The Consolidated Appropriations Act (“Appropriations Act”) that Congress passed in late December 2020 contained a number of provisions that will be of benefit to teaching hospitals. This article is Part 3 of our series providing insight into these CMS changes and more recent statutory changes. Part 1, which addresses resident moonlighting and redocumentation requirements, is available here. Part 2, which addresses billing requirements for physicians at teaching hospitals (the “PATH” rules) and the rules regarding cap transfers, is available here.
Background
The Centers for Medicare & Medicaid Services (“CMS”) funds the direct and indirect costs of providing graduate medical education (“GME”) through payments to teaching hospitals. In the course of providing, and seeking reimbursement for, resident training, each teaching hospital establishes caps on the number of resident full-time equivalents (“FTEs”) that CMS will fund. Separate caps are established for direct graduate medical education costs (“DGME”) and indirect graduate medical education costs (“IME”). For DGME reimbursement, the amount paid by Medicare is subject to a hospital-specific per-resident amount limit (“PRA”). Generally speaking, once a teaching hospital sets its DGME and IME caps and PRA, those numbers do not change (except for the PRA, which increases for inflation each year).
The Appropriations Act creates three distinct opportunities for teaching hospitals to obtain additional Medicare reimbursement by making new cap space available, creating an opportunity for teaching hospitals with historically low FTE caps to reset their caps and PRAs, and incentivizing urban teaching hospitals to participate in rural-track training programs. All changes discussed in this article are located in Division CC of the Appropriations Act, and all references to section numbers pertain to sections within Division CC.
HHS to Make Additional FTE Cap Available to Teaching Hospitals
Section 126 of the Appropriations Act directs the Department of Health and Human Services (“HHS”) to release 1,000 new resident FTE cap slots (IME and DGME) to teaching hospitals that submit applications. The potential benefit is delayed, however, since HHS is to begin this process for the 2023 federal fiscal year and it will only be able to release up to 200 cap slots per year. This is the first time that hospitals will have an opportunity to request that they be allocated additional cap space from a pool of available positions since the Section 5503 adjustments that were authorized under the Affordable Care Act.
HHS is expected to release guidance or regulations describing the process for teaching hospitals to apply for additional cap space from the Section 126 pool. The Appropriations Act directs HHS to allocate additional cap to “each qualifying hospital…that submits a timely application,” but the limitations that Congress set on the total number of additional cap spaces available makes it unlikely that every teaching hospital that applies will receive additional FTE cap. In addition, no hospital can receive more than 25 additional cap spaces from the Section 126 pool.
The Appropriations Act directs HHS to give preference to teaching hospitals that are likely to fill their additional cap spaces in the first 5 training years after they receive them. It also requires HHS to reserve 10% of the available spaces to each of the following categories of hospitals:
- Hospitals located in a rural area or hospitals treated as being in a rural area under the Medicare Geographic Reclassification process;
- Hospitals that train residents in excess of their existing FTE caps;
- Hospitals in states with new medical schools or medical schools with additional locations and branch campuses since 2000; and
- Hospitals that serve areas designated as health professional shortage areas (commonly called HPSAs).
In total, 40% of the new cap positions will be reserved for these categories of hospitals. After receiving additional FTE cap and holding it for 5 years, this new FTE cap can be shared through FTE cap sharing agreements. Finally, no slots will be given to hospitals that do not agree to increase the number of total residents they train by the number of additional slots they receive, meaning that these additional slots cannot be used for “cap relief” for existing programs.
Fixing Historically Low FTE Caps and PRAs
Hospitals that have not previously trained residents trigger the process of setting their FTE caps and PRAs (together, the “Medicare factors”) by allowing residents to rotate to the hospital for the first time, irrespective of the total amount of training time or GME costs incurred. This has led to a relatively common situation where a hospital will have very low FTE caps and a PRA that could be $zero. This happened when a limited number of residents rotated to the hospital and the hospital had little or no GME costs when the creation of its Medicare factors was triggered. Under prior law, these hospitals were generally unable to increase their Medicare factors, severely limiting their opportunities to be paid by Medicare for resident training activities.
Section 131 of the Appropriations Act will help fix this problem for some hospitals. It provides that:
- Going forward, a non-teaching hospital that is not part of a Medicare GME affiliation agreement to share FTE cap will not trigger the process to set its PRA until it trains at least 1.0 FTE in a cost reporting period.
- Going forward, a non-teaching hospital without prior resident presence that had not previously established its FTE caps will not trigger the cap setting process with new programs until it trains at least 1.0 FTE in a cost reporting year.
- Some hospitals with historically low FTE caps and PRA will be able to reset their Medicare factors. A hospital that has FTE caps of less than 1.0 based on a cost reporting period beginning before October 1, 1997, or one that has FTE caps of less than 3.0 based on a cost reporting year beginning on or after October 1, 1997 will be able to establish new FTE caps. Creating new FTE caps will likely require establishing “new GME programs” – programs that don’t now exist anywhere. All new programs started between 2021 and 2025 will create FTE cap. The new PRA will be triggered when the hospital trains more than 1.0 FTE or 3.0 FTEs, respectively, in a program year, based on the hospitals DGME costs and count of residents in the PRA determination year.
CMS is expected to create rules and guidance describing the process for hospitals to take advantage of this flexibility. In the past, these issues have required close coordination with the hospital’s Medicare Administrative Contractor (“MAC”) because the FTE caps and PRAs are fundamentally cost reporting issues. Internally, hospitals that take advantage of this process will likely have to work with precise coordination between the medical educators creating the new programs and their cost reporting personnel. Externally, the hospitals will need to work with their MAC and possible CMS directly to ensure that the new FTE caps and PRA are properly reported, determined and accepted on the cost report.
Incentivizing Rural Track Programs
Section 127 of the Appropriations Act addresses rural-based “rural track” programs, i.e., resident training programs operated by urban teaching hospitals that team up with rural locations to provide some training in the urban hospital and much of the training in a rural area. Section 127 appears to be intended to allow urban hospitals that operate a rural track programs or a program where greater than 50% of the program occurs in a rural area to draw GME reimbursement and payments, not subject to the FTE caps for the time that residents spend in these programs. The details on this new law are thin, and Congress directed HHS to fill in the details through regulations. However, based on the statutory language, this program will likely create a significant financial incentive for urban teaching hospitals, and it will likely benefit rural providers by motivating urban teaching hospitals to send their residents to rural areas. This provision will go into effect for cost reporting periods beginning on or after October 1, 2022.
Practical Takeaways
- Teaching hospitals that are considering growing their resident training programs should consider program expansions or new programs and applying for additional cap spaces once CMS establishes a process for doing so under Section 126.
- Hospitals with historically low FTE caps and PRAs should evaluate if the new law applies to them, and if so, their options for establishing new FTE caps and a new PRA by creating new training programs in excess of their current caps. Hospitals with FTE caps of 1.0 FTE or less based on cost years prior to October 1, 1997 and hospitals with FTE caps of 3.0 FTEs or less based on cost years after October 1, 1997 should monitor closely the future rules under this law to consider adding new GME programs and building new FTE cap in the years between now and December 27, 2025.
- Urban teaching hospitals may wish to evaluate options for establishing or expanding rural collaboration programs. While the Section 127 changes will not go into effect until October 1, 2022, there will likely be program accreditation and relationship agreements to address between urban hospitals and rural sites. Very likely, it makes sense to get started on this process in the near future.
If you have any questions or would like additional information about this topic, please contact:
- Scott Geboy at (414) 721-0451 or sgeboy@wp.hallrender.com;
- James Junger at (414) 721-0922 or jjunger@wp.hallrender.com;
- Kathryn Costanza at (303) 801-3534; or kcostanza@wp.hallrender.com;
- Your primary Hall Render contact.
Hall Render articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
