate the effect of the advanced primary care 
practice model in improving care, promoting health, and reducing the 
cost of care provided to Medicare beneficiaries served by FQHCs. This 
demonstration is being conducted in accordance with the Secretary's 
demonstration authority under section 1115A, which facilitates the 
development and expansion of successful payment models. For more 
information on the FQHC APCP, see http://www.fqhcmedicalhome.com/.
    Comment: A commenter noted that CMS did not include data from 
provider-based FQHCs in its costs calculations, asserted that provider-
based FQHCs experience higher costs than freestanding FQHCs, and urged 
CMS to add an adjustment to ensure payments to provider-based FQHCs 
recognize their differential costs.
    Response: As discussed in section II.A.2. of this final rule with 
comment period, in developing the rates for this final rule with 
comment period, we included data from provider-based FQHCs in 
calculating the PPS rate. Under the FQHC PPS, Medicare payment for FQHC 
services is not based on an individual FQHC's costs. The cost report 
and claims data do not support an adjustment for provider-based FQHCs. 
While the average cost per visit is somewhat higher for provider-based 
FQHCs than for freestanding FQHCs, none of the provider-based FQHCs 
were identified as outliers based on the average cost per visit from 
the cost reports, and only 0.4 percent of the encounters in the claims 
were identified as outliers based on estimated costs.
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 was made 
available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/FQHCPPS/index.html.

D. Base Rate Calculation

    We calculated a proposed base rate for the FQHC PPS by adjusting 
the average cost per visit to account for the proposed adjustment 
factors. We calculated a proposed average payment multiplier using the 
average FQHC 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 FQHC 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):

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

    We calculated a proposed 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:

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

    The proposed base rate per daily visit of $150.42 reflected costs 
through June 30, 2012, and did not include an adjustment for price 
inflation. As the FQHC PPS is to be implemented beginning October 1, 
2014, we proposed to update the base rate to account for the price 
inflation through September 30, 2014, as measured by 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 proposed 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 proposed 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. We also proposed 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--Proposed Base Rate per Daily Visit
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Estimated base
                                                                         Average                         rate without                      MEI-Adjusted
               Total estimated costs                     Daily           payment        Average cost    adjustment for     MEI Update      base payment
                                                       encounters       multiplier    per daily visit       price            factor            rate
                                                                                                          inflation
--------------------------------------------------------------------------------------------------------------------------------------------------------
$788,547,531......................................       5,223,512           1.0036          $150.96          $150.42           1.0364          $155.90
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

    Thus, we proposed a base payment rate of $155.90 per beneficiary 
per visit for the proposed FQHC PPS. We noted that this base rate is 
subject to change in the final rule based on more current data.
    Proposed payments to FQHCs were calculated as follows:

Proposed base payment rate x FQHC GAF = Proposed PPS payment

    In calculating the proposed payment, the proposed base payment rate 
was $155.90, and the FQHC GAF was based on the locality of the delivery 
site.

[[Page 25455]]

    If the patient is new to the FQHC, or the FQHC is furnishing an 
initial comprehensive Medicare visit, we proposed that the payment 
would be calculated as follows:

Proposed base payment rate x FQHC GAF x 1.3333 = Proposed PPS payment

In calculating the proposed payment, 1.3333 represented 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.
    To calculate the FQHC base rate for this final rule with comment 
period, we used updated data, the finalized adjustment factors, the 
finalized definition of a daily visit (as discussed in sections II.A.4. 
and II.B.1. of this final rule with comment period), and the finalized 
adjustment for a new patient, IPPE, initial AWV, and subsequent AWV (as 
discussed in section II.C.3. of this final rule with comment period). 
We calculated a final base rate for the FQHC PPS by adjusting the 
average cost per visit to account for the finalized adjustment factors. 
We calculated a final average payment multiplier using the average 
final FQHC GAF (0.9961) multiplied by the average risk adjustment for 
non-new patient/IPPE/AWV (1.0), as weighted by the percent of 
encounters that represented non-new patient/IPPE/AWV (0.9683), and we 
added this to the average final FQHC GAF (0.9961) multiplied by the 
average risk adjustment for new patient/IPPE/AWV (1.3416), as weighted 
by the percent of encounters that represented new patient/IPPE/AWV 
(0.0317):

Final average payment multiplier = 0.9683(1.00)(0.9961) + 
0.0317(1.3416)(0.9961) = 1.0069

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

Final base rate per daily visit = $154.88 x (1/1.0069) = $153.82

    We did not receive any comments on our use of the MEI to update the 
FQHC base rate. Our final data set reflects cost reporting periods 
ending between June 30, 2011, and June 30, 2013. Given that the updated 
cost data typically has a midpoint that is close to the middle of 2012, 
we are continuing to use June 30, 2012, as the starting point for 
inflating prices forward. We are finalizing our proposal to update the 
FQHC base rate per daily visit for inflation using the growth as 
measured by the MEI from July 2012 through December 2015. The estimated 
base rate of $153.82 per diem is inflated through FY 2014 using the 
historical MEI market basket increase of 1.8 percent. For the 15-month 
period October 1, 2014 through December 31, 2015, we apply an update of 
1.3 percent as measured by the 4th quarter 2013 forecast of the MEI, 
the most recent forecast available at the time. The adjusted base 
payment that reflects the MEI historical updates and forecasted updates 
to the MEI is $158.85. This payment rate incorporates a combined MEI 
update factor of 1.0327 that trends dollars forward from July 1, 2012 
through December 31, 2015.

                                                        Table 2--Final Base Rate per Daily Visit
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Estimated base
                                                                         Average                         rate without                      MEI-Adjusted
               Total estimated costs                     Daily           payment        Average cost    adjustment for     MEI Update      base payment
                                                       encounters       multiplier    per daily visit       price            factor            rate
                                                                                                          inflation
--------------------------------------------------------------------------------------------------------------------------------------------------------
$846,058,100......................................       5,462,670           1.0069          $154.88          $153.82           1.0327          $158.85
--------------------------------------------------------------------------------------------------------------------------------------------------------

Final MEI-adjusted base payment rate = $154.88 x (1/1.0069) x 1.0327 = 
$158.85

    Thus, we are finalizing a base payment rate of $158.85 per 
beneficiary per day for the FQHC PPS, based on current data and the 
finalized policies.
    Payments to FQHCs were calculated as follows:

    Base payment rate x FQHC GAF = PPS payment

    In calculating the payment, the base payment rate was $158.85, and 
the FQHC GAF was based on the locality of the delivery site.
    If the patient is new to the FQHC, or the FQHC is furnishing an 
IPPE, initial AWV, or subsequent AWV, payment would be calculated as 
follows:

Base payment rate x FQHC GAF x 1.3416 = PPS payment

    In calculating the payment, 1.3416 represents the risk adjustment 
factor applied to the PPS payment when FQHCs furnish care to new 
patients or when they furnish an IPPE, initial AWV, or subsequent AWV 
(see discussion in section II.C.3. of this final rule with comment 
period).

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 usually do 
not 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 noted that a change in cost reporting periods that is made 
primarily to maximize payment would not be acceptable under established 
cost reporting policy (see Sec.  413.24(f)(3) of the regulations 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 proposed to transition the PPS to a calendar year update for all 
FQHCs, beginning January 1, 2016, because many of the PFS files we 
proposed 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 proposed to defer the first MEI statutory adjustment to the 
PPS rate from October 1, 2015 to December 31, 2016, because the 
proposed base payment rate incorporates a forecasted percentage 
increase in the MEI through December 31, 2015.
    Comment: Many commenters requested that FQHCs be permitted to 
transition into the FQHC PPS beginning on October 1, 2014, even if that 
is not the beginning of their cost reporting period.
    Response: As we stated in the proposed rule, a change in cost 
reporting periods that is made primarily

[[Page 25456]]

to maximize payment would not be acceptable under established cost 
reporting policy. This principle has been applied uniformly to the 
implementation of all new prospective payment systems in Medicare. The 
MACs do not have the discretion to transition a FQHC at a time other 
than their cost reporting period except when a FQHC has a change of 
ownership resulting in a different cost reporting period, or otherwise 
has good cause. Good cause is not met if it is determined that the 
reason is to maximize reimbursement.
    Comment: Many commenters requested that we create a FQHC-specific 
market basket beginning in 2016 for the annual update to the PPS rate. 
These commenters opined that a FQHC-specific market basket would more 
accurately reflect the actual costs of FQHC services than using the 
MEI. A commenter requested that the FQHC market basket take into 
account changes in the scope of services that FQHC furnish.
    Response: We will continue to assess the feasibility of developing 
a FQHC-specific market basket and will provide notification of our 
intentions in subsequent rulemaking.
    We did not receive any comments on our proposal to transition the 
PPS to a calendar year update for all FQHCs, beginning January 1, 2016. 
Therefore, we are finalizing this provision as proposed.
2. Medicare Claims Payment
    We noted that 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 shall be 80 percent of the 
lesser of the provider's actual charge or the PPS rate. In the proposed 
rule, we stated that we were considering several revisions to the 
claims processing system. These include revisions to reject claims in 
which the qualifying visit described a service that is outside of the 
FQHC benefit, such as inpatient hospital E/M services or group sessions 
of DSMT/MNT; revisions to 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; and revisions to 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.
    Comment: Commenters identified the ``lesser of'' provision in 
section 1833(a)(1)(Z) of the Act as their most significant concern with 
the proposed rule. This provision requires that Medicare payment for 
FQHC services furnished under the PPS to equal ``80 percent of the 
lesser of the actual charge or the amount determined under'' section 
1834(o) of the Act. Many commenters were concerned that paying FQHCs 
the lesser of the actual charge or the PPS rate will routinely underpay 
FQHCs and undermine the purpose of the PPS. These commenters believe 
the PPS would be inappropriately comparing a per diem rate for a 
typical bundle of services with a charge or sum of charges for 
individual services. Some FQHCs also claim that they keep their charges 
low across all payers because they serve an underserved population, 
which will cap their Medicare FQHC payments at these low charge rates. 
Commenters recommended that if the ``lesser of'' provision must be 
implemented, it would be more appropriate for Medicare to compare the 
PPS rate to the FQHC's average charge per visit from the prior year, 
trended forward by the MEI or a FQHC-specific inflationary factor.
    Response: We appreciate the information and perspectives provided 
by the commenters and will address each of these points individually.
    Comment: Commenters opined that CMS lack the statutory authority to 
implement the ``lesser of'' provision because section 1833(a)(1) of the 
Act generally excludes FQHC services, and that even if we determine 
that CMS has the authority to apply the ``lesser of'' provision, the 
statutory deficiencies would allow CMS to be flexible in implementing 
this provision.
    Response: We respectfully disagree with commenters that the 
statutory basis of the ``lesser of'' provision is not clear. We find 
the language in section 1833(a)(1)(Z) of the Act, which states ``with 
respect to Federally qualified health center services for which payment 
is made under section 1834(o) of the Act, the amounts paid shall be 80 
percent of the lesser of the actual charge or the amount determined 
under such section'' to be clear, and we believe that placement of this 
provision in section 1833(a)(1) of the Act does not undermine its 
authority.
    Comment: Commenters noted that due to the ``lesser of'' provision, 
initial payments under the PPS would be less than 100 percent of the 
estimated amount of reasonable costs, and this does not meet the budget 
neutrality requirement in the Affordable Care Act.
    Response: We respectfully disagree with commenters that we should 
have factored the ``lesser of'' provision into our budget neutrality 
calculations. Section 1834(o)(2)(B)(i) of the Act requires us to 
calculate a PPS rate that, when multiplied by our estimates of 
services, will yield 100 percent of estimated reasonable costs. 
Although we must apply the ``lesser of'' provision in section 
1833(a)(1)(Z) of the Act when paying FQHCs under the PPS, section 
1834(o)(2)(B)(i) of the Act specifies that the estimated aggregate 
amount of prospective payment rates is to be determined prior to the 
application of section 1833(a)(1)(Z) of the Act.
    Comment: Commenters asserted that CMS did not provide sufficient 
information about the ``lesser of'' provision in the proposed rule, 
such as defining the term ``charge'' or providing an analysis of the 
effect of the ``lesser of'' provision on FQHC payments under the PPS. 
Commenters urged CMS to clarify implementation details in the final 
rule and to give the public another opportunity to comment after 
publishing this information. Commenters requested that CMS grant a 2- 
to 3-year moratorium on the ``lesser of'' provision, while beginning to 
pay the PPS rates as of October 1, 2014.
    Response: We believe the statutory language in section 
1833(a)(1)(Z) of the Act requiring a comparison with the provider's 
``actual charge'' is straightforward. Moreover, the regulatory 
principles of reasonable cost reimbursement in Sec.  413.53(b) already 
defines ``charges'' as ``the regular rates for various services that 
are charged to both beneficiaries and other paying patients who receive 
the services.'' We did not include all the implementation details in 
the proposed rule because claims processing instructions are not 
typically subject to regulatory notice and comment.
    The proposed rule modeled the impact of the PPS using the estimated 
PPS rate, and did not model the overall impact of the ``lesser of'' 
provision because FQHCs control their own pricing structures, and we 
have limited information to accurately project actual FQHC charges. 
Therefore, we believe it would have been inappropriate to publish an 
analysis demonstrating the impact of the ``lesser of'' provision.
    Comment: Some commenters claimed that FQHCs keep their charges low 
across all payers because they serve an underserved population. A few 
commenters asserted that the costs of

[[Page 25457]]

integrated care furnished to beneficiaries are not adequately reflected 
in the HCPCS codes and charges billed to Medicare. Commenters were 
concerned that, in order to receive the higher payments under the PPS, 
FQHCs would be forced to raise their charges, which would increase the 
coinsurance liability for patients who do not qualify for a sliding fee 
schedule discount.
    Response: Most FQHCs are subject to the requirements in the section 
330(k)(3)(G) of the PHS Act, which states that FQHCs prepare ``a 
schedule of fees or payments for the provision of its services 
consistent with locally prevailing rates or charges and designed to 
cover its reasonable costs of operation and has prepared a 
corresponding schedule of discounts to be applied to the payment of 
such fees or payments, which discounts are adjusted on the basis of the 
patient's ability to pay.''
    FQHCs can adjust their charges within the broad parameters 
established by the PHS Act and HRSA guidance, and the application of a 
sliding fee scale can subsidize an eligible patient's out-of-pocket 
liability. The commenter is correct that coinsurance liability 
generally increases when charges increase, and that this is a 
consideration for FQHCs when setting charges. We also note that, under 
certain circumstances, FQHCs may waive coinsurance amounts for Medicare 
and Medicaid beneficiaries (see for example, section 1128B(b)(3)(D) of 
the Act and Sec.  1001.952(k)(2) of the regulations). Also, most FQHCs 
are subject to the statutory and regulatory requirements of the Health 
Center Program (section 330 of the PHS Act; 42 CFR Part 51c; and 42 CFR 
56.201 through 56.604), which, among other requirements, mandates that 
they may collect no more than a ``nominal fee'' from individuals whose 
annual income is at or below 100 percent of the Federal Poverty Level.
    Comment: A few commenters recommended that we apply the ``lesser 
of'' provision at the aggregate level through an annual reconciliation 
on the Medicare cost report of aggregate payments with aggregate 
charges. These commenters noted that this aggregate approach averages 
out lower charges for low intensity services with higher charges for 
high intensity services. Some commenters suggested that we conduct an 
annual reconciliation on the Medicare cost report to determine whether 
aggregate PPS payments exceeded or fell short of aggregate allowable 
costs, using costs as a proxy for actual charges.
    Response: We believe that the statutory language in section 
1833(a)(1)(Z) of the Act requiring a comparison with the provider's 
``actual charge'' is straightforward, and a comparison of aggregate 
payments with aggregate charges would be inconsistent with the plain 
reading of the statutory language that implies a claims level 
comparison. We also were not persuaded that costs are a reasonable 
proxy for charges. We note that in general, a Medicare PPS is a method 
of paying providers based on a predetermined, fixed amount that is not 
subject to annual reconciliation. Payments under a Medicare PPS for 
other provider types are not subject to annual reconciliation with a 
provider's charge, and an annual reconciliation of costs for providers 
paid under a Medicare PPS is generally limited to amounts paid outside 
the applicable PPS.
    Comment: Many commenters believe that the proposed PPS would 
inappropriately compare a per diem rate for a typical bundle of 
services with a charge or sum of charges for individual services 
furnished on the same day, which commenters described as an ``apples to 
oranges'' comparison. Commenters asserted that comparing the bundled 
rate to the sum of individual charges would routinely yield 
underpayment and make it difficult for FQHCs to meet their obligation 
under section 330 of the PHS Act that requires health centers to 
collect adequate payment from government programs, including Medicare. 
Commenters recommended that if the ``lesser of'' provision must be 
implemented, it would be more appropriate for CMS to implement the 
``lesser of'' provision in a way that ensures parity between the 
rate(s) and charges to which they are compared. Commenters suggested 
that CMS compare the PPS rate to the FQHC's average charge per visit, 
as determined on an annual basis and trended forward by an applicable 
inflation factor (for example, the MEI or a FQHC-specific inflationary 
index).
    A commenter suggested that FQHCs should be allowed to bill all-
inclusive rate charges under the FQHC PPS. This commenter noted that 
the proposed PPS rate is based on cost report data that are not 
adequately reflected in the HCPCS codes and charges billed to Medicare, 
and the commenter believes it would be appropriate for FQHCs to bill an 
all-inclusive rate. The commenter suggested that it would be 
appropriate for FQHCs to set the charge for a Medicare visit at the 
higher of its Medicare or Medicaid PPS rate to avoid a reimbursement 
loss from application of the ``lesser of'' provision. This commenter 
also suggested that ancillary services should be billed and paid by 
Medicare over and above the all-inclusive PPS rates.
    Response: Most Medicare payment systems that have a ``lesser of'' 
provision in section 1833(a)(1) of the Act are paid on a fee basis for 
each item or service. While unbundling the PPS rate to pay separately 
for individual services would address the ``apples-to-oranges'' 
concern, we note that most of the commenters recommending that we 
compare the PPS rate with the FQHC's average charge also supported our 
proposal to offer a single, bundled, encounter-based rate for payment 
with some adjustments, as discussed earlier. We believe that the 
proposed FQHC PPS encounter-based rate, which would be similar across 
all encounters, is a significantly different payment structure than 
other payment systems subject to a ``lesser of'' comparison with actual 
charges. We acknowledge that a comparison of a service-specific charge 
to an encounter-based payment does not apply the ``apples-to-apples'' 
comparisons of similar ``lesser of'' provisions included in section 
1833(a)(1) of the Act.
    We considered modifying our proposal and adopting the 
recommendation of many commenters to pay FQHCs based on the lesser of 
the FQHC's average Medicare charge per diem or the PPS rate. We agree 
that such an approach would be responsive to commenters seeking parity 
in the comparison between the bundled PPS rate and the charges. 
However, we believe that the statutory language in section 
1833(a)(1)(Z) of the Act requiring a comparison with the provider's 
``actual charge'' is straightforward, and a comparison with the FQHC's 
average charge from a prior period would be inconsistent with the plain 
reading of the statutory language.
    We believe we can be responsive to commenters seeking parity in the 
comparison between the bundled PPS rate and the charges, while allowing 
direct interpretation of the statutory requirements of section 
1833(a)(1)(Z) of the Act, by establishing a new set of HCPCS G-codes 
for FQHCs to report an established Medicare patient visit, a new or 
initial patient visit and an IPPE or AWV. As authorized by section 
1834(o)(2)(C) of the Act, we shall establish and implement by program 
instruction the payment codes to be used under the FQHC PPS. We would 
define these G-codes in program instruction to describe a FQHC visit in 
accordance with the regulatory definitions of a Medicare FQHC visit. 
Each FQHC would establish a charge to

[[Page 25458]]

the beneficiary with which to bill Medicare for the encounters. 
Consistent with longstanding policy, the use of these payment codes 
does not dictate to providers how to set their charges. A FQHC would 
set the charge for a specific payment code pursuant to its own 
determination of what would be appropriate for the services normally 
provided and the population served at that FQHC, based on the 
description of services associated with the G-code. The charge for a 
specific payment code would reflect the sum of regular rates charged to 
both beneficiaries and other paying patients for a typical bundle of 
services that would be furnished per diem to a Medicare beneficiary. We 
would continue to require detailed HCPCS coding with the associated 
line item charges for data gathering (for example, providing 
information about the ancillary services furnished), to support the 
application of adjustments for new patients, IPPE, and AWV, and to 
facilitate the waiving of coinsurance for preventive services.
    FQHCs will be required to use these payment codes when billing 
Medicare under the PPS. Medicare would pay FQHCs based on 80 percent of 
the lesser of the actual charge reported for the specific payment code 
or the PPS rate on each claim (and beneficiary coinsurance would be 20 
percent of the lesser of the actual charge for the G-code or the PPS 
rate), which allows for direct interpretation of the statute by 
comparing the PPS rate to the FQHC's actual charge for a Medicare 
visit. In order to ease administrative burden and in compliance with 
Sec.  413.53, the FQHC may choose to use these specific payment codes 
for its entire patient base. We acknowledge that other payors may have 
requirements that would preclude FQHCs from using these payment codes, 
and we suggest that FQHCs be mindful of the differences in required 
billing methodologies and coding conventions when submitting claims to 
other payors.
    Although we did not propose to establish HCPCS G-codes for FQHCs to 
report and bill for Medicare visits, we believe that comparing the PPS 
per diem rate to a FQHC's charge for a per diem visit (as defined by 
the specific payment codes) would be responsive to commenters seeking 
parity in the comparison between the bundled rate and the charges, and 
would also be responsive to commenters concerns regarding meeting the 
requirements of section 330(k)(3)(F) of the PHS Act, which requires 
section 330 grantees to make every reasonable effort to collect 
appropriate reimbursement for its costs in providing health services 
from government programs, including Medicare. Establishment of these G-
codes would also be responsive to the commenter that suggested that 
FQHCs should be allowed to bill all-inclusive rate charges under the 
FQHC PPS. Since the G-codes would describe FQHC visits as a per diem, 
encounter-based visit in accordance with Medicare regulations, we also 
note that the charges established for these Medicare visits might not 
directly affect the charges for non-Medicare patients.
    In setting its charges for these Medicare FQHC visits, a FQHC would 
have to comply with established cost reporting rules in Sec.  413.53 
which specify that charges must reflect the regular rates for various 
services that are charged to both beneficiaries and other paying 
patients who receive the services. We anticipate that each FQHC would 
establish charges for the Medicare FQHC visits that would reflect the 
sum of regular rates charged to both beneficiaries and other paying 
patients for a typical bundle of services that the FQHC would furnish 
per diem to a Medicare beneficiary. We note that establishing Medicare 
per diem rates that are substantially in excess of the usual rates 
charged to other paying patients for a similar bundle of services could 
be subject to section 1128(b)(6) of the Act, as codified in Sec.  
1001.701.
    We disagree with the commenter's suggestion that ancillary services 
should be billed and paid by Medicare over and above the all-inclusive 
PPS rate because the costs of these ancillary services were included in 
the reasonable costs used to calculate the PPS rates.
    After consideration of the public comments received, we are 
finalizing our proposal and the revised regulations at Sec.  405.2462 
to pay FQHCs based on the lesser of the PPS rate or the actual charge. 
In response to the public comments, we will also establish HCPCS G-
codes for FQHCs to report and bill FQHC visits to Medicare under the 
FQHC PPS. Appropriate billing procedures for the G codes will be made 
through program instruction. As we did not propose the establishment of 
G-codes in the proposed rule, nor did we receive public comments 
specifically requesting such codes, we invite comments on the 
establishment of G-codes for FQHCs to report and bill FQHC visits to 
Medicare under the FQHC PPS.
3. Beneficiary Coinsurance
    Section 1833(a)(1)(Z) of the Act requires that FQHCs be paid ``80 
percent of the lesser of the actual charge or the amount determined 
under such section''. 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 Medicare 
claims data for dates of service between January 1, 2011 through June 
30, 2013 indicated that beneficiary coinsurance based on 20 percent of 
the FQHCs' charges was approximately $29 million higher, or 20 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. Accordingly, we proposed 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 sections 1866(a)(2)(A) and 
1833(a)(3)(A) of the Act and elsewhere that addresses coinsurance 
amounts and Medicare cost principles. If finalized as proposed, total 
payment to the FQHC, including both Medicare and beneficiary liability, 
would not exceed the FQHC's charge or the PPS rate (whichever was 
less).
    Comment: Several commenters recommended that if CMS makes changes 
to the coinsurance provisions in the payment regulation at Sec.  
405.2462(d) in response to comments on the ``lesser of'' provision, CMS 
should make corresponding revisions to the coinsurance regulation at 
Sec.  405.2410.
    Response: The coinsurance provisions in Sec.  405.2462(d) and Sec.  
405.2410 have been updated in this final rule with comment period.
    Comment: Commenters noted that calculating the amount of 
coinsurance to be charged a patient is a significant administrative 
responsibility for FQHCs. Commenters were concerned that a comparison 
of the PPS rate with charges at the point of service would be 
administratively complex and unnecessarily burdensome for FQHCs, and 
FQHCs would have difficulty calculating the beneficiary's coinsurance 
liability at point of service.
    Response: We respectfully disagree that FQHCs would have difficulty 
calculating a beneficiary's coinsurance liability at point of service. 
A FQHC will set its own charge, and we believe the charge amount is 
likely to be available at point of service. We also believe that

[[Page 25459]]

FQHCs will be able to estimate the PPS rate at time of service. We 
proposed to apply a FQHC GAF based on where the services are furnished, 
and we proposed to adjust the encounter rate when FQHCs furnish care to 
new patients or when they furnish a comprehensive initial Medicare 
visit. We are finalizing our proposal to apply a FQHC GAF, and we are 
modifying our proposal and will adjust the encounter rate when FQHCs 
furnish new patient visits, IPPEs, or AWVs. Therefore, each delivery 
site would have two geographically adjusted PPS rates for each period: 
One rate for a visit furnished to a patient who is not new to the FQHC 
and is not receiving an IPPE or AWV, and one rate for a new patient 
visit, IPPE or AWV that is eligible for an adjustment. At the point of 
service, a FQHC could determine whether its own charge or its estimate 
of the applicable PPS rate (which would be one of two discrete values) 
is lower, and the FQHC could estimate beneficiary coinsurance at point 
of service based on 20 percent of the lesser amount. We note that the 
remittance advice issued by the MAC will continue to include the 
coinsurance amount and will reflect the amount of coinsurance 
recognized by Medicare.
    Comment: A few commenters wanted coinsurance to be based on 
charges, even when the charges are higher than the PPS rate. Some also 
questioned our legal authority to assess coinsurance at 20 percent of 
the lesser of the charge or the PPS rate.
    Response: Under the current reasonable cost payment system, 
beneficiary coinsurance for FQHC services is assessed based on the 
FQHC's charge, and we acknowledge that the statute makes no specific 
provision to revise the coinsurance to be 20 percent of the lesser of 
the FQHC's charge or the PPS rate, although it does state clearly that 
CMS is limited to paying 80 percent of the FQHC's charge or the PPS 
rate, whichever is less. We continue to 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 sections 1866(a)(2)(A) and 1833(a)(3)(A) of the 
Act and elsewhere that addresses coinsurance amounts and Medicare cost 
principles. These sections were not repealed by the Affordable Care Act 
and continue to provide legal authority for FQHCs to seek coinsurance 
payments from Medicare beneficiaries.
    After consideration of the public comments received, we are 
finalizing these provisions as proposed and revising the regulations at 
Sec.  405.2462(d) and Sec.  405.2410(b)(2) that beneficiary coinsurance 
for payments under the FQHC PPS would generally be 20 percent of the 
lesser of the FQHC's charge or the PPS rate. We note that the proposed 
revision to Sec.  405.2410(b)(1)(ii)(A) regarding the deductible and 
coinsurance amount for RHCs is not being finalized as proposed as it 
inadvertently changed the intent of the regulation and will therefore 
remain as stated in the current regulation.
4. Waiving Coinsurance for Preventive Services
    As provided by section 4104 of the Affordable Care Act, 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 proposed 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, as a 
proxy, 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 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 proposed 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 Part B drugs that are physician-administered and 
routine venipuncture will be paid under the FQHC PPS rate, we noted 
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 proposed that 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 furnished 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 proposed that 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, and that total payment to the FQHC, including both Medicare and 
beneficiary liability, would not exceed the lesser of 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. We 
acknowledged that this calculation is fairly complex for the claims 
processing systems and may also be difficult for providers to 
replicate, and that 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, excluding these types of claims from calculation of the FQHC 
base encounter rate, and 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, because the cost of 
these services is generally lower that other services,

[[Page 25460]]

payment for preventive services under the PFS will be less, in many 
cases, than the FQHC 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 date of 
service.
    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 discussed whether using the proportionality of PFS payments to 
determine the coinsurance waiver would facilitate the waiving of 
coinsurance for preventive services while preserving the all-inclusive 
nature of the encounter-based rate with the least billing complexity. 
Therefore, we proposed 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, and we invited public comment on how 
this proposal would impact a FQHC's' administrative procedures and 
billing practices.
    Comment: Commenters noted that we did not specify that Medicare 
will pay for the coinsurance waiver, and some were concerned that our 
proposals to waive coinsurance for preventive services would require 
FQHCs to forego 20 percent of the total payment amount. Commenters 
requested that we clarify that Medicare will pay 100 percent for 
preventive services, with payment for a visit with a preventive and 
non-preventive component equal to the total payment less the 
coinsurance assessed. Commenters also urged us to specify the rules for 
waiving coinsurance in the regulations text.
    Response: Under Sec.  410.152, Medicare Part B pays 100 percent of 
the Medicare payment amount established under the applicable payment 
methodology for the service setting. In the CY 2011 Medicare PFS final 
rule (75 FR 73417 through 73419, November 29, 2010) we included a 
detailed discussion regarding preventive services covered under the 
FQHC benefit, and we clarified that we would apply the coinsurance 
waiver in the FQHC setting. We implemented the billing requirements for 
waiving coinsurance in the FQHC setting through program instruction 
(CMS Pub. 100-04, Medicare Claims Processing Manual, Chapter 9, Section 
120).
    Our discussion and proposals in the FQHC PPS proposed rule were not 
intended to change the general requirements with respect to waiving 
coinsurance for preventive services in the FQHC setting. Medicare will 
continue to pay 100 percent for preventive services furnished in the 
FQHC setting as part of a FQHC visit. Rather, we proposed revisions to 
the methodology used to waive coinsurance for preventive services to 
ensure that our operational approach would be compatible with payments 
under an all-inclusive FQHC PPS encounter-based system.
    We agree that it would be appropriate to codify the general rules 
for waiving coinsurance in the regulations text, and we will modify the 
proposed regulatory text at Sec.  405.2410 and Sec.  405.2462 to 
reflect existing requirements that apply the coinsurance waiver in the 
FQHC setting, subject to the billing requirements of the applicable 
payment methodology. However, we believe that the details of 
implementation would be more appropriate to include in program 
instruction, and we plan to implement the procedures for waiving 
coinsurance for preventive services furnished by FQHCs as an update to 
the billing requirements for preventive services.
    Comment: Commenters requested that we add information to the 
Medicare Claims Processing Manual clarifying the list of services to 
which the coinsurance waiver requirement applies.
    Response: A table of services subject to the coinsurance waiver is 
available in CMS Pub. 100-04, Medicare Claims Processing Manual, 
Chapter 18, Section 1.2.
    Comment: Commenters were concerned that it would be too complex and 
burdensome for FQHCs to calculate the coinsurance at point of service 
using the proposed methodology for claims with a mix of preventive and 
non-preventive services that would be paid using the PPS rate. Most 
commenters requested that CMS rethink this calculation to simplify how 
coinsurance would be assessed for these types of claims. Commenters 
recommended that CMS completely waive coinsurance and pay 100 percent 
of the PPS rate for any FQHC encounter that includes a preventive 
service, whether the preventive service represented the face-to-face 
portion of the visit or an ancillary service. Commenters asserted that 
this would be easier to administer and more consistent with the 
Congress's intent to eliminate barriers to the provision of preventive 
services.
    Response: While a complete coinsurance waiver for these types of 
claims would be a simple approach, we do not believe that we have the 
authority to waive coinsurance completely whenever a preventive service 
is furnished during a FQHC encounter without regard to the value of the 
preventive service relative to all other services furnished during the 
same encounter.
    We agree that the proposed approach is complex and might be 
difficult for providers to replicate. Our own analysis subsequent to 
publication of the proposed rule led us to conclude that the benefits 
of the proposed methodology would be outweighed by the complexity of 
the systems changes and ongoing systems interactions that would be 
needed to implement the methodology as proposed.
    We reconsidered the other methodologies for waiving coinsurance 
presented in the proposed rule. However, we believe that these options 
would also be difficult for providers to replicate at point of service.
    We proposed that 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. We believed that the current approach to 
waiving coinsurance for preventive services, which relies solely on 
FQHC reported charges, would be insufficient under the FQHC PPS for 
payments based on the FQHC PPS rate.
    In response to commenters that requested that CMS rethink this 
calculation to simplify how coinsurance would be assessed for these 
types of claims, we reconsidered whether the current approach to 
waiving coinsurance for preventive services when payments are based on 
the FQHC's charge could be adapted to payments based on the FQHC PPS 
rate. After reconsideration of how coinsurance could be assessed, we 
now believe that the current approach is

[[Page 25461]]

feasible and relatively simple to apply to payments based on the FQHC 
PPS rate, with certain modifications.
    If we were to apply the current approach of waiving coinsurance for 
preventive services under the new FQHC PPS, we would subtract the 
dollar value of the FQHC's reported line-item charge for the preventive 
service from the full payment amount, whether payment is based on the 
FQHC's charge or the PPS rate. Medicare would pay the FQHC 100 percent 
of the dollar value of the FQHC's reported line-item charge for the 
preventive service, up to the total payment amount. Medicare also would 
pay a FQHC 80 percent of the remainder of the full payment amount, and 
we would assess beneficiary coinsurance at 20 percent of the remainder 
of the full payment amount. If the reported line-item charge for the 
preventive service equals or exceeds the full payment amount, we would 
pay 100 percent of the full payment amount and the beneficiary would 
not be responsible for any coinsurance.
    We believe that the relative simplicity of this revised methodology 
is responsive to commenters that requested a simpler calculation that 
would be easier to replicate at point of service, and a coinsurance 
waiver based on the reported line item charges will be more transparent 
to beneficiaries. We also believe that the similarity to the current 
approach for waiving coinsurance for preventive services will be 
simpler for Medicare claims processing systems to implement.
    After consideration of the public comments received, we will not 
finalize the process for calculating the coinsurance as proposed, and 
instead will modify the proposed regulatory text at Sec.  405.2410 and 
Sec.  405.2462 based on the comments received. Specifically, we will 
use the current approach to waiving coinsurance for preventive 
services, whether total payment is based on the FQHC's charge or the 
PPS rate, by subtracting the dollar value of the FQHC's reported line-
item charge for the preventive services from the full payment amount. 
We will issue further guidance on the billing procedures through 
program instruction. We invite comments on this approach to waiving 
coinsurance for preventive services based on the dollar value of the 
FQHC's reported line-item charge for preventive services.
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 Part 
405, Subpart X.
    Currently, 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 the lesser of a predetermined national rate or the FQHC 
charge. For services included in the FQHC per diem payment, 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 noted that we are 
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, and 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 noted that we 
are also exploring whether we have audit resources to include FQHCs in 
the pool of institutional providers that are subject to periodic cost 
report audits.
    Comment: A commenter requested that CMS consider suspending the 
required submission of annual cost reports once all FQHCs have 
transitioned to the FQHC PPS.
    Response: The statute does not exempt FQHCs from submitting cost 
reports. In addition, we continue to need cost reports for payments to 
FQHCs that are outside of the PPS, to update our cost estimates, and to 
facilitate the potential development of a FQHC market basket.
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. 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 (see Sec.  422.316). 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 
proposed to revise Sec.  405.2469 to reflect this provision.
    Comment: A few commenters requested clarification that wrap-around 
payments will be established based on the PPS rate, as modified by any 
applicable adjusters, and not based on the FQHC's charge, if such 
charge is less than the PPS rate.
    Response: FQHCs that have a written contract with a MA organization 
are paid by the MA organization at the rate that is specified in their 
contract, and the rate must reflect rates for similar services 
furnished outside of a FQHC setting. If the contracted rate is less 
than the Medicare PPS rate, Medicare will pay the FQHC the difference, 
referred to as a wrap-around payment, less any cost sharing amounts 
owed by the beneficiary. The PPS rate is subject to the FQHC GAF, and 
may also be adjusted for a new patient visit or if a IPPE or AWV is 
furnished. The supplemental payment is only paid if the contracted rate 
is less than the adjusted PPS rate.
    Comment: Commenters requested that CMS issue guidance discouraging 
MA plans from applying any deductible under the MA plan to FQHC 
services.
    Response: MA plans are not subject to section 1833(b)(4) of the Act 
and therefore are not required to waive application of the Medicare 
deductible to beneficiaries in FQHCs. Guidance on this topic is beyond 
the scope of this final rule with comment period.
    After consideration of the public comments received, we are 
finalizing this provision as proposed.

[[Page 25462]]

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 using physicians who are 
either RHC employees or contractors. However, in order to promote 
stability and continuity of care, the Rural Health Clinic Services Act 
of 1977 required RHCs to employ a nurse practitioner (NP) or physician 
assistant (PA) (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 proposed 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-physician practitioners 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 NP 
or PA employed at all times (subject to the waiver provision for 
existing RHCs set forth at section 1861(aa)(7) of the Act), a RHC would 
be free to enter into contracts with other NPs, PAs, CNM, CPs or CSWs.
    We received approximately 14 comments from individuals, hospitals, 
rural health clinics, national associations, and tribal organizations 
on this proposal. Commenters agreed that this would provide RHCs with 
additional flexibility and improve access to care. Some commenters also 
noted that this would reduce certain costs.
    Comment: A commenter requested that CMS allow all PAs and NPs who 
work at a RHC to do so as contractors to allow maximum flexibility in 
the clinic's staffing operations.
    Response: As previously noted, section 1861(aa)(2)(iii) of the Act 
requires RHCs to employ at least one NP or PA. We do not have the 
authority to remove this requirement. However, we note that as long as 
the statutory requirement that at least one NP or PA is employed is 
met, the RHC can contract with other NPs or PAs.
    Comment: A commenter recommended that we interpret the word 
``employ'' to mean ``utilize, use, or engage the services of'' so that 
independent contractors could meet the statutory requirement that at 
least one NP or PA be employed.
    Response: We appreciate the suggestion but since we did not propose 
to change our interpretation of the word ``employ'', this comment is 
beyond the scope of this rule. We note however, that as of the 
effective date of this provision of this final rule with comment 
period, only one PA or NP will be required to be in a W-2 relationship 
with the RHC, and that all other RHC practitioners can be either 
employees or contractors.
    After consideration of the public comments received, we are 
finalizing this provision as proposed.

B. Technical and Conforming Changes

1. Proposed Technical and Conforming Changes
    In addition to proposing to codify the statutory requirements for 
the FQHC PPS and to allow RHCs to contract with non-physician 
practitioners, we proposed edits to correct terminology, clarify 
policy, and make conforming changes for existing mandates and the new 
PPS. Some of the proposed 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 resident of a 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, Section 20.1.1).
    We did not receive any comments on these technical proposals and we 
are finalizing these provisions as proposed.
2. Additional Technical and Conforming Changes
    We did not propose the following changes, but based on our review 
of the rule, we make the following clarifying and editorial changes:
     Updating Sec.  405.501 and Sec.  410.152 to clarify that 
this provision on the determination of reasonable charges continues to 
apply to FQHCs that are authorized to bill under the reasonable cost 
payment system, and does not apply to FQHCs that are authorized to bill 
under the PPS.
     Updating Sec.  410.152 to clarify that this provision 
continues to apply to FQHCs that are authorized to bill under the 
reasonable cost payment system, and does not apply to FQHCs that are 
authorized to bill under the PPS.
     Updating Sec.  405.2468 (f)(4) to reflect the change in 
name from ``Medicare + Choice'' organization to ``Medicare Advantage'' 
organization.
     Updated Sec.  405.2415(a)(2) and (b) to clarify that these 
provisions apply to FQHCs.
     Updated Sec.  405.2404(b) to make the references to the 
Secretary gender neutral.

C. Comments Outside of the Scope of the Proposed Rule

    Comment: Many commenters requested that all FQHCs be assigned to 
one MAC instead of each FQHC being assigned to a MAC based on their 
geographic location. Commenters believe that assigning FQHCs to 
multiple MACS results in confusion and inconsistency as each MAC can 
issue different instructions concerning the FQHC benefit and associated 
billing requirements.
    Response: Section 421.404 describes how FQHCs as well as other 
providers

[[Page 25463]]

and suppliers are assigned to a MAC; changes to the MAC assignments are 
beyond the scope of this rule.
    Comment: A few commenters requested that CMS revise the definition 
of telehealth so that FQHCs could be distant site providers of 
telehealth services.
    Response: Distant site providers of telehealth services are defined 
in section 1834(m) of the Act. We made no provision relating to 
telehealth and this topic is beyond the scope of this rule.
    Comment: A commenter requested that PAs be allowed to individually 
enroll as Medicare and Medicaid providers and bill for their services.
    Response: Section 1842(b) of the Act prohibits PAs from directly 
billing Medicare. This topic is beyond the scope of this rule.
    Comment: A commenter requested that CMS mandate that states pay 
FQHCs their full Medicaid encounter rate for any Medicare-Medicaid 
enrollees.
    Response: This is currently a state option and this topic is beyond 
the scope of this rule.

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

A. Background

    On October 31, 1988, the Congress enacted the Clinical Laboratory 
Improvement Amendments of 1988 (CLIA), Public Law 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 (see 42 
CFR part 493) on February 28, 1992 (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 PT program that covers 
all of the specialties and subspecialties for which the laboratory is 
certified and all analyses listed in part 493 Subpart I. 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. Rept. 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. Rept. 100-899, at 16 and 24 (1988)).
    PT is a valuable tool the laboratory can use to verify the accuracy 
and 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 analyses 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 analyses 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 inter-laboratory 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 (Sec.  493.1840(a)(8) and (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, the Congress enacted the Taking Essential Steps for 
Testing Act of 2012 (Pub. L. 112-202, (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 February 7, 2013 Burden Reduction proposed rule (78 FR 
9216), we stated that we would address the

[[Page 25464]]

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 we determine PT samples were intentionally 
referred to another laboratory.
    Subsequently, in the September 23, 2013 (78 FR 58386) proposed rule 
addressing the FQHC PPS and other topics, we proposed additional 
changes to the CLIA regulations to implement the TEST Act.
    The regulatory changes in this final rule with comment period will 
add the remaining policies and regulatory changes needed to fully 
implement the TEST Act.

B. Proposed and Final Regulatory 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.
    As discussed later in this section, we are finalizing the 
regulatory changes proposed in the September 23, 2013 proposed rule, 
which will divide the sanctions for PT referral into three categories 
based on severity and extent of the referrals. The first category is 
for the most 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 alone would be appropriate. Therefore, we proposed to revoke 
the CLIA certificate for at least 1 year, ban the owner and operator 
from owning or operating a CLIA-certified laboratory for at least 1 
year, and possibly impose a civil monetary penalty (CMP).
    In keeping with the February 7, 2013 proposed rule (78 FR 9216), we 
proposed 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, adhere to regulation and 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 
proposed, 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 noted that PT programs place heavy reliance 
on each laboratory and laboratory director's ability to self-police the 
laboratory's analysis of PT samples to ensure that the testing is 
performed in accordance with the CLIA requirements. PT scores must 
reflect an individual laboratory's performance-reporting results from 
another laboratory is deceptive to the public. These 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 its 
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 PT would be undermined. 
Further, as stated in the CLIA regulations at Sec.  493.801(a)(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 A 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 up to 
2 years. Prior to the TEST Act, revocation of a CLIA certificate for a 
PT violation always triggered a 2-year ban on the owner and operator. 
Given the severity of violations involving repeat PT referrals or the 
reporting of another laboratory's results, we proposed 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 this first category of sanctions.
    We also proposed a second category of sanctions under which the 
CLIA certificate would be suspended or limited (rather than revoked), 
in combination with the imposition of alternative sanctions. We 
proposed 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 proposed to suspend or limit the 
CLIA certificate for less than 1 year rather than revoke the CLIA 
certificate, and proposed that we also impose alternative sanctions (as 
an alternative to revocation of the CLIA certificate). Further, an 
alternative

[[Page 25465]]

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 
proposed 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. If surveyors determine that, in the previous 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 proposed that when 
the certificate is suspended or limited, alternative sanctions would be 
applied in addition to the principal sanctions of suspension or 
limitation. We proposed 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 proposed to also impose state 
on-site monitoring of the laboratory.
    A third category of sanctions was proposed for 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 proposed that in such scenarios, at a 
minimum, the laboratory would always be required to pay a CMP as 
calculated using the criteria set forth in 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 proposed to impose only alternative 
sanctions. In determining whether to impose particular alternative 
sanctions, we proposed 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. Therefore, we expressed our belief that these same criteria 
will be effective in the imposition of alternative sanctions for PT 
referral cases.
    In summary, we proposed to amend Sec.  493.1840 by revising 
paragraph (b) to specify three categories for the imposition of 
sanctions for PT referrals. We believed that 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 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 proposed to make three conforming changes to the CLIA 
regulations at the authority citation for Sec.  493 and at Sec.  493.1 
and Sec.  493.1800(a)(2) to include references to the PHS Act as 
amended by the TEST Act.
    We received 14 timely public comments on the proposed changes to 
the CLIA regulations to implement the enforcement discretion for PT 
referral cases as provided by the TEST Act. The comments came from a 
variety of sources, including laboratory accreditation organizations, 
laboratory professional organizations, medical societies, health care 
systems, and a professional corporation. In general, commenters 
supported and favored the changes to the regulations governing 
enforcement actions for PT referral. The majority of commenters agreed 
that the three categories were reasonable and would allow CMS to 
respond to PT referrals in a measured approach. However, a few 
commenters expressed concern that our proposed approach to enforcement 
was too prescriptive and would not allow for full use of the discretion 
afforded by the TEST Act. Because of the nature and consequences of the 
enforcement actions for PT referral, the seriousness of a PT referral 
violation, and the 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, we 
developed a prescriptive framework for enforcement actions in order to 
apply sanctions in a comprehensive, reasonable, and consistent 
approach. We respond to specific comments as follows:
    Comment: A few commenters stated that waived laboratories should be 
exempt from penalties associated with PT referral since they are not 
required by law to participate in PT.
    Response: While this comment is outside the scope of this rule, we 
would like to clarify that the CLIA statute (42 U.S.C. 263a) states 
that laboratories holding a certificate of waiver are only exempt from 
subsections (f) and (g) of the statute. All other subsections apply, 
including the prohibition against PT referral and the statutory 
consequences established in subsection (i), which refers to ``any 
laboratory'' that the Secretary determines has intentionally referred 
its PT samples. Therefore, the statutory requirements under subsection 
(i) do apply to waived laboratories that participate in PT and waived 
laboratories are not exempt from the ban against the referral of PT 
samples and the penalties required when PT referral has been 
substantiated.
    Comment: A commenter questioned how CMS will ensure regional 
offices and state surveyors are consistent in the application of these 
changes and the associated enforcement.
    Response: We will continue using the current process that requires 
all suspected PT referral cases to be reviewed by the CMS Regional 
Office and also forwarded to CMS Central Office for additional review 
by a team of experts. The team will continue to thoroughly review every 
case to determine whether the facts support a determination of PT 
referral and, if so, which category of sanctions will be applied. 
Written survey and enforcement guidance and training will be provided 
to the regional offices and

[[Page 25466]]

state agencies and will be made publicly available.
    Comment: Several commenters stated that CMS should develop and 
adopt a definition for ``intentional'' as it applies to PT referral and 
add the definition to Sec.  493.2 in the CLIA regulations.
    Response: While this comment is outside the scope of this rule, we 
point the commenter to the Burden Reduction proposed rule (78 FR 9216). 
From the onset of the CLIA program, we have consistently interpreted 
the phrase ``intentionally refers'' to mean general intent, as in 
intention to act. We proposed the first exception to our longstanding 
interpretation of ``intentionally refers'' in the Burden Reduction 
proposed rule. Under that proposal, a referral would not be considered 
``intentional'' if our investigation reveals PT samples were sent to 
another laboratory for reflex or confirmatory testing, the referral is 
not a repeat PT referral, and the referral occurred while acting in 
full conformance with the laboratory's written, legally accurate, and 
adequate standard operating procedure.
    Comment: Several commenters questioned if a repeat PT referral 
included multiple analyses on a referred PT sample or multiple PT 
samples in the same PT event.
    Response: As stated in the definition of ``repeat proficiency 
testing referral,'' to be considered a repeat PT referral, the referral 
must be a second instance in which a PT sample, or a portion of a 
sample, is referred, for any reason, to another laboratory for analysis 
prior to the laboratory's PT 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). A 
single instance of referral for multiple analyses on a single PT sample 
set, or referral for analyses of multiple samples from the same PT 
event, would not be considered a ``second instance.'' A second instance 
of referral would arise when referral is made from an entirely 
different set of PT samples from an entirely different PT event sent on 
a date that is different from the date of the earlier PT event.
    Comment: A commenter recommended that CMS not revoke a certificate 
for a repeat PT referral unless CMS could determine that the repeat 
referral occurred in similar or the same circumstances to the initial 
referral.
    Response: As stated previously, except in the most egregious 
instances of PT referral 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, the laboratory's CLIA certificate will not be revoked for a 
single instance of PT referral. Such an instance of PT referral will 
result in alternative sanctions. This provides the laboratory an 
opportunity to review all policies and procedures and an opportunity to 
thoroughly train all staff to mitigate all chances of a second instance 
of PT referral. The timeframe included in the definition of a repeat 
referral has been defined as the two survey cycles prior to the time of 
the PT referral in question. Two survey cycles generally equates to a 
4-year period on average. This is not a precise calendar time period 
but, with respect to a given laboratory, is carefully recorded as a 
matter of actual and documented survey event dates. We believe that it 
is reasonable to expect laboratories to maintain a heightened vigilance 
for this timeframe to ensure that they do not have any repeated 
referrals of PT samples. The narrow exception to the determination of 
an intentional referral described in the Burden Reduction proposed rule 
will, once finalized, be considered a single instance and will be 
incorporated in the determination of whether a repeat PT referral has 
taken place.
    Comment: Several commenters questioned whether CMS will finalize 
the Burden Reduction proposed rule which proposed reforms to the 
Medicare and CLIA regulations that we identified as unnecessary, 
obsolete or excessively burdensome and questioned how the September 23, 
2013 proposed rule relates to the Burden Reduction proposed rule.
    Response: In the Burden Reduction proposed rule, we proposed a 
narrow exception to our longstanding interpretation of what constitutes 
an ``intentional'' PT referral. The proposed narrow exception in the 
Burden Reduction rule would work in concert with the framework 
described in this final rule for enforcement for PT referral to ensure 
the severity of the sanctions fits the nature and extent of the PT 
referral violation.
    Comment: Several commenters expressed concern with the first 
category of sanctions against the laboratory and the owner and operator 
for the most egregious forms of PT referral. While the commenters 
agreed that the most egregious forms of PT referral warrant the most 
serious sanctions and that the laboratory director should also be 
sanctioned, there was concern about the automatic prohibition against 
the laboratory owner. Each commenter who raised this issue expressed 
concern that a mandatory 1 year prohibition for owners, that applies to 
all laboratories of that owner, is not reasonable for large health 
systems that often own a large number of laboratories in many 
locations. The commenters expressed concern that patient care may be 
impacted if such an owner is prohibited from obtaining or maintaining a 
CLIA certificate for any laboratory that tests human specimens for 
health care purposes. The commenters suggested that the one year ban 
for the owner should be limited to the single laboratory where the PT 
referral occurred.
    Response: It is incumbent upon laboratories to organize in a manner 
that allows them to mitigate circumstances so that when one or more 
laboratories are sanctioned, the rest of the laboratory network is not 
unduly impacted. However, we also recognize that there are benefits to 
large health systems organizing in ways to promote efficiency of care 
with the least cost to their patients. We agree that there should be 
some discretion in the regulation to allow for flexibility in the 
mandatory 1-year ban against owners of laboratories that, if barred 
from ownership, would create access issues in the communities in which 
they serve. However, when the CLIA certificate is revoked for the most 
egregious violations, encompassing cases of repeat PT referral or cases 
where a laboratory reports another laboratory's test results as its 
own, we believe that the owner and operator should be banned from 
owning or operating a laboratory for at least 1 year, so we will retain 
that sanction. However, in response to comments, we are adding a 
provision to limit the reach of the owner ban for certain laboratories 
under the same ownership as the revoked laboratory if we find, after 
review of relevant facts and circumstances, that patients would not be 
at risk if the laboratory were exempted from the ban, and that there is 
no evidence that a laboratory to be exempted from the ban participated 
or was complicit in the PT referral, except that any laboratory of the 
owner that received a PT sample from another laboratory, and failed to 
timely report such receipt to CMS or to a CMS-approved accrediting 
organization, may not be exempted from the owner ban. In assessing 
whether patients would be potentially at risk if the laboratory were 
exempted from the ban, we will consider factors including, but not 
limited to, the following: The extent to which staff of the laboratory 
or

[[Page 25467]]

laboratories that may be exempted from the owner ban have been 
adequately trained, and will promptly have such training reinforced, 
regarding PT; the history of compliance with the CLIA regulations; 
evidence of any systemic quality issues for the laboratory or 
laboratories that seek to be exempted from the owner ban; and the 
potential for access to care problems for patients if the laboratory or 
laboratories are not granted an exemption from the owner ban. We are 
revising our regulations at Sec.  493.1840(b)(1) to incorporate this 
exception.
    Comment: Several commenters requested further clarification of when 
CMS will limit the suspension or limitation to the individual 
laboratory where the PT referral occurred rather than suspending or 
limiting the CLIA certificate of all of the laboratories under the 
control of the owner or operator. The commenters recommended that we 
use a centralized process to determine whether suspension or limitation 
is appropriate in each case rather than leaving the decision up to an 
individual surveyor.
    Response: As stated in the September 23, 2013 proposed rule, the 
CLIA certificate will be suspended or limited (rather than revoked), in 
combination with alternative sanctions, 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. 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. Suspension or limitation 
will always apply to the laboratory that sent the PT sample to another 
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. We may also suspend or limit the CLIA certificate 
of other laboratories operating under the same owner depending upon the 
facts and circumstances of the individual case. For example, if such a 
laboratory received PT samples from another laboratory and did not 
report the receipt of those PT samples to us, suspension or limitation 
will also be considered for that laboratory. As stated previously, it 
is incumbent upon laboratories to organize in a manner to mitigate 
circumstances so that enforcement against a CLIA certificate does not 
unduly impact other laboratories operating under the same CLIA number. 
An exhaustive list of scenarios cannot be provided since each case of 
PT referral is unique and there is no way to predict every possible 
scenario. In determining whether to suspend or limit the CLIA 
certificate, we will examine the extent of the PT referral practice as 
well as its duration and apply the criteria of Sec.  493.1804(d). We 
will develop further written surveyor guidance for the imposition of 
the suspension and limitation in PT referral cases. This guidance will 
be publicly available.
    Comment: Several commenters expressed concern that a CMP will 
always be applied to laboratories in 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. 
Some stated that no sanctions should be applied in these cases because 
they are minor infractions and this category has no flexibility where 
it is most needed.
    Response: While PT referrals may differ in severity and scope, we 
consider a PT referral infraction one of the most serious violations of 
the CLIA statute and regulations. PT is a major component of the CLIA 
regulations and plays an integral role in the overall quality assurance 
of a laboratory. We emphasize that there is no on-site, external 
proctor for PT in laboratories, and 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. Because of these factors, we have determined that a 
CMP is always appropriate in those cases where PT referral has been 
substantiated. However, there is no ``one size fits all'' CMP for these 
cases and there is flexibility in the determination of the amount of 
the CMP. The severity and scope of each case will be evaluated closely 
to determine appropriate CMP amounts in accordance with the regulation 
atSec.  493.1834, which specifies the procedures that CMS follows to 
impose a CMP and the range of the penalty amount.
    We also note that we received other comments that were outside the 
scope of the September 23, 2013 proposed rule; and therefore, are not 
addressed in this final rule with comment period.
    After consideration of the comments received, we are finalizing the 
proposed definitions for ``repeat proficiency testing referral'' at 
Sec.  493.2 and the changes to Sec.  493.1840, and the three proposed 
conforming changes at the authority citation for Part 493 and at Sec.  
493.1 and Sec.  493.1800(a)(2) to include references to the TEST Act. 
In response to comments, we are also finalizing the addition of a new 
provision at Sec.  493.1840(b)(1)(ii) to allow us to except certain 
laboratories from the owner ban, on a laboratory by laboratory basis, 
if certain circumstances are met.

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 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 the Addendum of this final rule with 
comment period. 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 us 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 30-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

[[Page 25468]]

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 solicited public comment on the information collection 
requirements (ICRs) regarding the proposed FQHC rates and adjustments 
in Sec.  405.2470.
    The data that are used in computing the FQHS PPS rates and 
adjustments 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 
in Sec.  405.2470 of the Medicare regulations. We noted that while we 
were not proposing any new ICRs, there is currently an OMB approved 
information collection request associated with the RHC/FQHC cost report 
which has an OMB control number of 0938-0107 and an expiration date of 
August 31, 2014.

VI. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    In section III.B.2. of this final rule with comment period, we 
present additional technical and conforming changes. These changes 
include specifying that the determination of reasonable charges 
continues to apply to FQHCs under the reasonable cost payment system 
and changing the term ``Medicare +Choice'' to ``Medicare Advantage.'' 
We believe that these regulatory changes are technical and conforming 
in nature, do not change our payment policies, and provide 
clarifications all of which are in the public's interest. We note that 
these changes do not change our policy and are technical in nature. As 
such, we believe it unnecessary to provide an opportunity for public 
comment on these non-controversial ministerial changes.
    In section II.E.2. of this final rule with comment period, we are 
establishing a new set of HCPCS G-codes by which FQHCs are to report 
their actual charges to beneficiaries. Consistent with longstanding 
policy, the use of these payment codes does not dictate to FQHCs how to 
set their charges. We are permitting FQHCs to utilize a G-code that 
would reflect the sum of regular rates charged to both beneficiaries 
and other paying patients for a typical bundle of services that would 
be furnished per diem to a Medicare beneficiary. Because section 
1834(o)(2)(A) of the Act requires implementation of the FQHC PPS 
beginning on October 1, 2014, it is both impracticable and contrary to 
the public interest to provide an additional period for public comment 
before this methodology is implemented. Nonetheless, we are soliciting 
an additional round of comments with respect to the G-codes, and will 
consider further action if comments received from the public indicate a 
need to amend or revise this component of implementation.
    Therefore, for the reasons stated previously, we find good cause to 
waive the notice of proposed rulemaking for these technical and 
conforming changes to our regulations at Sec. Sec.  405.501, 
405.2468(f)(4), and 410.152, and for our implantation structure for 
reporting charges to Medicare as described in section II.E.2. of the 
preamble to this final rule with comment period.

VII. 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.

VIII. Regulatory Impact Analysis

A. Statement of Need

    This final rule with comment period 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 final rule with comment period is also 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: (1) 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 million or more in any 1 
year). This final rule with comment period 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

[[Page 25469]]

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 final rule result in an increase of 
approximately 32 percent in the Medicare payment to FQHCs, without 
taking into account the application of the ``lesser of'' provision 
discussed earlier, 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 604 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 have not 
prepared an analysis for section 1102(b) of the Act because we have 
determined that this final rule with comment period 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 2014, that 
is approximately $141 million. This 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 final rule with comment period would not have a 
substantial effect on state and local governments, preempt state law, 
or otherwise have Federalism implications.
    This final rule with comment period 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 
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 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 IPPE and AWVs 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 3 
(Impact of the PPS on Payments to FQHCs). In addition, because we have 
limited information to accurately project actual FQHC charges, Table 3 
does not take into account the application of ``lesser of'' provision 
in section 1833(a)(1)(Z) of the Act. (For more information, see 
sections II.E.2 and VII.D.1 of this final rule with comment period).

D. Anticipated Effects of the FQHC PPS

1. Effects on FQHCs
    As required by section 1834(o)(2)(B)(i) of the Act, initial payment 
rates (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. We will pay FQHCs a 
single encounter-based rate per beneficiary per day, while allowing for 
an exception to the per diem PPS payment for subsequent injury or 
illness and mental health services furnished on the same day as a 
medical visit, 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 IPPE or AWV.
    Based on comparisons of the final PPS rate to the AIRs (as listed 
on the FQHC cost reports), the FQHC PPS is estimated to have an overall 
impact of increasing total Medicare payments to FQHCs by approximately 
32 percent. As discussed in section II.E.2. of this final rule with 
comment period, while Medicare payments under the FQHC PPS shall be 80 
percent of the lesser of the actual charge or the PPS rate, this impact 
analysis is based on payment at the PPS rate does not take into account 
the application of ``lesser of'' provision in 1833(a)(1)(Z) of the Act. 
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.D. of this final rule with comment 
period for a discussion of the use of the MEI update to calculate the 
first year's base payment amount under the FQHC PPS.)
    If we apply the ``lesser of'' provision in section 1833(a)(1)(Z) of 
the Act and assume that FQHCs' charge structures would remain the same, 
approximately 65 percent of FQHCs would be paid less under the FQHC PPS 
rate than they are currently paid. However, FQHCs are responsible for 
their own pricing structures, and we have limited information to 
accurately project actual FQHC charges under the new PPS. Moreover, our 
analysis of the potential impact of the application of the ``lesser 
of'' provision in section 1833(a)(1)(Z) of the Act compares the 
applicable per diem PPS rate with the charge or sum of charges for the 
individual HCPCS codes listed on the claims in our sample. As discussed 
in section II.E.2. of this final rule with comment period, we are 
establishing HCPCS G-codes for FQHCs to report their Medicare FQHC 
visits. We will pay FQHCs based on the lesser of the actual charge 
reported for the G-code or the PPS rate on each claim. FQHCs will need 
to establish charges for these G-codes, and we cannot accurately 
project the charges that FQHCs will establish for these G-codes. 
Because we have no means to predict behavioral response on charging by 
the FQHC community, in the impact table (Table 3), we continue to 
compare current payments to the PPS rates when discussing the impact of 
the FQHC PPS, which would be the maximum impact that would be expected 
after application

[[Page 25470]]

of the ``lesser of'' provision in section 1833(a)(1)(Z) of the Act.
    Table 3 shows the impact on cost reporting entities and their 
associated delivery sites of the fully implemented FQHC PPS payment 
rates compared to current payments to FQHCs. The analysis is based on 
cost reports from freestanding and provider-based FQHCs with cost 
reporting periods ending between June 30, 2011, and June 30, 2013. We 
note that the impact analysis includes cost reporting entities and 
claims encounters that were excluded from the modeling as statistical 
outliers based on estimated costs. A FQHC with multiple sites has the 
option of filing a consolidated cost report, and the sample used to 
calculate the impacts reflects 1,240 cost reporting entities that 
represent 3,830 delivery sites.
    The following is an explanation of the information represented in 
Table 3:
     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).
     Column C (Number of Medicare daily visits): This column 
shows the number of Medicare daily visits in the final data set that 
were used to model payments under the FQHC PPS. As discussed in section 
II.A.4. of this final rule with comment period and consistent with the 
policy discussed in section II.B.1. of this final rule with comment 
period, separately payable encounters for the same beneficiary at the 
same FQHC were combined into a single daily visit, while allowing for a 
separate medical visit, mental health visit, and subsequent illness/
injury visit.
     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 30 
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 Adjustments to the 
Average Cost per Visit): These columns show the estimated fully 
implemented impacts on Medicare payments to FQHCs due to the policy 
changes. In developing the Medicare FQHC PPS, section 10501(i)(3)(A) of 
the Affordable Care Act requires us to take into account the type, 
intensity, and duration of FQHC services, and allows other adjustments, 
such as geographic adjustments. As we discussed in section II.A.4. of 
this final rule with comment period, the cost report data are 
insufficient for modeling these types of adjustments, so we used the 
HCPCS codes in the FQHC claims data to support the development of the 
FQHC PPS rate and adjustments.
     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, while allowing an exception to the per diem PPS 
payment for subsequent injury or illness and mental health services 
furnished on the same day as a medical visit. As it is uncommon for 
FQHCs to bill more than one visit per day for the same beneficiary, 
this adjustment would have minimal effect on most FQHCs.
     Column F (Effect of new patient/IPPE/AWV adjustment): This 
column shows the estimated fully implemented impact on payments to 
FQHCs of the proposal to adjust the encounter-based rate by 1.3416 when 
a FQHC furnished care to a patient that was new to the FQHC or to a 
beneficiary receiving an IPPE or AWV. As new patient visits, IPPEs, and 
AWVs 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 FQHC GAF): This column shows the 
estimated fully implemented impact on payments to FQHCs of adjusting 
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 adjustments in columns E through G. The combined effects 
of these adjustments on overall Medicare payment to FQHCs would be 0.1 
percent as the effects of these adjustments would be primarily 
redistributive and would have minimal impact on Medicare payments in 
the aggregate. While the effect of these various adjustments was budget 
neutral within the model, the impact analysis includes cost reporting 
entities and claims encounters that were excluded from the modeling as 
statistical outliers based on estimated costs.
     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 3 reflects the impacts on cost reporting entities and their 
associated delivery sites. This table shows both the impact on payments 
to FQHCs of the statutorily required changes to the payment structure 
(Column D) and the redistributive effects of the adjustments to the 
average cost per visit (Columns E through H). Column I reflects the 
combined impact on cost reporting entities of the overall PPS rates and 
adjustments and MEI update. This table does not model application of 
the provision that Medicare pay FQHCs the lesser of the actual charge 
or the PPS payment rate; instead, is assumes payment at the full PPS 
rate. Actual payments to FQHCs will depend on the actual charges they 
establish under the PPS.

[[Page 25471]]



                                                     Table 3--Impact of the PPS on Payments to FQHCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                              (I) Effect
                                                                    (C) Number   (D) Effect  (E) Effect  (F) Effect                  (H)        of all
                                            (A) Number  (B) Number      of           of       of daily     of new    (G) Effect    Combined     policy
                                             of cost-       of       medicare   statutorily  visit (per   patient/     of FQHC    effect of     changes
                                             reporting   delivery      daily      required   diem) rate   IPPE/AWV     GAF (%)     all PPS      and MEI
                                             entities      sites      visits    changes (%)      (%)     adjustment              adjustments  adjustment
                                                                                                             (%)                     (%)          (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All FQHCs.................................       1,240       3,830   5,585,393         29.9         0.0         0.1         0.1          0.1        31.9
Urban/rural Status:
    Urban.................................         712       1,945   2,738,585         24.3         0.0         0.1         3.2          3.3        30.2
    Rural.................................         373         900   1,447,261         41.9         0.1         0.0        -3.1         -3.1        39.4
    Mixed rural-urban.....................         155         985   1,399,547         30.1         0.0         0.0        -2.7         -2.7        28.3
Medicare Volume:
    Low (<6.9% of total visits)...........         413       1,102     897,136         24.8         0.0         0.4         3.5          3.9        31.4
    Medium (6.9%-13.2% of total visits)...         414       1,403   1,857,689         27.4         0.0         0.1         0.6          0.7        30.1
    High (>13.2% of total visits).........         413       1,325   2,830,568         33.4         0.0        -0.1        -1.3         -1.4        33.3
Total Volume:
    Low (<17,340 total visits)............         413         555     450,262         33.6         0.0         0.2        -0.1          0.1        35.6
    Medium (17,340-42,711 total visits)...         414         983   1,387,779         31.8         0.0         0.2        -1.4         -1.1        32.1
    High (>42,711 total visits)...........         413       2,292   3,747,352         28.8         0.0         0.0         0.6          0.6        31.4
Census Division:
    New England...........................          99         255     709,020         27.4        -0.1        -0.1         2.2          2.1        32.0
    Middle Atlantic.......................         111         334     452,168         25.9        -0.1         0.2         3.6          3.7        32.5
    East North Central....................         158         497     651,546         31.3         0.0         0.1        -3.2         -3.2        28.9
    West North Central....................          81         214     266,360         31.6        -0.1         0.1        -5.3         -5.3        26.4
    South Atlantic........................         200         753   1,100,268         32.1         0.1        -0.1        -3.0         -3.0        29.9
    East South Central....................          87         340     379,357         37.3         0.0         0.0        -6.9         -6.9        29.6
    West South Central....................         120         332     388,565         30.5         0.0         0.2        -5.0         -4.8        26.1
    Mountain..............................         107         341     392,506         31.3         0.0         0.4        -2.1         -1.6        31.0
    Pacific...............................         272         758   1,243,251         27.2         0.1         0.0         7.5          7.6        38.7
    U.S. Territories......................           5           6       2,352         43.9         0.1         1.5        -1.1          0.5        46.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

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 4--Estimated Increase in Annual Medicare Payments to FQHCs *
------------------------------------------------------------------------
                                                           Estimated
                                                          increase in
                     Fiscal year                         payments ($ in
                                                           millions)
------------------------------------------------------------------------
2015.................................................                170
2016.................................................                250
2017.................................................                260
2018.................................................                280
2019.................................................                300
------------------------------------------------------------------------
* These impacts do not take into account the application of ``lesser
  of'' provision in section 1833(a)(1)(Z) of the Act. (For more
  information, see sections II.E.2 and VII.D.1 of this final rule with
  comment period).

    As discussed in section II.E.2. of this final rule comment period, 
while Medicare payments under the FQHC PPS shall be 80 percent of the 
lesser of the actual charge or the PPS rate, this table is based on 
payment at the PPS rate does not take into account the application of 
``lesser of'' provision in 1833(a)(1)(Z) of the Act because we have 
limited information to accurately project actual FQHC charges. We 
intend for the estimated aggregate payment rates under the 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 FY 2015 is smaller than for subsequent years because FQHCs will be 
transitioning into the PPS throughout FY 2015 based on their own cost 
reporting periods.
    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 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 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
    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, 2013 indicated that 
beneficiary coinsurance based on 20 percent of the FQHC's charges was 
approximately $29 million higher, or 20 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.

[[Page 25472]]

    Based on comparisons of the final PPS rate to the AIRs, the FQHC 
PPS is estimated to have an overall impact of increasing total Medicare 
payments to FQHCs by approximately 32 percent, prior to taking into 
account the impact of the ``lesser of'' provision. This overall 32 
percent increase translates to a 32 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
    Removal of the restrictions on RHCs contracting with nonphysician 
practitioners when the statutory requirement to employ an NP or a PA is 
met will provide RHCs with greater flexibility in meeting their 
staffing requirements. The ability to contract with NPs, PAs, CNMs, CP, 
and CSWs will 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
    There are no costs associated with the clarifying, technical, and 
conforming changes to the FQHC and RHC regulations.
2. Effects of CLIA Changes for Enforcement Actions for Proficiency 
Testing Referral
    As discussed in section IV. of this final rule with comment period, 
we have made a number of clarifications and changes pertaining to the 
regulations governing adverse actions for PT referral under CLIA, 
which, in combination with other actions implement the TEST Act and 
will 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 approximately 8 per year), we 
estimate that 28 (or approximately 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 rule. If the expense of alternative sanctions averaged 
$150,000 per laboratory, we estimate the annual fiscal savings of the 
changes to average approximately $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 was 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 
new 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 final rule with comment period contains a range of policies, 
including some provisions related to specific statutory provisions. The 
preceding sections of this 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 final rule with comment period.

[[Page 25473]]



           Table 5--Accounting Statement: Classification of Estimated Expenditures Under the FQHC PPS
----------------------------------------------------------------------------------------------------------------
                                                                                       Units
                                                                 -----------------------------------------------
                    Category                         Estimates                     Discount rate      Period
                                                                    Year dollar         (%)           covered
----------------------------------------------------------------------------------------------------------------
Transfers
    Federal Annualized Monetized Transfers (in               200            2014               7       2014-2018
     millions)..................................
                                                             204            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 our Regulatory Flexibility Analysis and 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 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Reporting and recordkeeping requirements, Rural 
areas, 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 amends 42 CFR Chapter IV as set forth below:

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

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

    Authority:  Secs. 205(a), 1102, 1861, 1862(a), 1869, 1871, 1874, 
1881, and 1886(k) of the Social Security Act (42 U.S.C. 405(a), 
1302, 1395x, 1395y(a), 1395ff, 1395hh, 1395kk, 1395rr and 
1395ww(k)), and sec. 353 of the Public Health Service Act (42 U.S.C. 
263a).


Sec.  405.501  [Amended]

0
2. Section 405.501(b) is amended by removing the phrase ``Federally 
qualified health centers and'' and adding in its place the phrase 
``FQHCs that are authorized to bill under a reasonable cost system, 
and''.

0
3. Section 405.2400 is revised as follows:


Sec.  405.2400  Basis.

    Subpart X is based on the provisions of the following sections of 
the Act:
    (a) Section 1833--Amounts of payment for supplementary medical 
insurance services.
    (b) Section 1861(aa)--Rural health clinic services and Federally 
qualified health center services covered by the Medicare program.
    (c) Section 1834(o)--Federally qualified health center prospective 
payment system beginning October 1, 2014.

0
4. 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)'' in 
alphabetical order.
0
E. Revising the definitions of ``Coinsurance'' and ``Deductible''.
0
F. Adding the definitions of ``Employee'' and ``HRSA'' in alphabetical 
order.
0
G. Revising paragraphs (1) through (3) of the definition of ``Federally 
qualified health center (FQHC)''.
0
H. Removing the definition of ``Intermittent nursing care''.
0
I. Adding the definition of ``Medicare Administrative Contractor 
(MAC)'' in alphabetical order.
0
J. Removing the definitions of ``Nurse-midwife'', ``Nurse practitioner 
and physician assistant'', and Part-time nursing care''.
0
K. Adding the definitions of ``Nurse practitioner (NP)'', ``Physician 
assistant (PA)'' and ``Prospective payment system (PPS)'' in 
alphabetical order.
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, and other requirements of Sec.  
410.77(a) of this chapter.
    Clinical psychologist (CP) means an individual who meets the 
applicable education, training, and other requirements of Sec.  
410.71(d) of this chapter.
    Clinical social worker (CSW) means an individual who meets the 
applicable education, training, 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

[[Page 25474]]

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 the 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 Medicare 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 as described in Sec.  421.404 of this chapter.
    Nurse practitioner (NP) means individuals who meet the applicable 
education, training, and other requirements of Sec.  410.75(b) of this 
chapter.
* * * * *
    Physician assistant (PA) means an individual who meet the 
applicable education, training, 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 (RHC) 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
5. 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
6. 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), (a)(3)(i), (a)(4)(i), and 
(a)(4)(ii) by removing the term ``clinic'' and adding in its place the 
term ``RHC''.
    The revision reads as follow:


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

* * * * *
0
7. Section 405.2404 is amended as follows:
0
A. Revising the section heading.
0
B. Amending the heading of paragraph (a), and paragraphs (b)(1) 
introductory text, (b)(2), (b)(3), (c), and (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 paragraphs (a)(1), (a)(2)(i), (a)(2)(ii)(A), and (a)(3) 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. Amending (a)(2)(ii) introductory text by removing the phrase ``if he 
determines'' and adding in its place ``if the Secretary determines''.
0
F. Amending paragraph (a)(3) by removing the phrase ``that shall be 
deemed'' and adding in its place the phrase ``the Secretary deems it''.
0
G. Amending paragraph (b)(1) introductory text by removing the term 
``he'' and adding in its place the phrase ``he or she''.
0
H. Amending paragraph (b)(1)(i) by removing ``; or'' and adding in its 
place ``;''.
0
I. Amending paragraph (b)(2) by removing the phrase ``The Secretary 
will give'' and adding in its place the phrase ``The Secretary gives''.
0
J. Revising paragraph (d).
    The revisions read as follows:


Sec.  405.2404  Termination of rural health clinic agreements.

* * * * *
    (d) Notice to the public. Prompt notice of the date and effect of 
termination must be given to the public, through publication in local 
newspapers by either of the following:
    (1) The RHC, after the Secretary has approved or set a termination 
date.
    (2) The Secretary, when he or she has terminated the agreement.
* * * * *

0
8. 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. Except for preventive services for 
which Medicare pays 100 percent under Sec.  410.152(l) of this chapter, 
a beneficiary's responsibility is either of the following:
    (1) For RHCs and FQHCs that are authorized to bill on the basis of 
the reasonable cost system--
    (i) A coinsurance amount that does not exceed 20 percent of the 
RHC's or

[[Page 25475]]

FQHC's reasonable customary charge for the covered service; and
    (ii)(A) The beneficiary's deductible and coinsurance amount for any 
one item or service furnished by the RHC may not exceed a reasonable 
amount customarily charged by the RHC for that particular item or 
service; or
    (B) For any one item or service furnished by a FQHC, a coinsurance 
amount 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 actual charge; or
    (ii) The FQHC PPS rate for the covered service.

0
9. 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 and FQHC 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 psychologist and clinical social worker services as 
specified in Sec.  405.2450.
    (b) RHC and FQHC services are--
    (1) Covered when furnished in a RHC, FQHC, 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 or FQHC at the time the 
services are furnished; and
    (3) Not covered in a--
    (i) Hospital as defined in section 1861(e) of the Act; or
    (ii) Critical access hospital as defined in section 1861(mm)(1) of 
the Act.

0
10. 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) Outside of 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
11. Section 405.2413 is amended as follows:
0
A. Amending paragraph (a)(2) by removing the term ``rural health 
clinic's'' and by adding in its place the term ``RHC's or FQHC's''.
0
B. Amending paragraph (a)(6) by removing the term ``clinic's'' and by 
adding in its place the term ``RHC's or ``FQHC's'' and by removing the 
term ``clinic'' and by adding in its place the term ``RHC''.

0
12. Section 405.2414 is amended as follows:
0
A. Revising the section heading and 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) 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
13. 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 or FQHC'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 in accordance with applicable State law.
    (5) Furnished under the direct supervision of a physician, nurse 
practitioner, physician assistant, certified nurse midwife, clinical 
psychologist or clinical social worker.
    (6) 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 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 or FQHC:
    (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
14. Section 405.2416 is amended as follows:
0
A. Revising paragraphs (a) introductory text and (a)(1).
0
B. In paragraph (a)(2), removing ``;'' and adding 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

[[Page 25476]]

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)(1) Established by a nurse practitioner, physician assistant or 
certified nurse midwife; and
    (2) 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
15. 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'', and removing ``;'' and adding in 
its place ``.''.
0
C. In paragraph (b), removing ``; or'' and adding in its place ``.''.

0
16. Section 405.2430 is amended as follows:
0
A. Revising paragraphs (a)(1) introductory text, (a)(1)(i), and 
(a)(1)(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 of this chapter, 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
17. 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) by 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) by removing the term ``Centers'' and adding in 
its place the term ``FQHCs''.
0
D. Revising paragraphs (b), (c)(1), and (c)(4).
0
E. In paragraph (c)(3) by removing the phrase ``Federally qualified 
health center'' and adding in its place the term ``FQHC'' each time it 
appears.
0
F. In paragraphs (d)(1), (d)(3) introductory text, (e)(1), (e)(2), and 
(e)(3) by removing the phrase ``Federally qualified health center'' 
each time it appears and adding in its place the term ``FQHC''.
0
G. 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 of this chapter.
    (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 FQHC 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
18. Section 405.2436 is amended as follows:
0
A. In paragraphs (a) introductory text, (a)(2), (b)(1)(i), (b)(2)(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
19. 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
20. Section 405.2442 is amended as follows:
0
A. In paragraph (a) introductory text by removing the phrase 
``Federally qualified health center'' each time it appears 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
21. Section 405.2444 is amended as follows:
0
A. In paragraph (c) by removing the phrase ``Federally qualified health 
center'' and adding in its place the term ``FQHC''.
0
B. In paragraphs (a)(2), (b), and (c) by removing the term ``center'' 
each time it appears, and by adding in its place the term ``FQHC''.

0
22. 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 qualified 
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

[[Page 25477]]

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
23. Section 405.2448 is amended as follows:
0
A. Revising paragraphs (a) introductory text, (a)(1) and (2).
0
B. Removing paragraph (a)(3).
0
C. Redesignating paragraph (a)(4) as (a)(3).
0
D. In paragraph (b) introductory text by removing the phrase 
``Federally qualified health centers'' and adding in its place the term 
``FQHCs''.
0
E. In paragraph (d) by 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 ``a 
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 that--
    (1) A FQHC is required to provide as preventive primary health 
services under section 330 of the PHS Act; and
    (2) Are furnished--
    (i) By a or under the direct supervision of a physician, nurse 
practitioner, physician assistant, certified nurse midwife, clinical 
psychologist or clinical social worker; or
    (ii) 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
24. Section 405.2449 is amended as follows:
0
A. In the 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 ``; and'' and adding in its place 
``.''.


Sec.  405.2452  [Amended]

0
25. Section 405.2452 is amended as follows:
0
A. In paragraph (a)(2), by removing the phrase ``Federally qualified 
health center's'' and adding in its place the term ``FQHC's''.
0
B. In paragraph (a)(6), removing the term ``center'' and adding in its 
place the term ``FQHC''.
0
C. In paragraph (b), by removing the phrase ``federally qualified 
health center'' and adding in its place the term ``FQHC''.

0
26. 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 for FQHCs and not excluded by the provisions of 
section 1862(a) of the Act.

0
27. 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 section 1848(e) of the Act and 
42 CFR 414.2 and 414.26 are used to adjust payment under the physician 
fee schedule during the same period, limited to only the work and 
practice expense GPCIs.
    (2) Furnishing of care to a beneficiary that is a new patient with 
respect to the FQHC, including all sites that are part of the FQHC. A 
new patient is one that has not been treated by the FQHC's organization 
within the previous 3 years.
    (3) Furnishing of care to a beneficiary receiving a comprehensive 
initial Medicare visit (that is an initial preventive physical 
examination or an initial annual wellness visit) or a subsequent annual 
wellness visit.
    (d)(1) Except for preventive services for which Medicare pays 100 
percent under Sec.  410.152(l) of this chapter, Medicare pays--
    (i) 80 percent of the all-inclusive rate for FQHCs that are 
authorized to bill under the reasonable cost system; and
    (ii) 80 percent of the lesser of the FQHC's actual charge or the 
PPS encounter rate for FQHCs authorized to bill under the PPS.
    (2) 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 visit, 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-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.

[[Page 25478]]

    (2) File a request for payment on the form and manner prescribed by 
CMS.

0
28. Section 405.2463 is revised to read as follows:


Sec.  405.2463  What constitutes a visit.

    (a) Visit--General. (1) For RHCs, a visit is either of the 
following:
    (i) 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.
    (ii) Qualified transitional care management service.
    (2) For FQHCs, a visit is either of the following:
    (i) A visit as described in paragraph (a)(1)(i) of this section.
    (ii) A face-to-face encounter between a patient and either of the 
following:
    (A) A qualified provider of medical nutrition therapy services as 
defined in part 410, subpart G, of this chapter.
    (B) A qualified provider of outpatient diabetes self-management 
training services as defined in part 410, subpart H, of this chapter.
    (b) Visit--Medical. (1) A medical visit is a face-to-face encounter 
between a RHC or FQHC patient and one of the following:
    (i) Physician.
    (ii) Physician assistant.
    (iii) Nurse practitioner.
    (iv) Certified nurse midwife.
    (v) Visiting registered professional or licensed practical nurse.
    (2) A medical visit for a FQHC patient may be either of the 
following:
    (i) Medical nutrition therapy visit.
    (ii) Diabetes outpatient self-management training visit.
    (3) Visit--Mental health. 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, in accordance with paragraph 
(b)(1) of this section, for mental health services.
    (c) Visit--Multiple. (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 the patient--
    (i) Suffers an illness or injury subsequent to the first visit that 
requires additional diagnosis or treatment on the same day;
    (ii) Has a medical visit and a mental health visit on the same day; 
or
    (iii) 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 for more than 1 
visit per day when the conditions in paragraph (c)(1) of this section 
are met.
    (3) For FQHCs that are authorized to bill under the reasonable cost 
system, Medicare pays for more than 1 visit per day when a DSMT or MNT 
visit is furnished on the same day as a visit described in paragraph 
(c)(1) of this section are met.
    (4) For FQHCs billing under the prospective payment system, 
Medicare pays for more than 1 visit per day when the patient--
    (i) Suffers an illness or injury subsequent to the first visit that 
requires additional diagnosis or treatment on the same day; or
    (ii) Has a medical visit and a mental health visit on the same day.


0
29. 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) A per diem rate is calculated by CMS by 
dividing total FQHC costs by total FQHC daily encounters to establish 
an average per diem cost.
    (2) The per diem rate is adjusted as follows:
    (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(c)(2).
    (iii) When a beneficiary receives either of the following:
    (A) A comprehensive initial Medicare visit (that is, an initial 
preventive physical examination or an initial annual wellness visit).
    (B) A subsequent annual wellness visit.

0
30. Section 405.2466 is amended to read as follows:
0
A. By revising paragraph (a) and paragraph (b) heading.
0
B. In paragraph (b)(1) introductory text by removing the term 
``intermediary'' 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'' and by removing the term ``Federally qualified health 
center'' and by adding in its place the term ``FQHC''.
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) introductory text, (b)(2), (c)(1), (c)(2), and 
(d)(2) by removing the word ``clinic'' each time it appears and by 
adding in its place the term ``RHC''.
0
G. 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
H. Revising paragraphs (c) introductory text and (d)(1).
0
I. 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) * * *
    (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

[[Page 25479]]

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-cost 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
31. 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 the lesser of their actual 
charges or the FQHC PPS rate 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 
15 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 rate is calculated based on the reasonable cost system, 
prior to productivity adjustments and any payment limitations.
    (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
32. Section 405.2468 is amended by:
0
A. In paragraph (a) by removing the term ``intermediary'' and by adding 
in its place the term ``MAC''.
0
B. In the headings of paragraphs (b) and (c), by removing the term 
``rural health clinic'' and by adding in its place the term ``RHC''.
0
C. In the heading of paragraph (b) 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).
0
G. In paragraph (f)(4) by removing the term ``Medicare +Choice'' and 
adding in its place the term ``Medicare Advantage''.
    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) * * *
    (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
33. Section 405.2469 is revised to read as follows:


Sec.  405.2469  FQHC 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
34. Section 405.2470 is amended by:
0
A. In paragraphs (a)(1), (b)(1), (c)(3), (c)(4), and (c)(5) by removing 
the term ``intermediary'', and by adding in its place the term ``MAC''.
0
B. In paragraph (b)(2), by removing the term ``intermediary's'' and by 
adding in its place the term ``MAC's''.
0
C. In paragraphs (a) introductory text, (c)(1), (c)(2)(i), and 
(c)(2)(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), (c)(2)(i), and 
(c)(2)(ii) by removing the term ``Federally qualified health center'' 
and by adding in its place the term ``FQHC''.

[[Page 25480]]

0
E. In paragraphs (b)(1), (b)(2), (c)(1), (c)(2) introductory text, 
(c)(3), (c)(4), (c)(5), and (c)(6) by removing the term ``clinic'' each 
time it appears and by adding in its place the term ``RHC''.
0
F. In paragraphs (b)(1), (b)(2), (c)(1), (c)(2) introductory text, 
(c)(3), (c)(4), (c)(5) and (c)(6) by removing the term ``center'' each 
time it appears and by the term ``FQHC''.


0
35. 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 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

0
36. The authority citation for part 410 continues to read as follows:

    Authority:  Sec. 1102, 1834, 1871, 1881, and 1893 of the Social 
Security Act (42 U.S.C. 1302, 1395m, 1395hh, and 1395ddd).

0
37. Section 410.152 is amended by revising paragraph (f) to read as 
follows:


Sec.  410.152  Amounts of payment.

* * * * *
    (f) Amount of payment: Rural health clinic (RHC) and Federally 
qualified health center (FQHC) services. Medicare Part B pays, for 
services by a participating RHC or FQHC that is authorized to bill 
under the reasonable cost system, 80 percent of the costs determined 
under subpart X of part 405 of this chapter, to the extent those costs 
are reasonable and related to the cost of furnishing RHC or FQHC 
services or reasonable on the basis of other tests specified by CMS.
* * * * *

PART 491--CERTIFICATION OF CERTAIN HEALTH FACILITIES

0
38. 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
39. Section 491.8 is amended by revising paragraph (a)(3) to read as 
follows:


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 assistant or nurse practitioner must be 
an employee of the clinic.
* * * * *

PART 493--LABORATORY REQUIREMENTS

0
40. 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 Pub. L. 112-202 amendments to 42 U.S.C. 263a.


0
41. 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
42. Section 493.2 is amended 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 organization).
* * * * *

0
43. 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 Laboratory 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
44. 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)(i) 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 impose a civil money 
penalty in accordance with Sec.  493.1834(d), if CMS determines that--
    (A) A proficiency testing referral is a repeat proficiency testing 
referral as defined at Sec.  493.2; or
    (B) On or before the proficiency testing event close date, a 
laboratory reported proficiency testing results obtained from another 
laboratory to the proficiency testing program.
    (ii) Following the revocation of a CLIA certificate in accordance 
with paragraph (b)(1)(i) of this section, CMS may exempt a laboratory 
owner from the generally applicable prohibition on owning or operating 
a CLIA-certified laboratory under paragraph (a)(8) of this section on a 
laboratory-by-laboratory basis if CMS finds, after review of the 
relevant facts and circumstances, that there is no evidence that--
    (A) Patients would be put at risk as a result of the owner being 
exempted from the ban on a laboratory-by-laboratory basis;
    (B) The laboratory for which the owner is to be exempted from the 
general ownership ban participated in or was otherwise complicit in the 
PT referral of the laboratory that resulted in the revocation; and
    (C) The laboratory for which the owner is to be exempted from the 
general ownership ban received a PT sample from another laboratory in 
the prior two survey cycles, and failed to immediately report such 
receipt to CMS or to the appropriate CMS-approved accrediting 
organization.
    (2) Suspends or limits the CLIA certificate for less than 1 year 
based on the criteria in Sec.  493.1804(d) and imposes alternative 
sanctions as appropriate, in accordance with 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), when CMS determines that 
paragraph (b)(1)(i)(A) or (B) 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

[[Page 25481]]

sanctions will always include a civil money penalty and a directed plan 
of correction that includes required training of staff.
    (3) Imposes alternative sanctions in accordance with 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), 
when CMS determines that paragraph (b)(1)(i) 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.
* * * * *

    Dated: April 3, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 9, 2014.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

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

Addendum: FQHC Geographic Adjustment Factors (FQHC GAFs)

    As described in section II.C.2. of this final rule with comment 
period, we used the CY 2015 GPCI values and cost share weights, as 
published in the CY 2014 PFS final rule with comment period, to model 
the geographic adjustments for the FQHC PPS rates. The FQHC GAFs that 
will be used for payment under the FQHC PPS will be adapted from the 
GPCIs used to adjust payment under the PFS for that same period.
    The 2014 FQHC GAFs in the following table are adapted from the CY 
2014 PFS GPCIs, as finalized in the CY 2014 PFS final rule with comment 
period. The 2014 FQHC GAFs are the values that will be used to adjust 
payment under the FQHC PPS for the period of October 1 through December 
31, 2014. The 2014 FQHC GAFs in the following table do not reflect the 
1.0 floor on the PFS work GPCI that is effective from January 1, 2014, 
through March 31, 2014, which was authorized by the Pathway for SGR 
Reform Act of 2013.
    The 2015 FQHC GAFs in the following table are adapted from the CY 
2015 PFS GPCIs, as finalized in the CY 2014 PFS final rule with comment 
period. The 2015 FQHC GAFs listed were used to model the geographic 
adjustments for the FQHC PPS rates. Under current law and regulation, 
these same values would be used to adjust payments under the FQHC PPS 
during CY 2015.
    We note that updates to the PFS GPCIs due to changes in law or 
implemented through regulation would also apply to the FQHC GAFs, such 
as changes to the CY 2015 PFS GPCIs that may be included in the final 
CY 2015 PFS rule. The FQHC GAFs would be re-calculated and updated 
through program instruction so that they remain consistent with the PFS 
GPCIs.

------------------------------------------------------------------------
              Locality name                2014 FQHC GAF   2015 FQHC GAF
------------------------------------------------------------------------
1 Alabama...............................           0.933           0.936
2 Alaska................................           1.307           1.316
3 Arizona...............................           0.985           0.993
4 Arkansas..............................           0.920           0.920
5 Anaheim/Santa Ana, CA.................           1.123           1.120
6 Los Angeles, CA.......................           1.096           1.100
7 Marin/Napa/Solano, CA.................           1.154           1.165
8 Oakland/Berkeley, CA..................           1.152           1.154
9 San Francisco, CA.....................           1.216           1.224
10 San Mateo, CA........................           1.210           1.216
11 Santa Clara, CA......................           1.204           1.209
12 Ventura, CA..........................           1.105           1.100
13 Rest of California...................           1.053           1.053
14 Colorado.............................           1.003           1.005
15 Connecticut..........................           1.067           1.069
16 DC + MD/VA Suburbs...................           1.121           1.123
17 Delaware.............................           1.024           1.021
18 Fort Lauderdale, FL..................           1.014           1.006
19 Miami, FL............................           1.017           1.011
20 Rest of Florida......................           0.973           0.971
21 Atlanta, GA..........................           1.005           1.002
22 Rest of Georgia......................           0.940           0.940
23 Hawaii/Guam..........................           1.075           1.077
24 Idaho................................           0.935           0.930
25 Chicago, IL..........................           1.033           1.026
26 East St. Louis, IL...................           0.962           0.961
27 Suburban Chicago, IL.................           1.041           1.033
28 Rest of Illinois.....................           0.944           0.944
29 Indiana..............................           0.948           0.948
30 Iowa.................................           0.929           0.933
31 Kansas...............................           0.933           0.935
32 Kentucky.............................           0.925           0.926
33 New Orleans, LA......................           0.983           0.986
34 Rest of Louisiana....................           0.930           0.935
35 Southern Maine.......................           0.998           0.994
36 Rest of Maine........................           0.940           0.944
37 Baltimore/Surr. Cntys, MD............           1.059           1.058
38 Rest of Maryland.....................           1.024           1.025

[[Page 25482]]

 
39 Metropolitan Boston..................           1.082           1.085
40 Rest of Massachusetts................           1.038           1.040
41 Detroit, MI..........................           1.010           0.996
42 Rest of Michigan.....................           0.957           0.954
43 Minnesota............................           1.005           1.006
44 Mississippi..........................           0.916           0.914
45 Metropolitan Kansas City, MO.........           0.968           0.968
46 Metropolitan St Louis, MO............           0.975           0.972
47 Rest of Missouri.....................           0.905           0.903
48 Montana..............................           0.974           0.977
49 Nebraska.............................           0.938           0.939
50 Nevada...............................           1.026           1.027
51 New Hampshire........................           1.021           1.027
52 Northern NJ..........................           1.109           1.107
53 Rest of New Jersey...................           1.071           1.072
54 New Mexico...........................           0.955           0.954
55 Manhattan, NY........................           1.108           1.106
56 NYC Suburbs/Long I., NY..............           1.124           1.122
57 Poughkpsie/N NYC Suburbs, NY.........           1.039           1.040
58 Queens, NY...........................           1.123           1.121
59 Rest of New York.....................           0.966           0.967
60 North Carolina.......................           0.953           0.956
61 North Dakota.........................           0.982           0.981
62 Ohio.................................           0.959           0.953
63 Oklahoma.............................           0.913           0.919
64 Portland, OR.........................           1.025           1.026
65 Rest of Oregon.......................           0.975           0.978
66 Metropolitan Philadelphia, PA........           1.044           1.052
67 Rest of Pennsylvania.................           0.957           0.962
68 Puerto Rico..........................           0.808           0.816
69 Rhode Island.........................           1.035           1.037
70 South Carolina.......................           0.946           0.946
71 South Dakota.........................           0.974           0.976
72 Tennessee............................           0.937           0.936
73 Austin, TX...........................           1.002           1.008
74 Beaumont, TX.........................           0.942           0.947
75 Brazoria, TX.........................           1.002           1.005
76 Dallas, TX...........................           1.014           1.014
77 Fort Worth, TX.......................           0.995           1.000
78 Galveston, TX........................           1.010           1.016
79 Houston, TX..........................           1.009           1.013
80 Rest of Texas........................           0.953           0.957
81 Utah.................................           0.946           0.946
82 Vermont..............................           0.992           0.992
83 Virginia.............................           0.986           0.987
84 Virgin Islands.......................           1.001           1.001
85 Seattle (King Cnty), WA..............           1.084           1.086
86 Rest of Washington...................           1.004           1.005
87 West Virginia........................           0.901           0.902
88 Wisconsin............................           0.973           0.970
89 Wyoming..............................           0.989           0.992
------------------------------------------------------------------------

[FR Doc. 2014-09908 Filed 4-29-14; 4:15 pm]
BILLING CODE 4120-01-P