	Background

Under TRICARE, beneficiaries may obtain health care through either the  direct care system of military treatment facilities or the purchased care  system of civilian providers and hospitals, including SCHs. SCHs were  exempted from TRICARE’s reimbursement rules for hospitals until  revised rules were implemented in January 2014. TRICARE’s Revised Reimbursement Rules for SCHs Approximate Those for Medicare

Under its revised reimbursement rules for SCHs, DHA’s methodology for  TRICARE approximates the rules for Medicare for these hospitals. Specifically, both programs reimburse SCHs using the greater of either a  cost-based amount or the allowed amount under a DRG-based payment  system. However, each program takes a different approach in  implementing these methods. Under TRICARE’s  revised rules for SCHs, the cost-to-charge ratio will be multiplied by each  hospital’s billed charges to determine its reimbursement amount. In order to  minimize sudden significant reimbursement reductions on SCHs, DHA’s  revised rules include a transition period to the new reimbursement levels  for most SCHs. Eligible SCHs are reimbursed using an individually  derived base-year ratio that is reduced annually until it matches the  SCH’s Medicare cost-to-charge ratio that CMS has calculated for each  hospital. Twenty-four percent (111 of 459) of the hospitals that were designated as  SCHs during fiscal year 2012 with base-year ratios less than or equal to  their Medicare cost-to-charge ratios did not qualify for a transition period  because either their reimbursement increased to their Medicare cost-to- charge ratio, or they continued to be reimbursed at their Medicare cost-to- charge ratio. Early Indications Show That Access to Care Has Not Been Affected by TRICARE’s Revised Reimbursement Rules for SCHs

Because most SCHs have just completed the first year of a multi-year  transition, it is too early to determine the full effect of the revised  reimbursement rules on SCHs, including any effect on TRICARE  beneficiaries’ ability to obtain care at these hospitals. Nonetheless, early  indications show that TRICARE beneficiaries have not experienced  problems accessing inpatient care at these facilities. For fiscal year 2013, we found that overall TRICARE reimbursements for  SCHs averaged less than 1 percent of their net patient revenue, with  TRICARE beneficiaries making up just over 1 percent of their total  discharges. As a  result, the impact of TRICARE’s revised reimbursement rules may likely  be small for most SCHs. DHA officials reported that they do not think access to inpatient care at  SCHs will be an issue because hospitals that participate in the Medicare  program are required to participate in the TRICARE program and serve  its beneficiaries. Officials from the 10 SCHs we identified as having the  highest number of TRICARE admissions, the highest reimbursement  amounts, or both, told us that they provide care to all patients, including  TRICARE beneficiaries—although some of them were not familiar with  this requirement. See table 1 for TRICARE percentages of net patient revenue and total  discharges for each of these SCHs. DHA  officials told us they track access issues pertaining to inpatient care at  SCHs through concerns or complaints communicated to them through the  TRICARE Regional Offices or directly from beneficiaries. They noted that they are looking at ways to measure changes in access  to care at these facilities, possibly by comparing the number of  discharges from one year to the next. Although their plans are under  development, officials stated that they will likely focus on the 44 SCHs  that had 100 or more TRICARE admissions. In  addition, officials from national health care associations and military  beneficiary coalition groups that we spoke with also reported that they  have not heard any concerns about access to care at SCHs resulting  from TRICARE’s revised reimbursement rules. Agency Comments

We provided a draft of this report to DOD for comment. DOD responded  that it agreed with the report’s findings, and its comments are reprinted in  appendix III. DOD also provided technical comments, which we  incorporated as appropriate. Appendix I: Methodology for Selecting Sole Community Hospitals Based on Fiscal Year 2013 TRICARE Claims Data

We obtained TRICARE claims data on the number of admissions and  reimbursement amounts for each sole community hospital (SCH) for fiscal  year 2013.
Why GAO Did This Study

DOD offered health care to about 9.6 million eligible beneficiaries through TRICARE, which provides care through military treatment facilities and civilian providers. Because DOD determined that its approach for reimbursing SCHs (459 in 2014) based on their billed charges was inconsistent with TRICARE's governing statute to reimburse civilian providers in a manner similar to Medicare, it implemented revised rules in January 2014.
House Report 113-446, which accompanied the National Defense Authorization Act for Fiscal Year 2015, included a provision for GAO to review issues related to the changes in TRICARE's reimbursement rules for SCHs. In this report, GAO examines (1) how TRICARE's revised reimbursement rules for SCHs compare to Medicare's reimbursement rules for these hospitals, and (2) the extent to which TRICARE's revised reimbursement rules for SCHs may have affected access to these facilities by servicemembers and their dependents. GAO reviewed federal laws and regulations as well as TRICARE and Medicare's rules for reimbursing SCHs. GAO analyzed fiscal year 2013 TRICARE claims data on SCH admissions and reimbursement amounts, and Medicare data on SCH net patient revenue and total discharges. GAO interviewed 10 SCHs with the highest number of TRICARE admissions or reimbursement amounts about access issues. GAO also interviewed officials from DOD and national health care associations and military beneficiary coalition groups.

What GAO Found

TRICARE's revised reimbursement rules for Sole Community Hospitals (SCHs), which provide health care in rural areas or where similar hospitals do not exist under certain criteria, approximate those for Medicare's. Specifically, both programs reimburse SCHs using the greater of either a cost-based amount or the allowed amount under a diagnostic-related-group-based payment system, although each program takes a different approach in implementing these methods. Each program also provides for reimbursement adjustments under specific circumstances. In order to minimize sudden significant reductions in SCHs' TRICARE reimbursements, the revised rules include a transition period during which an eligible SCH is reimbursed using a cost-based ratio that is reduced annually until it matches the SCH's Medicare cost-to-charge ratio, which is calculated by the Centers for Medicare & Medicaid Services for each hospital. Under TRICARE's revised rules for SCHs, this cost-to-charge ratio will be multiplied by the hospitals' billed charges to determine their reimbursement amounts. Most SCHs—about 74 percent—qualified for a transition to their Medicare cost-to-charge ratios.
Because most SCHs have just completed the first year of a multi-year transition, it is too early to determine the full effect of the revised reimbursement rules, including any impact on TRICARE beneficiaries' access to care at these hospitals. Nonetheless, early indications show that TRICARE beneficiaries have not experienced problems accessing inpatient care at these facilities. Specifically, Defense Health Agency (DHA) officials reported that they do not think access to inpatient care at SCHs will be an issue because hospitals that participate in the Medicare program are required to participate in the TRICARE program and serve its beneficiaries. Although some of them were not familiar with this requirement, officials from the 10 SCHs GAO interviewed with the highest number of TRICARE admissions, the highest reimbursement amounts, or both, stated that they provide care to all patients, including TRICARE beneficiaries. DHA officials also said that they track access issues pertaining to inpatient care at SCHs through concerns or complaints, and as of February 2015, they had not received any access complaints. They noted that they are still looking at ways to measure changes in access to care at these facilities and will likely focus on the 44 SCHs that had 100 or more TRICARE admissions. In addition, other stakeholders, including representatives of national health care associations and military beneficiary coalition groups, said that they are not aware of TRICARE beneficiaries having difficulty accessing care at SCHs. Moreover, in its analysis of available Medicare data for these facilities (427 of 459 SCHs), GAO found that overall TRICARE reimbursements for SCHs averaged less than 1 percent of SCHs' net patient revenue, with TRICARE beneficiaries making up just over 1 percent of their total discharges for fiscal year 2013. As a result, the impact of TRICARE's revised reimbursement rules may likely be small for most SCHs.
GAO provided a draft of this report to the Department of Defense (DOD) for comment. DOD responded that it agreed with the report's findings and provided technical comments, which we incorporated as appropriate.