Ever since Congress capped teaching hospitals' Medicare-funded residency positions to the number of "full time equivalent" (FTE) allopathic and osteopathic residents the hospital reported in FY 1996, there have been very limited opportunities for teaching hospitals to receive slots beyond their 1996 graduate medical education (GME) FTE caps. Two such opportunities are: (i) when a hospital closing a residency program loans GME cap slots to another to permit displaced residents to complete their training, and (ii) when a teaching hospital closes and its slots are awarded to other hospitals through the Affordable Care Act (ACA) Section 5506 closed hospital slot redistribution program. (See GME in the IPPS Final Rule regarding Section 5506 slots that are up for grabs via an application process that closes October 31, 2016.)

Teaching hospitals applying for and receiving these slots should understand when the three-year rolling average and intern and resident-to-bed (IRB) ratio cap apply in these contexts, because this will determine when the additional slots will translate to increased GME reimbursement. When averaging rules to apply to Medicare-funded cap slots, the effect is to delay when a teaching hospital will receive the financial benefit associated with training additional FTE residents that it can claim for reimbursement with the additional GME slots. The three-year rolling average causes a payment delay by calculating direct graduate medical education (DGME) and indirect medical education (IME) payments using an average of the current year's and the previous two years' FTE resident counts. The IRB ratio cap delays increased IME reimbursement, because it caps the IRB ratio used to determine IME payments at the lower of the hospital's current or prior year ratio.

Temporary slots for displaced residents

A hospital closing a residency program may choose to loan slots to other teaching hospitals for the duration of the displaced residents' training. If hospitals choose to enter such an arrangement, they must work out the terms and contact their MAC no later than 60 days after the displaced residents begin training.

The FTE residents displaced by a closed program are added to the FTE count of the receiving hospital after the three-year rolling average and IRB ratio cap are applied. Therefore, hospitals that receive temporary slots to train displaced residents will receive the benefit of their cap increase while the training occurs, rather than experiencing a delay as a result of the three-year rolling average and IRB ratio cap rules.

Section 5506 awards

Section 5506 of the Affordable Care Act permanently redistributes DGME and IME slots from hospitals that close (terminate their Medicare provider agreement) after March 23, 2008. Teaching hospitals may apply for the closed hospital's GME slots when CMS issues a Federal Register notice announcing the hospital's closure and the opening of a new round of Section 5506 slot redistributions. If a teaching hospital is awarded GME slots through the ACA's Section 5506 closed hospital slot redistribution program, additional FTE residents claimed using the newly-awarded cap slots are generally immediately subject to the three-year rolling average and IRB ratio cap. Accordingly, there will be a time lag between when a teaching hospital is awarded Section 5506 slots, and when that hospital will receive increased GME reimbursement for the additional FTE residents the hospital can claim using the awarded GME slots.

If a teaching hospital trains displaced residents and then is awarded Section 5506 slots, the exemption from the rolling average applies only in the first cost-reporting period in which the receiving hospital trains the displaced FTE residents. Subsequently, the general rule for Section 5506 slots applies, such that the awarded slots are subject to the three-year rolling average and the IRB ratio cap.