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Patient Protection and Affordable Care Act has significant impact on graduate medical education: What teaching institutions need to know
February 24, 2011
Author(s): Lindsay Maleson

This past March, President Obama signed into law the Patient Protection and Affordable Care Act, and, subsequently, the Health Care and Education Reconciliation Act of 2010, which amended the Patient Protection and Affordable Care Act (this article will refer to these two pieces of legislation collectively as the “ACA”). The ACA enacted an array of new provisions designed to encourage the training of primary care doctors, particularly in rural areas and in parts of the country where the resident-to-population ratio is low, and also expands the types of resident activities for which teaching institutions will be eligible for Medicare reimbursement.

This past March, President Obama signed into law the Patient Protection and Affordable Care Act, and, subsequently, the Health Care and Education Reconciliation Act of 2010, which amended the Patient Protection and Affordable Care Act (this article will refer to these two pieces of legislation collectively as the “ACA”). The ACA enacted an array of new provisions designed to encourage the training of primary care doctors, particularly in rural areas and in parts of the country where the resident-to-population ratio is low, and also expands the types of resident activities for which teaching institutions will be eligible for Medicare reimbursement.

I. Calculating full-time equivalency status

Changed standards for determining full-time equivalency status

The ACA has changed the standards by which full-time equivalency (FTE) status is determined for residents in graduate medical education institutions. Section 5504(a) specifies that in order to be eligible for both DME and IME payments, a hospital need only incur the costs of the resident’s salary and fringe benefits for the time that the resident spends training in any nonhospital site in order for that time to count towards the resident’s FTE status. This provision could expand the number of residents working in nonhospital settings for whom graduate medical education institutions can now be reimbursed, as the standard for determining FTE status for residents working in nonhospital settings was previously much more rigorous.[1] This change will be effective for cost reporting periods beginning on or after July 1, 2010.[2]

The ACA further expands reimbursement opportunities for teaching institutions by allowing multiple hospitals to claim reimbursement for a resident training within two or more different teaching institutions, in both hospital-based and non-hospital-based programs. Hospitals and other teaching institutions that are working together to train residents may now enter into written agreements by which they agree to split DME and IME reimbursements proportionally, as long as these institutions use “some reasonable basis for establishing that proportion,” and the reason for that proportion is recorded in the written agreement between the institutions.[3] These written agreements must also include the proportion of training time and costs each institution plans to incur and count regarding each resident. In order to claim these proportional reimbursements, the total amount that each hospital is contributing per resident must add up to 100 percent of that resident’s salary and fringe benefits.

Time counted towards FTE status

The ACA has also altered reimbursement rules by expanding the type of work done by residents that now may be counted towards the accumulation of FTE status. Prior to the ACA, residents who were training at nonhospital settings in nonpatient care activities could not be included in an institution’s DME or IME FTE resident counts. Prior legislation also prevented hospitals and graduate medical education institutions from including residents engaged in didactic or nonpatient care activities in their IME FTE resident counts even if those activities were undertaken within the institution itself. Sections 5505 (a) and (b) of the ACA have expanded these rules to increase the range of activities eligible for reimbursement.

Section 5505(a) allows hospitals to count nonpatient care activities[4] such as didactic conferences and seminars that occur in nonhospital settings to be included in the hospital’s DME FTE resident count, so long as the training is done in a “nonprovider setting that is primarily engaged in furnishing patient care.”[5] Essentially, this means that in order to be counted for DME purposes, the nonprovider setting at which the resident is engaging in nonpatient care activities must be a setting that primarily handles patient care—i.e., a doctor’s office or other hospital. As such, a resident’s attendance at a didactic conference at a neighboring hospital or medical office would count towards the institution’s DME FTE count, while a resident’s attendance at a didactic conference hosted at a hotel or conference center would not.[6]

The range of activities eligible for IME reimbursement has also been expanded, although it still remains more limited than that for DME reimbursement. Under §5505(b) of the ACA, teaching institutions can now include residents’ time spent in certain nonpatient care activities, including conferences and seminars, in IME FTE counts, so long as the activities occur during training at hospitals engaged in graduate medical education or provider-based hospital outpatient departments.[7]

Time spent in research not associated with the treatment or diagnosis of a particular patient remains uncounted for IME purposes, as does time spent in nonpatient care activities outside of the aforementioned approved settings.

Vacation time, sick leave, and leaves of absence

Sections 5505(a) and (b) of the ACA have also clarified that teaching institutions may count residents’ vacation time, sick leave, and leaves of absence toward the institutions’ DME and IME FTE counts so long as the time spent away from the institution does not extend the length of the residents’ participation in the graduate medical education program to which they are assigned. In cases where more than one institution is claiming reimbursement for the resident in question, the institution to which the resident is assigned at the time he or she takes leave will be the one eligible to count that leave time for FTE count purposes. In the event that there is no clear indication of which institution the resident should be assigned to during the leave period, all of the institutions that are parties to the written agreement to share in the costs and reimbursements associated with the resident’s training will divide the resident’s leave time proportionately among them, as per the terms of the agreement.[8]

II. Teaching health centers

Although the ACA has not provided any funding for the creation of new resident positions within teaching hospitals, § 5508 does provide for the creation of new primary care residency programs in teaching health centers (THCs), defined as “an entity that (1) is a community-based, ambulatory patient care center; and (2) operates a primary care residency program.” Examples of THCs include “federally qualified health centers (FQHCs), community mental health centers, rural health clinics, health centers operated by the Indian Health Service (IHS), an Indian tribe or tribal organization, or an urban Indian organization, and Title X family planning programs.”[9] Section 5508 provides for $25 million of funding in 2010, $50 million in 2011, $50 million in 2012, and “such sums as may be necessary” in subsequent years to support the development and expansion of primary care residency programs in THCs.[10]

Under this new provision, individual THCs are eligible for up to $500,000 per year for up to three years to fund the creation or expansion of a primary care program, and funding may only be used to pay for “expenses related to curriculum development, recruitment, training, and retention of residents and faculty, accreditation, and faculty salaries during the development phase.”[11] In addition, funds may be used to cover technical assistance provided to THCs by area health education centers, and preference will be given to THCs that already have an affiliation agreement with an area health education center over those that do not have such an agreement in place at the time of application.[12]

Reimbursements to THCs will be administered out of a separately appropriated amount, which is capped at $230 million over the period from 2011 to 2015. Although § 5508 provides for reimbursement to THCs for both direct and indirect expenses incurred while training residents, these payments do not correlate to the direct GME/IME distinctions drawn for teaching hospitals, and further regulation from CMS is necessary to clarify what these terms will mean and how reimbursement levels will be determined. In addition, THCs seeking funding through this program are required to provide the Department of Health and Human Services (HHS) with a report that describes the type of training program being run by the THC, the number of approved resident positions, and the number of residents who complete their training and go on to provide primary care services to vulnerable populations living in underserved areas, as well as any other information HHS requires.[13] THCs that fail to provide this information to HHS risk sanctions, including a reduction in payments of 25 percent or more, depending on the severity of the infraction.[14]

III. Redistribution of unused Medicare-funded resident positions

Prior to the enactment of the ACA, the number of available Medicare-reimbursed positions for residents was essentially frozen at 1996 levels.[15] Unlike previously proposed legislation,[16] the ACA does not increase the number of Medicare-funded resident positions available nationally at teaching institutions; instead, the ACA redistributes the positions already in existence based on current usage rates. Hospitals and teaching institutions that have been unable to fill all of their Medicare-funded resident positions for all three of the most recent cost reporting periods will have their resident cap reduced, and teaching institutions that can demonstrate a need for additional funding will be eligible to have the newly available resident positions reassigned to them.

The Centers for Medicare & Medicaid Services (CMS) will manage the redistribution process. On August 3, 2010, CMS issued a set of proposed rules[17] clarifying how CMS plans to administer the process, and explaining how certain terms used in the ACA will be interpreted. These rules were made final on November 2, 2010, and were published in the November 24, 2010, edition of the Federal Register.[18]

Reduction of cap for teaching institutions with unused positions

Under § 5503 of the ACA, a teaching institution is at risk of losing funding for resident positions if it has had unfilled positions in all of its three most recent cost reporting years. To determine how many positions will be taken away from an institution meeting this condition, CMS will identify the year in which the institution had the smallest number of unfilled positions, and will then reduce the institution’s funding cap by 65% of that number.[19]

Pursuant to the ACA, certain categories of institutions will be protected from this cap reduction regardless of whether all of their funded positions have been filled in the three most recent cost reporting periods. These include rural hospitals[20] with fewer than 250 acute care inpatient beds and hospitals participating in voluntary reduction programs.[21] CMS has further announced that it intends to examine Direct Graduate Medical Education (DME) positions and Indirect Medical Education (IME) positions separately; that is, a hospital that has kept all of its positions filled according to DME definitions but not IME definitions will only have its IME funding cap reduced, and will retain its full number of cap positions for DME purposes.[22]

Redistribution of unused positions

Once CMS has completed an estimation of how many positions, overall, will be taken away from under-utilized resident programs based on initial audits,[23] CMS will redistribute that number of positions to teaching institutions in need of additional funding, based on applications filed by these institutions with CMS.[24] Any hospital or other teaching institution that is both eligible for and interested in obtaining additional funding for more positions must participate in the application process in order to be considered, and the ACA has laid out specific guidelines that CMS must adhere to in determining which hospitals receive additional funding in the event that there are not enough open positions for all of the hospitals that apply.

According to § 5503(a)(4) of the ACA, CMS must take into consideration (i) the likelihood that the applying institution will fill the requested positions within the first three cost reporting periods beginning on or after July 1, 2011, and (ii) whether the hospital has an accredited rural training track program.[25] In addition, the ACA prohibits any hospital, regardless of its demonstrated ability to comply with the aforementioned criteria, from receiving more than 75 new positions through the redistribution process.[26]

Application evaluation criteria

CMS will determine whether or not a hospital is able to demonstrate a sufficient likelihood of filling the requested positions within three cost reporting periods using two criteria. They are:

  1. the institution does not have sufficient room under its current cap to fund a new residency program that it plans to establish on or after July 1, 2011, and it will likely fill all of the new program’s positions within the next three cost reporting periods, based either on the hospital’s rate of filled positions or on the rate of filled positions nationally or locally in the new program’s specialty; and/or
  2. the institution does not have sufficient room under its FTE cap to expand an existing residency training program, and can show that it will likely fill the requested positions in the time allotted using the same measures as described in (1).

CMS is in the process of reviewing applications at this time. CMS will grant applications according to various criteria, including whether the applying institution either currently has an accredited rural training track program or will have such a program by July 1, 2011, as well as whether the hospital is located in a state with a resident-to-population ratio in the lowest quartile.[27] CMS will also consider whether the teaching institution is located in the top 10 states or territories that have the highest number of people living in a designated primary care health professional shortage area (Primary Care HPSA) relative to total population.[28] CMS has chosen to focus exclusively on Primary Care HPSAs because encouraging the growth of training opportunities within hospitals for primary care physicians is one of the stated goals of § 5503 of the ACA.[29] Additionally, CMS will give consideration to whether or not the applying institution is located in a rural area.[30]

Criteria for determining application priority level

CMS will determine the priority level of a particular institution’s application according to the following standards:

Priority level

Criteria

1

Institutions that are in a state with a resident-to-population ratio in the lowest quartile and are urban hospitals that have a rural training track program or will have a rural training track program by July 1, 2011.

2

Institutions that are in the lowest quartile for resident-to-population ratio.

3

Institutions that are in one of the top 10 states for number of people living in a Primary Care HPSA relative to total population and are either located in a rural area or have or will have an accredited rural training track program by July 1, 2011.

4

Institutions that are located in one of the top 10 states for number of people living in a Primary Care HPSA or are located in rural areas.[31]

Section 5503 of the ACA further requires any institution that receives additional resident positions under this redistribution program to maintain a certain average number of primary care resident positions, and states that not less than 75% of redistributed positions must be reserved for residents in primary care or general surgery residencies for at least five years.[32] Section 5503 further requires that 70% of the available positions be redistributed to teaching institutions located in states that are in the lowest quartile for resident-to-population ratio, with the remaining 30% of available positions reserved for “hospitals in States whose Primary Care HPSA to population ratio is in the top 10 States, and hospitals located in rural areas.”[33] CMS has interpreted these requirements to mean that no positions should be distributed to hospitals that do not meet at least one of these three criteria.[34]

Criteria for determining an institution’s rank within its priority category

CMS has developed eight evaluation criteria to assist in ranking applying institutions within the aforementioned priority categories.[35] The evaluation criteria include:

  1. Whether the applying institution has a Medicare inpatient utilization over 60 percent, as reflected in at least two of the hospital’s last three most recent cost reporting periods (worth five points);
  2. Whether the applying institution will use the new positions to establish a new geriatrics program or to add positions to an existing program (worth five points);
  3. Whether the applying institution will use the new positions to establish or expand a primary care program “with a demonstrated focus on training residents to pursue careers in primary care, rather than in non-primary subspecialties of those primary care programs (for example, the hospital has an internal medicine program with a designated primary care track)” (worth three points);
  4. Whether the applying institution will use all new positions to establish or expand a primary care residency program or general surgery program (worth five points);
  5. Whether the institution is located in a Primary Care HPSA (worth two points);
  6. Whether the institution is in a rural area, or has or will have an accredited rural training program on or after July 1, 2011, but is unable to count all of its FTE residents training in the rural track because the rural training track program is operating above its designated cap (worth one point); and
  7. Whether the institution will use the new positions to expand a program from which 50% or more of those who complete it will go on to practice in a rural area, a Primary Care HPSA, or a medically underserved area (worth one point); and
  8. Whether the institution is planning to use the new positions to expand a program in which residents train in Primary Care HPSAs (worth one point).[36]

Hospitals that receive higher scores according to these criteria will be ranked higher within their priority category than those with lower scores.[37]


*Special thanks to Christopher Hampton for his contributions to this article.

Originally published on Nixon Peabody’s Health Care Reform website.

  1. Previously, hospitals seeking reimbursement for residents working in nonhospital settings had to show not only that they incurred the cost of the residents’ salaries and fringe benefits, but also that the residents were engaged solely in patient care activities for the time counted, and that there was a written agreement between the hospital and the nonhospital entity requiring the hospital to shoulder “substantially all” of the costs of the program, including the portion of the cost of teaching physicians’ salaries attributable to graduate medical education. See 75 Fed. Reg. 72133-73358 (November 24, 2010)(codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  2. Id. [Back to reference]
  3. For example, if two hospitals are training 10 residents collectively between them, and each hospital is paying the salaries and fringe benefits of five of the residents, the hospitals can agree to each claim 50 percent of the total reimbursements available for the 10 residents, even if one hospital’s resident salaries are less than the other’s and one hospital is therefore contributing less financially for those residents whose salaries are set at the lower, rather than the higher rate. See id. [Back to reference]
  4. “Patient care activities” are defined in 42 CFR 413.75(b) as “the care and treatment of particular patients, including services for which a physician or other practitioner may bill, and orientation activities.” “Orientation activities” are defined in 42 CFR 413.75(b) as “activities that are principally designed to prepare an individual for employment as a resident in a particular setting, or for participation in a particular specialty program and patient care activities associated with that particular specialty program.” [Back to reference]
  5. See 75 Fed. Reg. 72133-73358 (November 24, 2010) (codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  6. Id. [Back to reference]
  7. Id. [Back to reference]
  8. Id. [Back to reference]
  9. See Association of American Medical Colleges (AAMC) “HRSA Releases Guidance for ‘Teaching Health Center’ Grants,” available at https://www.aamc.org/advocacy/washhigh/highlights2010
    /164466/120310_hrsa_releases_guidance_for_teaching
    _health.html
    . [Back to reference]
  10. Id. [Back to reference]
  11. Id. [Back to reference]
  12. Id. [Back to reference]
  13. Id. [Back to reference]
  14. Id. [Back to reference]
  15. For a fuller explanation of the history of Medicare-supported residency positions, see “Graduate Medical Education: Resident Physician Shortage Reduction Act of 2009” by Lindsay Maleson and Richard F. Minicucci. [Back to reference]
  16. Id. [Back to reference]
  17. See 75 Fed. Reg. 148, 46170-404 (August 3, 2010) (to be codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  18. See 75 Fed. Reg. 72133-73358 (November 24, 2010) (codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  19. For example, if Hospital X had 6 unused positions in 2007, 8 unused positions in 2008, and 9 unused positions in 2009, CMS would identify 2007 as the reference year because it is the year in which the hospital had the smallest number of unfilled positions. Then, CMS would calculate 65% of 6 (6 x .65 = 3.9) and reduce Hospital X’s funding cap by 3.9 positions. See id. [Back to reference]
  20. For purposes of the ACA, rural hospitals are defined as “any area outside an urban area.” Id. [Back to reference]
  21. Rural hospitals with more than 250 acute care inpatient beds will still be subject to possible cap reductions, while hospitals that participated in, but did not complete, a voluntary reduction program will remain exempt. However, in order to keep their exempt status, hospitals that participated in a voluntary reduction program must submit an application demonstrating to CMS that they have a plan in place to fill their unused resident positions by March 23, 2012. This application is due by January 21, 2011. Voluntary reduction programs include the National Voluntary Residency Reduction Plan, the New York Medicare GME Demonstration, and the Utah Medicare GME Demonstration, under which hospitals in New York, Utah, and elsewhere in the U.S. agreed to voluntarily reduce the number of residents they trained in exchange for various types of funding and payments. Id. [Back to reference]
  22. Id. [Back to reference]
  23. For more information on the estimation process, see id. Note that positions from teaching hospitals that have closed will also be redistributed to the extent that such positions have not already been taken by other hospitals (as, for example, through merger). Id. [Back to reference]
  24. A copy of the application for positions CMS is redistributing pursuant to § 5503 can be found at http://mhalink.informz.net/z/cjUucD9taT05OTk0Mjk
    mcD0xJnU9NzU0Mzk3MDA0JmxpPTQxNzI3Mzk/index.html
    . A copy of the application for positions CMS is redistributing pursuant to § 5506 can be found at http://mhalink.informz.net/z/cjUucD9taT05OTk0Mjk
    mcD0xJnU9NzU0Mzk3MDA0JmxpPTQxNzI3NDA/index.html
    . [Back to reference]
  25. 75 Fed. Reg. 72133-73358 (November 24, 2010) (codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  26. Id. [Back to reference]
  27. Id. States in the lowest quartile (in order of lowest to highest resident to population ratio) are Montana, Idaho, Alaska, Wyoming, South Dakota, Nevada, North Dakota, Mississippi, Indiana, Puerto Rico, Florida, Georgia, and Arizona. Id. [Back to reference]
  28. Id. at 148, 46403. The 10 states with the highest ratio of people living in a Primary Care HPSA to total population are Louisiana, Mississippi, Puerto Rico, New Mexico, South Dakota, the District of Columbia, Montana, North Dakota, Wyoming, and Alabama. Id. [Back to reference]
  29. Id. [Back to reference]
  30. Id. CMS will, again, define “rural area” as any area that has not been designated as urban. See footnote 5, supra. [Back to reference]
  31. 75 Fed. Reg. 72133-73358 (November 24, 2010) (codified at 42 CFR pt. 410-13, 416, 419, 489). [Back to reference]
  32. Id. “Primary care resident” is defined as “a resident enrolled in an approved medical residency training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine, or osteopathic general practice.” Id. In addition, it should be noted that an institution that fails to comply with this requirement could be in danger of losing the additional funding it receives, although CMS has not specified exactly what type of penalty would be imposed for an institution not in compliance. By way of example, a hospital eligible for 8 new positions under this statute would have to reserve, at minimum, 6 of these positions for primary care and/or general surgery residents, and maintain these 6 positions in those areas for a minimum of five years. [Back to reference]
  33. Id. [Back to reference]
  34. Id. [Back to reference]
  35. Id. [Back to reference]
  36. Id. [Back to reference]
  37. Essentially, this means that a hospital that scores, for example, 11 points and is in priority category two (in the lowest quartile for resident-to-population ratio and are either in the top 10 for number of residents living in a Primary Care HPSA or are located in a rural area or are urban hospitals that have or will have accredited rural training track programs on or before July 1, 2011) will be ranked higher than—and will therefore be more likely to receive the requested number of positions than—another hospital that is also in priority category two but only scored 10 points on the evaluation scale. See id. [Back to reference]

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.