On March 21, 2016, the Indian Health Service (IHS), an agency with the Department of Health and Human Services, issued a final rule with comment period titled “Payment for Physician and Other Health Care Professional Services Purchased by Indian Health Programs and Medicare Charges Associated with Non-Hospital-Based Care.” This final rule will change the way the Indian Health Service pays for Purchased/Referred Care (PRC), formerly known as Contract Health Services (CHS). The provisions of this final rule will become effective on May 20, 2016.

Under current regulations, payment for PRC services is based on rates established by arms-length negotiations between the physician or other health care provider (including ambulance providers and suppliers) and the IHS, Tribe, Tribal Organization or urban Indian organizations (collectively referred to hereinafter as I/T/U programs). In the absence of an agreement, the health care provider is generally paid its full billed charges.

Provisions of Final Rule

The final rule amends the regulations at 42 C.F.R. 136.1 e. seq. to provide that payment for PRC services will now be based on Medicare payment methodologies. Specifically, payments would generally be set at the lowest of: (1) the amount provided for such service under the applicable Medicare fee schedule or Medicare waiver, (2) the amount negotiated with a specific provider or its agent, or the amount negotiated by a repricing agent, if applicable, or (3) the rate for such service paid by the health care provider’s or supplier’s “Most Favored Customer” (MFC). For these purposes, IHS has indicated that the MFC rate will be evidenced by commercial price lists or paid invoices and other related pricing and discount data.

While the previous paragraph sets forth the general rate-setting regime, a number of important exceptions will apply. First, any negotiated rate between the parties must be equal to or better than the provider’s or supplier’s MFC rate. The AAA is interpreting this requirement to require the provider or supplier to offer better (i.e. lower pricing) to the I/T/U program than it offers to any nongovernmental entities, including insurance plans. However, IHS indicated that this restriction would not apply to the extent the I/T/U program determines that the negotiated rate is otherwise fair and reasonable, and is otherwise in the best interests of the I/T/U (as determined by the I/T/U). Second, in the event that no agreement exists, and the Medicare Fee Schedule amount is greater than the provider’s or supplier’s MFC rate (i.e. the provider or supplier has voluntarily elected to accept a rate lower than the corresponding Medicare allowable from at least one nongovernmental entity), then the rate may not exceed the MFC rate, but may be lower than the MFC rate.

The final rule can be viewed in its entirety here.