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TRICARE Reimbursement Manual 6010.61-M, April 1, 2015
Mental Health
Chapter 7
Section 1
Hospital Reimbursement - TRICARE Inpatient Mental Health Per Diem Payment System
Issue Date:  November 28, 1988
Authority:  32 CFR 199.14(a)
Revision:  C-58, April 20, 2021
1.0  APPLICABILITY
This policy is mandatory for reimbursement of services provided by either network or non-network providers. However, alternative network reimbursement methodologies are permitted when approved by the Defense Health Agency (DHA) and specifically included in the network provider agreement.
2.0  ISSUE
How is the TRICARE inpatient mental health per diem payment system to be used in determining reimbursement for psychiatric hospitals and psychiatric units of general acute hospitals that are exempt from the Diagnosis Related Groups (DRG)-based payment system?
3.0  POLICY
3.1  Inpatient Mental Health Per Diem Payment System
The inpatient mental health per diem payment system shall be used to reimburse for inpatient mental health hospital care in specialty psychiatric hospitals and psychiatric units of general acute hospitals that are exempt from the DRG-based payment system. The system uses two sets of per diems. One set of per diems applies to psychiatric hospitals and psychiatric units of general acute hospitals that have a relatively high number (25 or more per federal fiscal year) of TRICARE mental health discharges. For higher volume hospitals and units, the system uses hospital-specific per diem rates. The other set of per diems applies to psychiatric hospitals and units with a relatively low number (less than 25 per federal fiscal year) of TRICARE mental health discharges. For higher volume providers, the contractors are to maintain files which will identify when a provider becomes a high volume provider; the federal fiscal year when the provider had 25 or more TRICARE mental health discharges; the calculation of each provider’s high volume rate; and the current high volume rate for the provider. For lower volume hospitals and units, the system uses regional per diems, and further provides for adjustments for area wage differences and Indirect Medical Education (IDME) costs and additional pass-through payments for direct medical education costs.
3.2  Applicability of the Inpatient Mental Health Per Diem Payment System
3.2.1  Facilities
The inpatient mental health per diem payment system applies to services covered that are provided in a Medicare DRG-exempt psychiatric hospitals and a Medicare DRG-exempt unit of a hospital. In addition, any psychiatric hospital that does not participate in Medicare, or any hospital that has a psychiatric unit that has not been so designated for exemption from Medicare DRG because the hospital does not participate in Medicare, must be designated as a psychiatric hospital or psychiatric specialty unit for purposes of the inpatient mental health per diem payment system upon demonstrating that it meets the same Medicare criteria. The contractor is responsible for requesting from a hospital that does not participate in Medicare sufficient information from that hospital which will allow it to make a determination as to whether the hospital meets the Medicare criteria in order to designate it as a DRG-exempt hospital or unit. The inpatient mental health per diem payment system does not apply to mental health services provided in non-psychiatric hospitals or non-psychiatric units. Substance Use Disorder Rehabilitation Facilities (SUDRFs) are not reimbursed under the inpatient mental health per diem payment system (see Section 3).
3.2.2  DRGs
All psychiatric hospitals’ and psychiatric units’ covered inpatient claims which are classified into a mental health DRG of 425 - 432 or a substance use disorder DRG of 433, DRGs 521 - 523, and DRGs 900 and 901 shall be subject to the TRICARE inpatient mental health per diem payment system. All psychiatric hospitals and psychiatric units covered claims which are classified into a mental health DRG of 880 - 887 or a substance use disorder DRG of 894 - 896, 898, and 899 shall be subject to the TRICARE inpatient mental health per diem system.
3.2.3  State Waivers
The DRG-based payment system provides for state waivers for states utilizing state developed rates applicable to all payers, e.g., Maryland. Psychiatric hospitals and units in these states, may also qualify for the waiver; however, the per diem may not exceed the cap amount applicable to other higher volume hospitals.
3.3  Hospital-Specific Per Diems for Higher Volume Psychiatric Hospitals and Units
3.3.1  Hospital-Specific Per Diem
A hospital-specific per diem amount shall be calculated for each hospital or unit with a higher volume of TRICARE mental health discharges. The base period per diem amount shall be equal to the hospital’s average daily charge for charges allowed by the Government in the base period (July 1, 2017 through May 31, 2018). The average daily charge in the base period shall be calculated by reference to all TRICARE claims paid (processed) during the base period. The base period amount, however, may not exceed the cap.
3.3.2  Cap Amount
The cap amount is established at the 70th percentile.
Cap Per Diem Amount
For Services RendereD
1,190
October 1, 2018 through September 30, 2019
1,226
October 1, 2019 through September 30, 2020
1,255
October 1, 2020 through September 30, 2021
3.3.3  Request for Recalculation of Per Diem Amount
Any psychiatric hospital or unit which has determined DHA calculated a hospital-specific per diem which differs by more than five ($5) dollars from that calculated by the hospital or unit, may apply to the appropriate contractor for a recalculation unless the calculated rate has exceeded the cap amount described in the previous paragraph. The recalculation does not constitute an appeal, as the per diem rates are not appealable. Unless the provider can prove that the contractor calculation is incorrect, the contractor’s calculation is final. The burden of proof shall be on the hospital or unit.
3.4  Regional Per Diems for Lower Volume Psychiatric Hospitals and Units
3.4.1  Regional Per Diem
Hospitals and units with a lower volume of TRICARE patients shall be paid on the basis of a regional per diem amount, adjusted for area wages and IDME. Base period regional per diems shall be calculated based upon all TRICARE/ lower volume hospitals’ and units’ claims paid (processed) during the base period. Each regional per diem amount shall be the quotient of all covered charges (without consideration of other health insurance payments) divided by all covered days of care, reported on all TRICARE claims from lower volume hospitals and units in the region paid (processed) during the base period, after having been standardized for IDME costs, and area wage indexes. Direct medical education costs shall be subtracted from the calculation. The regions shall be the same as the federal census regions. See Addendum A, for the regional per diems used for hospitals and units with a lower volume of TRICARE patients.
3.4.2  Adjustments to Regional Per Diem Rates
Two adjustments shall be made to the regional per diem rates when applicable.
3.4.3  Wage Portion or Labor-Related Share
The wage portion or labor-related share is adjusted by the DRG-based area wage adjustment. See Addendum A, for area wage adjustment rates. The calculated adjusted regional per diem is not to be rounded up to the next whole dollar.
3.4.4  IDME Adjustment
The IDME adjustment factors shall be calculated for teaching hospitals in the same manner as in the DRG-based payment system and applied to the applicable regional per diem rate for each day of the admission. For an exempt psychiatric unit in a teaching hospital, there should be a separate IDME adjustment factor for the unit (separate from the rest of the hospital) when medical education applies to the unit.
3.4.5  Reimbursement of Direct Medical Education Costs
In addition to payments made to lower volume hospitals and units, the Government shall annually reimburse hospitals for actual direct medical education costs associated with TRICARE beneficiaries. This reimbursement shall be done pursuant to the same procedures as are applicable to the DRG-based payment system.
Note:  No additional payment is to be made for capital costs. Such costs have been covered in the regional per diem rates which are based on charges.
3.5  Base Period and Update Factors
3.5.1  Hospital-Specific Per Diem Calculated Using Date of Payment
The base period for calculating the hospital-specific and regional per diems, as described above is federal FY 1988. The base period calculations shall be based on actual claims paid (processed) during the period July 1, 1987 through May 31, 1988, trended forward to September 30, 1988, using a factor of 1.1%.
3.5.2  Hospital-Specific Per Diem Calculated Using Date of Discharge
Upon application by a higher volume hospital or unit to the appropriate contractor, the hospital or unit may have its hospital-specific base period calculations based on TRICARE claims with a date of discharge (rather than date of payment) between July 1, 1987 through May 31, 1988, if it has generally experienced unusual delays in TRICARE claims payments and if the use of such an alternative data base would result in a difference in the per diem amount of at least $5.00 with the revised per diem not exceeding the cap amount. For this purpose, the unusual delays mean that the hospital’s or unit’s average time period between date of discharge and date of payment is more than two standard deviations (204 days) longer than the national average (94 days). The burden of proof shall be on the hospital.
3.5.3  Updating Hospital-Specific and Regional Per Diems
Per diems shall be updated by the Medicare Inpatient Prospective Payment System (IPPS) update factor. Hospitals and units with hospital-specific rates shall be notified of their respective rates prior to the beginning of each federal fiscal year by the contractors. New hospitals shall be notified by the contractor at such time as the hospital rate is determined. The actual amounts of each regional per diem that will apply in any federal fiscal year shall be published in the Federal Register prior to the start of that fiscal year. Medicare has determined a market basket and subsequent update factor specific to psychiatric facilities. Beginning in Fiscal Year (FY) 2017, the update factor shall be published on the TRICARE web site at http://www.health.mil/rates prior to the start of the fiscal year. The rates will no longer be published in the Federal Register.
Fiscal Year
Update FactoR
2019
2.9%
2020
3.0%
2021
2.4%
3.6  Higher Volume Hospitals and Units
3.6.1  Higher Volume of TRICARE Mental Health Discharges and Hospital-Specific Per Diem Calculation
3.6.1.1  In any federal fiscal year in which a hospital or unit not previously classified as a higher volume hospital or unit has 25 or more TRICARE mental health discharges, that hospital or unit shall be considered to be a higher volume hospital or unit during the next federal fiscal year and all subsequent fiscal years. All other hospitals and units covered by the TRICARE inpatient mental health per diem payment system shall be considered lower volume hospitals and units.
3.6.1.2  The hospital-specific per diem amount shall be calculated in accordance with the above provisions, except that the base period average daily charge shall be deemed to be the hospital’s or unit’s average daily charge in the year in which the hospital or unit had 25 or more TRICARE mental health discharges, adjusted by the percentage change in average daily charges for all higher volume hospitals and units between the year in which the hospital or unit had 25 or more TRICARE mental health discharges and the base period. The base period amount, however, cannot exceed the cap described in this section. Once a statistically valid rate is established based on a year in which the hospital or unit had at least 25 mental health discharges, it becomes the basis for all future rates. The number of mental health discharges thereafter have no bearing on the hospital-specific per diem.
3.6.1.2.1  The TRICARE contractor shall be requested at least annually to submit to the DHA Office of Medical Benefits and Reimbursement Section (MB&RS) a listing of high volume providers.
3.6.1.2.2  Percent of change and Deflator Factor (DF).
For 12 Months Ended:
Percent Of Change
DF
September 30, 2018
323.39%
4.2339
September 30, 2019
358.83%
4.5783
September 30, 2020
385.00%
4.8062
3.6.2  New Hospitals and Units
3.6.2.1  The inpatient mental health per diem payment system has a special retrospective payment provision for new hospitals and units. A new hospital is one which meets the Medicare requirements under Tax Equity and Fiscal Responsibility Act (TEFRA) rules. Such hospitals qualify for the Medicare exemption from the rate of increase ceiling applicable to new hospitals which are DRG-exempt psychiatric hospitals. Any new hospital or unit that becomes a higher volume hospital or unit may additionally, upon application to the TRICARE contractor, receive a retrospective adjustment. The retrospective adjustment shall be calculated so that the hospital or unit receives the same Government share payments it would have received had it been designated a higher volume hospital or unit for the federal fiscal year in which it first had 25 or more TRICARE mental health discharges. This provision also applies to the preceding fiscal year (if it had any TRICARE patients during the preceding fiscal year). A retrospective payment shall be required if payments were originally made at a lower regional per diem. This payment will be the result of an adjustment based upon each claim processed during the retrospective period for which an adjustment is needed, and will be subject to the claims processing standards.
3.6.2.2  By definition, a new hospital is an institution that has operated as the type of facility (or the equivalent thereof) for which it is certified in the Medicare and or TRICARE programs under the present and previous ownership for less than three full years. A change in ownership in itself does not constitute a new hospital.
3.6.2.3  Such new hospitals must agree not to bill beneficiaries for any additional cost-share beyond that determined initially based on the regional rate.
3.6.3  Request for a Review of Higher or Lower Volume Classification
Any hospital or unit which DHA improperly fails to classify as a higher or lower volume hospital or unit may apply to the appropriate contractor for such a classification. The hospital or unit shall have the burden of proof.
3.7  Payment for Hospital Based Professional Services
3.7.1  Lower Volume Hospitals and Units
Lower volume hospitals and units may not bill separately for hospital based professional services; payment for those services is included in the per diems.
3.7.2  Higher Volume Hospitals and Units
Higher volume hospitals and units, whether they billed separately for hospital based professional services or included those services in the hospital’s or unit’s charges, shall continue the practice in effect during the data base period used for calculating the hospital’s or unit’s per diem, except that any such hospital or unit may change its prior practice (and obtain an appropriate revision in its per diem) by providing to the appropriate contractor notice of its request to change its billing procedures for hospital-based professional services.
3.8  Leave Days
3.8.1  No Payment
The Government shall not pay (including holding charges) for days where the patient is absent on leave (including therapeutic absences) from the specialty psychiatric hospital or unit. The hospital must identify these days when claiming reimbursement.
3.8.2  Does Not Constitute a Discharge
The Government shall not count a patient’s departure for a leave of absence as a discharge in determining whether a facility should be classified as a higher volume hospital.
3.9  Exemptions from the TRICARE Inpatient Mental Health Per Diem Payment System
3.9.1  Providers Subject to the DRG-Based Payment System
Providers of inpatient care which are neither psychiatric hospitals nor psychiatric units as described earlier, or which otherwise qualify under that discussion, are exempt from the inpatient mental health per diem payment system.
3.9.2  Services Which Group into Mental Health DRG
Admissions to psychiatric hospitals and units for operating room procedures involving a principal diagnosis of mental illness (services which group into DRG 876 on or after October 1, 2008) are exempt from the per diem payment system. They will be reimbursed on the basis of billed charges.
3.9.3  Non-Mental Health Procedures
Admissions for non-mental health procedures that group into non-mental health DRG, in specialty psychiatric hospitals and units are exempt from the per diem payment system. They will be reimbursed on the basis of billed charges.
3.9.4  Sole Community Hospital (SCH)
Admission prior to January 1, 2014, (the effective date of the SCH reimbursement methodology described in Chapter 14, Section 1), any hospital which has qualified for special treatment under the Medicare Prospective Payment System (PPS) as a SCH and has not given up that classification is exempt. For additional information on SCHs, refer to Chapter 14, Section 1.
3.9.5  Hospital Outside the 50 States, the District of Columbia, or Puerto Rico
A hospital is exempt if it is not located in one of the 50 states, the District of Columbia, or Puerto Rico.
3.9.6  Billed Charges and Set Rates
The allowable costs for authorized care in all hospitals not subject to the DRG-based payment system or the inpatient mental health per diem payment system shall be determined on the basis of billed charges or set rates.
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