Medicare GME payments do not compensate teaching hospitals for their actual costs of training residents in a given year. Rather, Medicare GME reimbursement is determined, in part, on the basis of historic cost data and historic training levels at the hospital. Thus, for example, direct GME payments are dependent upon, and limited by, two such historic metrics: (1) the hospital's per-resident amount (PRA); and (2) its full-time equivalent (FTE) resident cap, or FTE cap.

For newer teaching hospitals—those that were not training residents when the hospital inpatient prospective payment system was first implemented in 1983—the PRA is determined according to resident training costs incurred by the hospital and documented on the hospital's cost report within the first year or two after the hospital first begins training residents. Similarly, for new teaching hospitals that have begun training residents after FTE caps were first assigned in 1997, the hospital's FTE cap will depend upon the volume of residents training in "new" programs at the hospital within the first five years (or three years, if training began prior to October 2012) after the hospital begins participating in its first new program.

The historic cost data used to determine a hospital's PRA, and the historic resident counts used to establish the FTE cap, are all "predicate facts." What are "predicate facts"? The Centers for Medicare & Medicaid Services (CMS) has described them as the "factual underpinnings" of a particular reimbursement determination that are established in an earlier cost reporting period, and then used or applied in later periods to determine reimbursement in later years. In other words, the historic cost and training data are the "factual underpinnings" underlying the teaching hospital's assigned PRA and FTE cap, which, in turn, determine the hospital's GME reimbursement amounts in later years.

In late 2013, CMS revised its reopening regulation to "clarify" that cost reporting periods in which such predicate facts are established are themselves subject to the three-year reopening time limit, and that such cost-reporting periods may not be later reopened (absent a showing of fraud or similar fault) even for the purpose of correcting historic errors to ensure accurate reimbursement on prospective-only basis.

So, what does this mean in layman's terms? Even if a hospital can show that its assigned PRA or FTE cap was set on the basis of faulty data, or that the Medicare administrative contractor (MAC) made a calculation error, once assigned, the PRA and FTE cap cannot be corrected after the reopening windows have expired with respect to the relevant historic cost reporting periods. Once the reopening window passes, the predicate facts are writ in stone, and the hospital is stuck with its incorrect PRA or FTE cap.

The lesson for providers is this: Be vigilant! Ensure that program costs and resident counts are accurately reflected on the cost report and that you vet all audit adjustments made by the MAC. If you do not understand a calculation, or if you disagree with the MAC's reasoning, engage the MAC. The absolute best time to correct PRA or FTE cap errors is now. You will not be able to do so indefinitely into the future, even if you later identify a clear error.

It bears emphasizing that providers should always be careful and accurate in all of their submissions to CMS, even outside the PRA or FTE cap-setting context. Not only do providers have a compliance obligation to ensure accurate cost reporting, but also, in a regulatory landscape where reimbursement policies are evolving rapidly and are often based on historic cost report data, providers should anticipate that certain data elements reported now may someday become "predicate facts."

The Dentons GME team understands the PRA and FTE cap-setting process. We have experience helping clients resolve PRA and FTE cap errors. We can help you understand and communicate effectively with your MAC and with CMS. And if errors are not resolved during the audit process, we can help you appeal.