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TRICARE Reimbursement Manual 6010.64-M, April 2021
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:  
1.0  APPLICABILITY
The contractor shall apply this policy when reimbursing network or non-network provider services. However, the contractor may use alternative network reimbursement methodologies when approved by the Defense Health Agency (DHA) and if they 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
3.1.1  The contractor shall use the inpatient mental health per diem payment system 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 (FY)) 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 FY) of TRICARE mental health discharges.
3.1.2  For higher volume providers, the contractor shall maintain files which:
•  Identify when a provider becomes a high volume provider;
•  Identify the FY when the provider had 25 or more TRICARE mental health discharges;
•  Show the calculation of each provider’s high volume rate; and
•  Show the current high volume rate for the provider.
3.1.3  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
3.2.1.1  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, the contractor shall designate 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, as a psychiatric hospital or psychiatric specialty unit for purposes of the inpatient mental health per diem payment system when that hospital demonstrates it meets the same Medicare criteria.
3.2.1.2  The contractor shall request 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 contractor shall not apply the inpatient mental health per diem payment system to mental health services provided in non-psychiatric hospitals or non-psychiatric units. The contractor shall not reimburse Substance Use Disorder Rehabilitation Facilities (SUDRFs) under the inpatient mental health per diem payment system (see Section 3).
3.2.2  DRGs
The contractor shall use the TRICARE inpatient mental health per diem payment system for 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. The contractor shall use the TRICARE inpatient mental health per diem payment system for 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.
3.2.3  State Waivers
The DRG-based payment system provides for state waivers for states using 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 contractor shall ensure the per diem does 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
The contractor shall calculate a hospital-specific per diem amount for each hospital or unit with a higher volume of TRICARE mental health discharges. The contractors shall set the base period per diem amount 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 contractor shall calculate the average daily charge in the base period by reference to all TRICARE claims paid (processed) during the base period. The contractor shall ensure the base period amount does not exceed the cap.
3.3.2  Cap Amount
The contractor shall use the cap amount that 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 for which the contractor 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 request 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 shall use it’s calculation. The hospital or unit has the burden of proof.
3.4  Regional Per Diems for Lower Volume Psychiatric Hospitals and Units
3.4.1  Regional Per Diem
The contractor shall pay hospitals and units with a lower volume of TRICARE patients on the basis of a regional per diem amount, adjusted for area wages and IDME. The contractor shall calculate base period regional per diems based upon all TRICARE/lower volume hospitals’ and units’ claims paid (processed) during the base period. The contractor shall set each regional per diem amount equal to 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. The contractor shall subtract direct medical education costs from the calculation. The contractor shall use the same regions 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
The contractor shall make two adjustments to the regional per diem rates when applicable.
3.4.3  Wage Portion or Labor-Related Share
The contractor shall adjust the wage portion or labor-related share by the DRG-based area wage adjustment. See Addendum A, for area wage adjustment rates. The contractor shall not round up the calculated adjusted regional per diem to the next whole dollar.
3.4.4  IDME Adjustment
The contractor shall calculate IDME adjustment factors for teaching hospitals in the same manner as in the DRG-based payment system and apply to the applicable regional per diem rate for each day of the admission. For an exempt psychiatric unit in a teaching hospital, the contractor shall use 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 contractor shall annually reimburse hospitals for actual direct medical education costs associated with TRICARE beneficiaries. The contractor shall accomplish this reimbursement pursuant to the same procedures as are applicable to the DRG-based payment system.
Note:  The contractor shall not make additional payment for capital costs. These costs are 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 DHA base period calculations are 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 request its hospital-specific base period calculations be 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 calendar days) longer than the national average (94 calendar days). The burden of proof shall be on the hospital.
3.5.3  Updating Hospital-Specific and Regional Per Diems
The contractor shall notify hospitals and units with hospital-specific rates of their respective rates prior to the beginning of each FY. The contractor shall update per diems with the Medicare Inpatient Prospective Payment System (IPPS) update factor. The contractor shall notify new hospitals when the hospital rate is determined. Beginning in FY 2017, the DHA will publish the update factor on the TRICARE website at http://www.health.mil/rates prior to the start of the FY.
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 FY in which a hospital or unit not previously classified as a higher volume hospital or unit has 25 or more TRICARE mental health discharges, the contractor shall consider that hospital or unit to be a higher volume hospital or unit during the next FY and all subsequent FYs. The contractor shall consider all other hospitals and units covered by the TRICARE inpatient mental health per diem payment system lower volume hospitals and units.
3.6.1.2  The contractor shall calculate the hospital-specific per diem amount in accordance with the above provisions, except that the contractor shall deem the base period average daily charge 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, the contractor shall use it as 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 contractor shall submit to the DHA Office of Medical Benefits and Reimbursement Section (MB&RS) a listing of high volume providers at least annually. For reporting requirements, see DD Form 1423, Contract Data Requirements List (CDRL), located in Section J of the applicable contract.
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. The contractor shall provide a retrospective adjustment to any new hospital or unit that becomes a higher volume hospital or unit that applies for the adjustment. The contractor shall calculate the retrospective adjustment 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 FY in which it first had 25 or more TRICARE mental health discharges. This provision also applies to the preceding FY (if it had any TRICARE patients during the preceding FY). The contractor shall provide a retrospective payment if payments were originally made at a lower regional per diem. The contractor shall base this payment on the result of an adjustment based upon each claim processed during the retrospective period for which an adjustment is needed, and is subject to the claims processing standards.
3.6.2.2  The provider shall ensure such new hospitals do not 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
If DHA improperly fails to classify any hospital or unit as a higher or lower volume hospital or unit, that institution 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
The contractor shall ensure lower volume hospitals and units do 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
The contractor shall ensure 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, 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 contractor 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 contractor shall ensure the hospital identifies these days when claiming reimbursement.
3.8.2  Does Not Constitute a Discharge
The contractor 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
The contractor shall exempt providers of inpatient care which are neither psychiatric hospitals nor psychiatric units as described earlier, or which otherwise qualify under that discussion, from the inpatient mental health per diem payment system.
3.9.2  Services Which Group into Mental Health DRG
The contractor shall exempt 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) from the per diem payment system. The contractor shall reimburse them on the basis of billed charges.
3.9.3  Non-Mental Health Procedures
The contractor shall exempt admissions for non-mental health procedures that group into non-mental health DRG, in specialty psychiatric hospitals and units from the per diem payment system. The contractor shall reimburse them on the basis of billed charges.
3.9.4  Sole Community Hospital (SCH)
The contractor shall exempt admission prior to January 1, 2014, (the effective date of the SCH reimbursement methodology described in Chapter 14, Section 1), to a 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 United States (US), the District of Columbia, or Puerto Rico
The contractor shall exempt hospitals outside one of the 50 US, the District of Columbia, or Puerto Rico.
3.9.6  Billed Charges and Set Rates
The contractor shall determine 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 on the basis of billed charges or set rates.
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