[Code of Federal Regulations]
[Title 32, Volume 2]
[Revised as of July 1, 2008]
From the U.S. Government Printing Office via GPO Access
[CITE: 32CFR199.15]

[Page 309-316]
 
                       TITLE 32--NATIONAL DEFENSE
 
        CHAPTER I--OFFICE OF THE SECRETARY OF DEFENSE (CONTINUED)
 
PART 199_CIVILIAN HEALTH AND MEDICAL PROGRAM OF THE UNIFORMED SERVICES 
 
Sec. 199.15  Quality and utilization review peer review organization program.

    (a) General--(1) Purpose. The purpose of this section is to 
establish rules and procedures for the CHAMPUS Quality and Utilization 
Review Peer Review Organization program.
    (2) Applicability of program. All claims submitted for health 
services under CHAMPUS are subject to review for quality of care and 
appropriate utilization. The Director, OCHAMPUS shall establish 
generally accepted standards, norms and criteria as are necessary for 
this program of utilization and quality review. These standards, norms 
and criteria shall include, but not be limited to, need for inpatient 
admission or inpatient or outpatient service, length of inpatient stay, 
intensity of care, appropriateness of treatment, and level of 
institutional care required. The Director, OCHAMPUS may issue 
implementing instructions, procedures and guidelines for retrospective, 
concurrent and prospective review.
    (3) Contractor implementation. The CHAMPUS Quality and Utilization 
Review Peer Review Organization program may be implemented through 
contracts administered by the Director, OCHAMPUS. These contractors may 
include contractors that have exclusive functions in the area of 
utilization and quality review, fiscal intermediary contractors (which 
perform these functions along with a broad range of administrative 
services), and managed care contractors (which perform a range of 
functions concerning management of the delivery and financing of health 
care services under CHAMPUS). Regardless of the contractors involved, 
utilization and quality review activities follow the same standards, 
rules and procedures set forth in this section, unless otherwise 
specifically provided in this section or elsewhere in this part.
    (4) Medical issues affected. The CHAMPUS Quality and Utilization 
Review Peer Review Organization program is distinguishable in purpose 
and impact from other activities relating to the administration and 
management of CHAMPUS in that the Peer Review Organization program is 
concerned primarily with medical judgments regarding the quality and 
appropriateness of

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health care services. Issues regarding such matters as benefit 
limitations are similar, but, if not determined on the basis of medical 
judgments, are governed by CHAMPUS rules and procedures other than those 
provided in this section. (See, for example, Sec. 199.7 regarding 
claims submission, review and payment.) Based on this purpose, a major 
attribute of the Peer Review Organization program is that medical 
judgments are made by (directly or pursuant to guidelines and subject to 
direct review) reviewers who are peers of the health care providers 
providing the services under review.
    (5) Provider responsibilities. Because of the dominance of medical 
judgments in the quality and utilization review program, principal 
responsibility for complying with program rules and procedures rests 
with health care providers. For this reason, there are limitations, set 
forth in this section and in Sec. 199.4(h), on the extent to which 
beneficiaries may be held financially liable for health care services 
not provided in conformity with rules and procedures of the quality and 
utilization review program concerning medical necessity of care.
    (6) Medicare rules used as model. The CHAMPUS Quality and 
Utilization Review Peer Review Organization program, based on specific 
statutory authority, follows many of the quality and utilization review 
requirements and procedures in effect for the Medicare Peer Review 
Organization program, subject to adaptations appropriate for the CHAMPUS 
program. In recognition of the similarity of purpose and design between 
the Medicare and CHAMPUS PRO programs, and to avoid unnecessary 
duplication of effort, the CHAMPUS Quality and Utilization Review Peer 
Review Organization program will have special procedures applicable to 
supplies and services furnished to Medicare-eligible CHAMPUS 
beneficiaries. These procedures will enable CHAMPUS normally to rely 
upon Medicare determinations of medical necessity and appropriateness in 
the processing of CHAMPUS claims as a second payer to Medicare. As a 
general rule, only in cases involving Medicare-eligible CHAMPUS 
beneficiaries where Medicare payment for services and supplies is denied 
for reasons other than medical necessity and appropriateness will the 
CHAMPUS claim be subject to review for quality of care and appropriate 
utilization under the CHAMPUS PRO program. TRICARE will continue to 
perform a medical necessity and appropriateness review for quality of 
care and appropriate utilization under the CHAMPUS PRO program where 
required by statute, such as inpatient mental health services in excess 
of 30 days in any year.
    (b) Objectives and general requirements of review system--(1) In 
general. Broadly, the program of quality and utilization review has as 
its objective to review the quality, completeness and adequacy of care 
provided, as well as its necessity, appropriateness and reasonableness.
    (2) Payment exclusion for services provided contrary to utilization 
and quality standards. (i) In any case in which health care services are 
provided in a manner determined to be contrary to quality or necessity 
standards established under the quality and utilization review program, 
payment may be wholly or partially excluded.
    (ii) In any case in which payment is excluded pursuant to paragraph 
(b)(2)(i) of this section, the patient (or the patient's family) may not 
be billed for the excluded services.
    (iii) Limited exceptions and other special provisions pertaining to 
the requirements established in paragraphs (b)(2) (i) and (ii) of this 
section, are set forth in Sec. 199.4(h).
    (3) Review of services covered by DRG-based payment system. 
Application of these objectives in the context of hospital services 
covered by the DRG-based payment system also includes a validation of 
diagnosis and procedural information that determines CHAMPUS 
reimbursement, and a review of the necessity and appropriateness of care 
for which payment is sought on an outlier basis.
    (4) Preauthorization and other utilization review procedures--(i) In 
general. all health care services for which payment is sought under 
TRICARE are subject to review for appropriateness of utilization as 
determined by the Director, TRICARE Management Activity, or a designee.

[[Page 311]]

    (A) The procedures for this review may be prospective (before the 
care is provided), concurrent (while the care is in process), or 
retrospective (after the care has been provided). Regardless of the 
procedures of this utilization review, the same generally accepted 
standards, norms and criteria for evaluating the medical necessity, 
appropriateness and reasonableness of the care involved shall apply. The 
Director, TRICARE Management Activity, or a designee, shall establish 
procedures for conducting reviews, including types of health care 
services for which preauthorization or concurrent review shall be 
required. Preauthorization or concurrent review may be required for 
categories of health care services. Except where required by law, the 
categories of health care services for which preauthorization or 
concurrent review is required may vary in different geographical 
locations or for different types of providers.
    (B) For healthcare services provided under TRICARE contracts entered 
into by the Department of Defense after October 30, 2000, medical 
necessity preauthorization will not be required for referrals for 
specialty consultation appointment services requested by primary care 
providers or specialty providers when referring TRICARE Prime 
beneficiaries for specialty consultation appointment services within the 
TRICARE contractor's network. However, the lack of medical necessity 
preauthorization requirements for consultative appointment services does 
not mean that non-emergent admissions or invasive diagnostic or 
therapeutic procedures which in and of themselves constitute categories 
of health care services related to, but beyond the level of the 
consultation appointment service, are not subject to medical necessity 
prior authorization. In fact many such health care services may continue 
to require medical necessity prior authorization as determined by the 
Director, TRICARE Management Activity, or a designee. TRICARE Prime 
beneficiaries are also required to obtain preauthorization before 
seeking health care services from a non-network provider.
    (ii) Preauthorization procedures. With respect to categories of 
health care (inpatient or outpatient) for which preauthorization is 
required, the following procedures shall apply:
    (A) The requirement for preauthorization shall be widely publicized 
to beneficiaries and providers.
    (B) All requests for preauthorization shall be responded to in 
writing. Notification of approval or denial shall be sent to the 
beneficiary. Approvals shall specify the health care services and 
supplies approved and identify any special limits or further 
requirements applicable to the particular case.
    (C) An approved preauthorization shall state the number of days, 
appropriate for the type of care involved, for which it is valid. In 
general, preauthorizations will be valid for 30 days. If the services or 
supplies are not obtained within the number of days specified, a new 
preauthorization request is required. For organ and stem cell 
transplants, the preauthorization shall remain in effect as long as the 
beneficiary continues to meet the specific transplant criteria set forth 
in the TRICARE/CHAMPUS Policy Manual, or until the approved transplant 
occurs.
    (D) For healthcare services provided under TRICARE contracts entered 
into by the Department of Defense after October 30, 2000, medical 
necessity preauthorization for specialty consultation appointment 
services within the TRICARE contractor's network will not be required. 
However, the Director, TRICARE Management Activity, or designee, may 
continue to require or waive medical necessity prior (or pre) 
authorization for other categories of other health care services based 
on best business practice.
    (iii) Payment reduction for noncompliance with required utilization 
review procedures. (A) Paragraph (b)(4)(iii) of this section applies to 
any case in which:
    (1) A provider was required to obtain preauthorization or continued 
stay (in connection with required concurrent review procedures) 
approval.
    (2) The provider failed to obtain the necessary approval; and
    (3) The health care services have not been disallowed on the basis 
of necessity, appropriateness or reasonableness.

[[Page 312]]


In such a case, reimbursement will be reduced, unless such reduction is 
waived based on special circumstances.
    (B) In a case described in paragraph (b)(4)(iii)(A) of this section, 
reimbursement will be reduced, unless such reduction is waived based on 
special circumstances. The amount of this reduction shall be at least 
ten percent of the amount otherwise allowable for services for which 
preauthorization (including preauthorization for continued stays in 
connection with concurrent review requirements) approval should have 
been obtained, but was not obtained.
    (C) The payment reduction set forth in paragraph (b)(4)(iii)(B) of 
this section may be waived by the Director, OCHAMPUS when the provider 
could not reasonably have been expected to know of the preauthorization 
requirement or some other special circumstance justifies the waiver.
    (D) Services for which payment is disallowed under paragraph 
(b)(4)(iii) of this section may not be billed to the patient (or the 
patient's family).
    (c) Hospital cooperation. All hospitals which participate in CHAMPUS 
and submit CHAMPUS claims are required to provide all information 
necessary for CHAMPUS to properly process the claims. In order for 
CHAMPUS to be assured that services for which claims are submitted meet 
quality of care standards, hospitals are required to provide the Peer 
Review Organization (PRO) responsible for quality review with all the 
information, within timeframes to be established by OCHAMPUS, necessary 
to perform the review functions required by this paragraph. 
Additionally, all participating hospitals shall provide CHAMPUS 
beneficiaries, upon admission, with information about the admission and 
quality review system including their appeal rights. A hospital which 
does not cooperate in this activity shall be subject to termination as a 
CHAMPUS-authorized provider.
    (1) Documentation that the beneficiary has received the required 
information about the CHAMPUS PRO program must be maintained in the same 
manner as is the notice required for the Medicare program by 42 CFR 
466.78(b).
    (2) The physician acknowledgment required for Medicare under 42 CFR 
412.46 is also required for CHAMPUS as a condition for payment and may 
be satisfied by the same statement as required for Medicare, with 
substitution or addition of ``CHAMPUS'' when the word ``Medicare'' is 
used.
    (3) Participating hospitals must execute a memorandum of 
understanding with the PRO providing appropriate procedures for 
implementation of the PRO program.
    (4) Participating hospitals may not charge a CHAMPUS beneficiary for 
inpatient hospital services excluded on the basis of Sec. 199.4(g)(1) 
(not medically necessary), Sec. 199.4(g)(3) (inappropriate level), or 
Sec. 199.4(g)(7) (custodial care) unless all of the conditions 
established by 42 CFR 412.42(c) with respect to Medicare beneficiaries 
have been met with respect to the CHAMPUS beneficiary. In such cases in 
which the patient requests a PRO review while the patient is still an 
inpatient in the hospital, the hospital shall provide to the PRO the 
records required for the review by the close of business of the day the 
patient requests review, if such request was made before noon. If the 
hospital fails to provide the records by the close of business, that day 
and any subsequent working day during which the hospital continues to 
fail to provide the records shall not be counted for purposes of the 
two-day period of 42 CFR 412.42(c)(3)(ii).
    (d) Areas of review--(1) Admissions. The following areas shall be 
subject to review to determine whether inpatient care was medically 
appropriate and necessary, was delivered in the most appropriate setting 
and met acceptable standards of quality. This review may include 
preadmission or prepayment review when appropriate.
    (i) Transfers of CHAMPUS beneficiaries from a hospital or hospital 
unit subject to the CHAMPUS DRG-based payment system to another hospital 
or hospital unit.
    (ii) CHAMPUS admissions to a hospital or hospital unit subject to 
the CHAMPUS DRG-based payment system which occur within a certain period 
(specified by OCHAMPUS) of discharge from a hospital or hospital unit 
subject

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to the CHAMPUS DRG-based payment system.
    (iii) A random sample of other CHAMPUS admissions for each hospital 
subject to the CHAMPUS DRG-based payment system.
    (iv) CHAMPUS admissions in any DRGs which have been specifically 
identified by OCHAMPUS for review or which are under review for any 
other reason.
    (2) DRG validation. The review organization responsible for quality 
of care reviews shall be responsible for ensuring that the diagnostic 
and procedural information reported by hospitals on CHAMPUS claims which 
is used by the fiscal intermediary to assign claims to DRGs is correct 
and matches the information contained in the medical records. In order 
to accomplish this, the following review activities shall be done.
    (i) Perform DRG validation reviews of each case under review.
    (ii) Review of claim adjustments submitted by hospitals which result 
in the assignment of a higher weighted DRG.
    (iii) Review for physician's acknowledgement of annual receipt of 
the penalty statement as contained in the Medicare regulation at 42 CFR 
412.46.
    (iv) Review of a sample of claims for each hospital reimbursed under 
the CHAMPUS DRG-based payment system. Sample size shall be determined 
based upon the volume of claims submitted.
    (3) Outlier review. Claims which qualify for additional payment as a 
long-stay outlier or as a cost-outlier shall be subject to review to 
ensure that the additional days or costs were medically necessary and 
appropriate and met all other requirements for CHAMPUS coverage. In 
addition, claims which qualify as short-stay outliers shall be reviewed 
to ensure that the admission was medically necessary and appropriate and 
that the discharge was not premature.
    (4) Procedure review. Claims for procedures identified by OCHAMPUS 
as subject to a pattern of abuse shall be the subject of intensified 
quality assurance review.
    (5) Other review. Any other cases or types of cases identified by 
OCHAMPUS shall be subject to focused review.
    (e) Actions as a result of review--(1) Findings related to 
individual claims. If it is determined, based upon information obtained 
during reviews, that a hospital has misrepresented admission, discharge, 
or billing information, or is found to have quality of care defects, or 
has taken an action that results in the unnecessary admissions of an 
individual entitled to benefits, unnecessary multiple admission of an 
individual, or other inappropriate medical or other practices with 
respect to beneficiaries or billing for services furnished to 
beneficiaries, the PRO, in conjunction with the fiscal intermediary, 
shall, as appropriate:
    (i) Deny payment for or recoup (in whole or in part) any amount 
claimed or paid for the inpatient hospital and professional services 
related to such determination.
    (ii) Require the hospital to take other corrective action necessary 
to prevent or correct the inappropriate practice.
    (iii) Advise the provider and beneficiary of appeal rights, as 
required by Sec. 199.10 of this part.
    (iv) Notify OCHAMPUS of all such actions.
    (2) Findings related to a pattern of inappropriate practices. In all 
cases where a pattern of inappropriate admissions and billing practices 
that have the effect of circumventing the CHAMPUS DRG-based payment 
system is identified, OCHAMPUS shall be notified of the hospital and 
practice involved.
    (3) Revision of coding relating to DRG validation. The following 
provisions apply in connection with the DRG validation process set forth 
in paragraph (d)(2) of this section.
    (i) If the diagnostic and procedural information in the patient's 
medical record is found to be inconsistent with the hospital's coding or 
DRG assignment, the hospital's coding on the CHAMPUS claim will be 
appropriately changed and payments recalculated on the basis of the 
appropriate DRG assignment.
    (ii) If the information stipulated under paragraph (d)(2) of this 
section is found not to be correct, the PRO will

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change the coding and assign the appropriate DRG on the basis of the 
changed coding.
    (f) Special procedures in connection with certain types of health 
care services or certain types of review activities--(1) In general. 
Many provisions of this section are directed to the context of services 
covered by the CHAMPUS DRG-based payment system. This section, however, 
is also applicable to other services. In addition, many provisions of 
this section relate to the context of peer review activities performed 
by Peer Review Organizations whose sole functions for CHAMPUS relate to 
the Quality and Utilization Review Peer Review Organization program. 
However, it also applies to review activities conducted by contractors 
who have responsibilities broader than those related to the quality and 
utilization review program. Paragraph (f) of this section authorizes 
certain special procedures that will apply in connection with such 
services and such review activities.
    (2) Services not covered by the DRG-based payment system. In 
implementing the quality and utilization review program in the context 
of services not covered by the DRG-based payment system, the Director, 
OCHAMPUS may establish procedures, appropriate to the types of services 
being reviewed, substantively comparable to services covered by the DRG-
based payment system regarding obligations of providers to cooperate in 
the quality and utilization review program, authority to require 
appropriate corrective actions and other procedures. The Director, 
OCHAMPUS may also establish such special, substantively comparable 
procedures in connection with review of health care services which, 
although covered by the DRG-based payment method, are also affected by 
some other special circumstances concerning payment method, nature of 
care, or other potential utilization or quality issue.
    (3) Peer review activities by contractors also performing other 
administration or management functions--(i) Sole-function PRO versus 
multi-function PRO. In all cases, peer review activities under the 
Quality and Utilization Review Peer Review Organization program are 
carried out by physicians and other qualified health care professionals, 
usually under contract with OCHAMPUS. In some cases, the Peer Review 
Organization contractor's only functions are pursuant to the quality and 
utilization review program. In paragraph (f)(3) of this section, this 
type of contractor is referred to as a ``sole function PRO.'' In other 
cases, the Peer Review Organization contractor is also performing other 
functions in connection with the administration and management of 
CHAMPUS. In paragraph (f)(3) of this section, this type of contractor is 
referred to as a ``multi-function PRO.'' As an example of the latter 
type, managed care contractors may perform a wide range of functions 
regarding management of the delivery and financing of health care 
services under CHAMPUS, including but not limited to functions under the 
Quality and Utilization Review Peer Review Organization program.
    (ii) Special rules and procedures. With respect to multi-function 
PROs, the Director, OCHAMPUS may establish special procedures to assure 
the independence of the Quality and Utilization Review Peer Review 
Organization program and otherwise advance the objectives of the 
program. These special rules and procedures include, but are not limited 
to, the following:
    (A) A reconsidered determination that would be final in cases 
involving sole-function PROs under paragraph (i)(2) of this section will 
not be final in connection with multi-function PROs. Rather, in such 
cases (other than any case which is appealable under paragraph (i)(3) of 
this section), an opportunity for a second reconsideration shall be 
provided. The second reconsideration will be provided by OCHAMPUS or 
another contractor independent of the multi-function PRO that performed 
the review. The second reconsideration may not be further appealed by 
the provider.
    (B) Procedures established by paragraphs (g) through (m) of this 
section shall not apply to any action of a multi-function PRO (or 
employee or other person or entity affiliated with the PRO) carried out 
in performance of functions other than functions under this section.

[[Page 315]]

    (g) Procedures regarding initial determinations. The CHAMPUS PROs 
shall establish and follow procedures for initial determinations that 
are substantively the same or comparable to the procedures applicable to 
Medicare under 42 CFR 466.83 to 466.104. In addition, these procedures 
shall provide that a PRO's determination that an admission is medically 
necessary is not a guarantee of payment by CHAMPUS; normal CHAMPUS 
benefit and procedural coverage requirements must also be applied.
    (h) Procedures regarding reconsiderations. The CHAMPUS PROs shall 
establish and follow procedures for reconsiderations that are 
substantively the same or comparable to the procedures applicable to 
reconsiderations under Medicare pursuant to 42 CFR 473.15 to 473.34, 
except that the time limit for requesting reconsideration (see 42 CFR 
473.20(a)(1)) shall be 90 days. A PRO reconsidered determination is 
final and binding upon all parties to the reconsideration except to the 
extent of any further appeal pursuant to paragraph (i) of this section.
    (i) Appeals and hearings. (1) Beneficiaries may appeal a PRO 
reconsideration determination of OCHAMPUS and obtain a hearing on such 
appeal to the extent allowed and under the procedures set forth in Sec. 
199.10(d).
    (2) Except as provided in paragraph (i)(3), a PRO reconsidered 
determination may not be further appealed by a provider.
    (3) A provider may appeal a PRO reconsideration determination to 
OCHAMPUS and obtain a hearing on such appeal to the extent allowed under 
the procedures set forth in Sec. 199.10(d) if it is a determination 
pursuant to Sec. 199.4(h) that the provider knew or could reasonably 
have been expected to know that the services were excludable.
    (4) For purposes of the hearing process, a PRO reconsidered 
determination shall be considered as the procedural equivalent of a 
formal review determination under Sec. 199.10, unless revised at the 
initiative of the Director, OCHAMPUS prior to a hearing on the appeal, 
in which case the revised determination shall be considered as the 
procedural equivalent of a formal review determination under Sec. 
199.10.
    (5) The provisions of Sec. 199.10(e) concerning final action shall 
apply to hearings cases.
    (j) Acquisition, protection and disclosure of peer review 
information. The provisions of 42 CFR part 476, except Sec. 476.108, 
shall be applicable to the CHAMPUS PRO program as they are to the 
Medicare PRO program.
    (k) Limited immunity from liability for participants in PRO program. 
The provisions of section 1157 of the Social Security Act (42 U.S.C. 
1320c-6) are applicable to the CHAMPUS PRO program in the same manner as 
they apply to the Medicare PRO program. Section 1102(g) of title 10, 
United States Code also applies to the CHAMPUS PRO program.
    (l) Additional provision regarding confidentiality of records--(1) 
General rule. The provisions of 10 U.S.C. 1102 regarding the 
confidentiality of medical quality assurance records shall apply to the 
activities of the CHAMPUS PRO program as they do to the activities of 
the external civilian PRO program that reviews medical care provided in 
military hospitals.
    (2) Specific applications. (i) Records concerning PRO deliberations 
are generally nondisclosable quality assurance records under 10 U.S.C. 
1102.
    (ii) Initial denial determinations by PROs pursuant to paragraph (g) 
of this section (concerning medical necessity determinations, DRG 
validation actions, etc.) and subsequent decisions regarding those 
determinations are not nondisclosable quality assurance records under 10 
U.S.C. 1102.
    (iii) Information the subject of mandatory PRO disclosure under 42 
CFR part 476 is not a nondisclosable quality assurance record under 10 
U.S.C. 1102.
    (m) Obligations, sanctions and procedures. (1) The provisions of 42 
CFR 1004.1-1004.80 shall apply to the CHAMPUS PRO program as they do the 
Medicare PRO program, except that the functions specified in those 
sections for the Office of Inspector General of the Department of Health 
and Human Services shall be the responsibility of OCHAMPUS.
    (2) The provisions of 42 U.S.C. section 1395ww(f)(2) concerning 
circumvention

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by any hospital of the applicable payment methods for inpatient services 
shall apply to CHAMPUS payment methods as they do to Medicare payment 
methods.
    (3) The Director, or a designee, of CHAMPUS shall determine whether 
to impose a sanction pursuant to paragraphs (m)(1) and (m)(2) of this 
section. Providers may appeal adverse sanctions decisions under the 
procedures set forth in Sec. 199.10(d).
    (n) Authority to integrate CHAMPUS PRO and military medical 
treatment facility utilization review activities. (1) In the case of a 
military medical treatment facility (MTF) that has established 
utilization review requirements similar to those under the CHAMPUS PRO 
program, the contractor carrying out this function may, at the request 
of the MTF, utilize procedures comparable to the CHAMPUS PRO program 
procedures to render determinations or recommendations with respect to 
utilization review requirements.
    (2) In any case in which such a contractor has comparable 
responsibility and authority regarding utilization review in both an MTF 
(or MTFs) and CHAMPUS, determinations as to medical necessity in 
connection with services from an MTF or CHAMPUS-authorized provider may 
be consolidated.
    (3) In any case in which an MTF reserves authority to separate an 
MTF determination on medical necessity from a CHAMPUS PRO program 
determination on medical necessity, the MTF determination is not binding 
on CHAMPUS.

[55 FR 625, Jan. 8, 1990, as amended at 58 FR 58961, Nov. 5, 1993; 60 FR 
52095, Oct. 5, 1995; 63 FR 48447, Sept. 10, 1998; 66 FR 40608, Aug. 3, 
2001; 67 FR 42721, June 25, 2002; 68 FR 23033, Apr. 30, 2003; 68 FR 
32363, May 30, 2003; 68 FR 44881, July 31, 2003; 70 FR 19266, Apr. 13, 
2005]