Hospitals that decide to begin training residents and become new teaching hospitals often wonder when they will start to receive Medicare graduate medical education (GME) funding. Will the money come in the door the first day the residents start training? Do they need to wait until the end of the five-year cap-building period to receive payment? Or is there a start date sometime in between?

While various state grant programs (for example, in Georgia and Texas) have provided funding expressly to cover the high startup costs of residency training programs, Medicare GME payments only begin when residents actually begin training and are not intended to cover the costs of program development. New teaching hospitals are, however, entitled to Medicare GME funding from the first day residents start training in a new program.

There are no official instructions from the Centers for Medicare & Medicaid Services (CMS) to the Medicare Administrative Contractors (MACs) regarding how and when to "turn on" a new teaching hospital's Medicare GME payments. There is, nevertheless, a typical path MACs follow to initiate a new teaching hospital's Medicare GME reimbursement, and proactive communication between the hospital and its MAC can significantly speed up the process.

Indirect medical education (IME) payments are calculated and should begin during the hospital's first regularly scheduled annual or biannual rate review after residents begin training. Direct graduate medical education payments (DGME) are paid based on a per-resident amount (PRA), which is determined based on the hospital's first full-year settled cost report with residents. However, MACs have been known to work with new teaching hospitals to establish a "proxy PRA," allowing the hospitals to receive lump-sum and/or biweekly interim pass-through payments for the period before an official PRA is established. CMS also will reimburse on a reasonable cost basis any GME costs incurred by the hospital during the cost reporting period prior to the base period used for calculating the PRA.

In our experience, the key to receiving timely payments is regular communication with the hospital's MAC. For example, a new teaching hospital may request that a rate review take place in June, so that IME payments can be initiated at the start of an academic year. The hospital should also send lists of matched residents to the MAC every year during the five-year cap-building window, so that DGME and IME payments can be updated in a timely manner to accommodate new program growth. A hospital's failure to communicate early and often with the MAC can, unfortunately, lead to months (and even years) of delay in receiving its first Medicare GME payments.