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Critical Access Hospital Reimbursement Method

Critical access hospitals (CAH) are exempt from the DRG-based payment system and follow a reasonable cost method that is similar to Medicare's reimbursement procedures for CAHs.

The reasonable cost method (RCM) is based on the actual cost of providing services.

TRICARE will pay the lesser of:

  • 101 percent of costs – obtained by multiplying the billed charges on the claim by the hospital-specific
    cost-to-charge ratio (CCR); or
  • The fiscal year cap amount – obtained by multiplying the billed charges on the claim by the applicable CCR cap percentage (based on the services billed on the claim) that is established by the Defense Health Agency (DHA) on a yearly basis.

Note: The DHA calculates an overall CCR cap percentage per fiscal year for inpatient stays and an overall fiscal year CCR cap percentage for outpatient visits and uses data obtained from the hospital’s most recently filed Medicare cost report as of July 1 each year.

The TRICARE lesser of cost or billed charges principle does not apply to CAHs.

Implementation of the CAH reasonable cost method is effective for inpatient and outpatient services occurring on or after December 1, 2009. Below are the different payment methods for the types of services provided in a CAH.

Payment method based on type of service:

  • Outpatient care – Outpatient services provided in a CAH, including ambulatory surgery services and partial hospitalization programs are paid under the reasonable cost method, using the comparisons noted above.
  • Laboratory services and take home drugs – Laboratory services and take home drugs are reimbursed under the CHAMPUS maximum allowable charge method.
  • Inpatient and swing bed care – All inpatient and swing bed care is paid under the reasonable cost method.
  • Psychiatric inpatient services – Inpatient care provided in a psychiatric unit is subject to the CHAMPUS mental health per diem system.
  • Rehabilitation inpatient services – Inpatient care provided in a rehabilitation unit for dates of service prior to 10/01/2018 are reimbursed based on billed charges or set rates. Dates of service on or after 10/01/2018 are based on Inpatient Rehab Facility (IRF) PPS reimbursement.  
  • Ambulance services – Ambulance services furnished by a CAH may be exempt from the allowable charge method and paid under the reasonable cost method. (Certain regulations apply.)

Provider Classification Changes

TRICARE-authorized hospital providers must immediately inform Health Net Federal Services, LLC (HNFS) of any change in Centers for Medicare and Medicaid (CMS) hospital classification. Notification by the hospital must occur if the provider changes from a Short Term Acute Care Hospital classification, Critical Access Hospital classification or Sole Community Hospital classification to any other of the three noted classifications. This notification allows Health Net to properly reimburse hospitals for TRICARE-covered services.

When notifying HNFS, network providers should include the official letter from CMS, the hospital's point of contact information and the effective date of the CMS hospital classification change. Network providers may mail or fax this required information to HNFS:

Health Net Federal Services, LLC
TRICARE West
PO Box 202106
Florence, SC 29502-2106

Fax: 1-844-836-5818

Non-network providers should notify PGBA, LLC (PGBA) of any change in provider classification. Notification to PGBA is necessary to ensure proper reimbursement for TRICARE-covered services. Non-network providers may fax updated information to 1-844-730-1373.

For more information, please refer to the TRICARE Reimbursement Manual, Chapter 15, Section 1.