On May 10, 2022, CMS published its proposed revisions to the Inpatient Prospective Payment System for 2023. CMS proposed two changes that would affect reimbursement for graduate medical education (“GME”) programs at teaching hospitals. First, CMS proposed to update the way that it calculates direct GME (“DGME”) payments for fellows in some training programs, responding to the court’s decision in Milton S. Hershey Medical Center v. Becerra. Second, CMS proposed to allow urban and rural hospitals jointly training residents in a 1-2 separately accredited family medicine program to share rural-track FTE cap space.
CMS also published the annual Nursing and Allied-Health Medicare Advantage add-on payment and reduction to direct GME Medicaid Advantage payments. CMS had previously stated that it would publish these updates annually in the Federal Register, but it consistently released them only through Change Requests until this year. In the end, no changes to Nursing and Allied-Health reimbursement was proposed.
Counting Fellows
When counting the participants in a GME program to determine whether the teaching hospital has met or exceeded its DGME FTE cap, residents are weighted as 1.0 FTE, while fellows (trainees beyond their initial residency period) are weighted as 0.5 FTE. This applies to DGME only, since for Indirect Graduate Medical Education reimbursement calculations, fellows are not weighted. In Milton S. Hershey Medical Center v. Becerra, a group of hospitals challenged a formula that CMS used for many years when the total number of residents and fellows, before applying these weighting factors, exceeds the hospital’s GME cap. To illustrate what was called the “fellow penalty” policy, CMS provided this example:
If a hospital has an FTE cap of 100 and trains 90 residents (weighted 1.0) and 10 fellows (weighted 0.5), it would pay the hospital as if it were training 95 FTE. However, if the same hospital trained 90 residents and 20 fellows, it would pay the hospital as if it were training 90.91 FTE. (A full explanation of the old formula is found at page 87 F.R. 28411 of the Federal Register).
The Hershey court ruled that this CMS policy was arbitrary and capricious, and CMS did not appeal this decision. As a result, CMS is implementing a policy that corrects this error, which will be retroactive back to 2001. However, CMS will only apply this policy for cost report periods that are open or reopenable (and for future cost report periods). All teaching hospitals that have trained fellows and been over their DGME FTE caps in recent years will need to closely track the CMS final rule to be issued later this summer, and once it is final, to take the necessary steps to receive the additional DGME reimbursement that will be the likely result for at least some years.
Cap-Sharing for Rural Track Programs
CMS also announced a revision to its policy for GME affiliation agreements, which are sometimes called cap-sharing agreements. Under these agreements, two or more teaching hospitals that jointly train residents are permitted to share their FTE cap space, allocating to each of the participating hospitals the amount of total FTE cap that the parties determine.
In addition to their regular FTE caps, teaching hospitals in urban areas are able to be reimbursed for resident training programs that occur partly in rural areas. Historically, these programs were limited to separately accredited family medicine programs where residents in the programs trained one year in an urban hospital and two 2 years in a rural hospital (“1-2 Programs”). Based on the CAA, CMS has expanded the meaning of rural track training programs: see our article on the new CMS rules for rural programs here.
Historically, CMS has considered these rural-track 1-2 Program FTE cap slots to be separate and distinct from the FTEs that are part of the hospital’s general FTE caps, with one distinction being that CMS has not allowed hospitals to share rural-track FTE cap through cap-sharing agreements.
CMS proposed to alter this policy beginning in 2023. If finalized, urban and rural teaching hospitals that jointly engage in rural-track 1-2 Programs will be able to share rural-track FTE cap by entering into an agreement that is analogous to the Medicare GME Affiliation Agreement. This flexibility would only apply, however, to urban and rural teaching hospitals that participate in the same separately accredited 1-2 Program, and only for residents that participate in the 1-2 Program. Notably, CMS is proposing to limit this flexibility to hospitals that have rural-track FTE limitations in place prior to October 1, 2022, meaning that only hospitals participating in currently existing 1-2 Programs would be impacted. New rural track programs configured under the CAA-based rural program expansion will not even have rural-track cap spaces for at least five years (as the FTE cap is being created). As a result, CMS is proposing a policy to defer this question for the rural expansion programs until a later date.
Practical Takeaways
- Teaching hospitals that have trained residents and fellows should review any open or reopenable cost report years to determine whether they could benefit from CMS’s proposed updated rules for counting fellows. While the details of the new rules will not be known until this Summer, rules that provide some amount of relief appear likely. In addition, teaching hospitals who think they may benefit should take steps soon to preserve their appeal rights for any open or reopenable cost report years.
- Once finalized, teaching hospitals engaged in separately accredited 1-2 Programs may be allowed to enter into Rural Track Medicare GME Affiliation Agreements. With that, it may be prudent to start assessments of whether there may be benefits to sharing 1-2 Program FTE cap in 2023, based on the CMS final rule released later this summer.
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