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TRICARE Reimbursement Manual 6010.64-M, April 2021
Diagnosis Related Groups (DRGs)
Chapter 6
Section 7
Hospital Reimbursement - TRICARE Diagnosis Related Group (DRG)-Based Payment System (Adjusted Standardized Amounts (ASAs))
Issue Date:  October 8, 1987
Authority:  32 CFR 199.14(a)(1)
The contractor shall apply this policy when reimbursing network or non-network providers for services. However, the contractor may use alternative network reimbursement methodologies when approved by the Defense Health Agency (DHA) and if they are specifically included in the network provider agreement.
2.0  ISSUE
What are the Adjusted Standardized Amounts (ASAs) under the TRICARE DRG-based payment system, and how are they used and calculated?
3.1  General
The ASA represents the adjusted average operating cost for treating all TRICARE beneficiaries in all DRGs during the database period. The contractor shall reimburse rural hospitals and hospitals located in other areas at the same ASA payment rate as large urban hospitals.
3.2  Calculation Of The ASA
The TRICARE ASA is calculated as follows:
3.2.1  Apply the Cost-to-Charge Ratio (CCR)
In this step, each charge is reduced to a representative cost by using the Medicare CCR. Effective FY 2019, the CCR is 0.2514. Effective CY 2020, the CCR is 0.2567. Effective CY 2021, the CCR is 0.2495.
3.2.2  Increase for Bad Debts
Increase, the base standardized amount by 0.0065.
3.2.3  Update for Inflation
Use an inflation factor equal to the hospital market basket index used by the Centers of Medicare and Medicaid Services (CMS) in their Inpatient Prospective Payment System (IPPS) to recalculate the ASA.
3.2.4  Preliminary Non-Teaching Standardized Amount
At this point Indirect Medical Education (IDME) costs have been removed through standardization in the weight methodology and direct medical education costs have been removed through the application of the Medicare CCR which does not include direct medical education costs. Therefore, compute a non-teaching standardized amount by dividing aggregate costs by the number of discharges in the database.
3.2.5  Preliminary Teaching Standardized Amounts
Calculate a separate standardized amount for each teaching hospital to reimburse for IDME expenses by multiplying the non-teaching standardized amount by 1.0 plus each hospital’s IDME factor.
3.2.6  System Standardization
The preliminary standardized amounts will be further standardized using a factor which equals total DRG payments using the preliminary standardized amounts divided by the sum of all costs in the database (updated for inflation). To achieve standardization, divide each preliminary standardized amount by this factor. This step is necessary so that total DRG system outlays, given the same distribution among hospitals and diagnoses, are equal whether based on DRGs or on charges reduced to costs.
3.2.7  Labor-Related and Nonlabor-Related Portions of the ASA
Divide the ASA into labor-related and nonlabor-related portions according to the ratio of these amounts in the national ASA under the Medicare IPPS. Effective October 1, 2013, and subsequent years, for wage index values greater than 1.0, the labor related portion of the ASA shall equal 68.3%, and the non-labor related portion shall equal 31.7%. For wage indexes less than or equal to 1.0 the labor-related portion for the ASA shall equal 62% and the non-labor-related portion shall equal 38%.
3.2.8  Updating the Standardized Amounts
For years subsequent to the initial year, the standardized amounts will be updated by the final published Medicare annual update factor, unless the standardized amounts are recalculated.
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