Residents participating in a graduate medical education (GME) training program are unlikely to spend 100 percent of their time at a single hospital and its affiliated physician practices, and for good reason. Hospitals and physician offices with different patient populations and different areas of expertise provide the diversity of training opportunities a resident should have to prepare for independent practice. As part of their training, residents therefore often "rotate" to a variety of hospitals and other non-hospital locations.

In 1996, Congress capped the number of Medicare-supported residency positions at each teaching hospital. For hospitals that were not training residents, however, Congress gave the Centers for Medicare and Medicaid Services (CMS) the authority to establish rules that would permit them to establish GME caps over a period of time. CMS has since issued regulations that permit a non-teaching hospital both to establish a per resident amount (PRA), used for direct graduate medical education (DGME) payments and to build up DGME and indirect medical education (IME) caps over a five-year period as a new teaching hospital.

Over the past several years, CMS has adopted informal interpretations of these regulations — specifically around resident rotators — that have caused serious concerns for non-teaching hospitals that are considering becoming teaching hospitals or want to keep their option open to become a teaching hospital at some point in the future. If you are a hospital that is considering hosting residents for training rotations, you need to understand these regulatory interpretations. According to CMS:

  • If residents rotate to your hospital from an existing program at an existing teaching hospital, your PRA will be "triggered" by those resident rotators. This means CMS will set your hospital's permanent PRA based on the costs associated with training these rotators, even if your hospital does not intend to start its own residency programs at that point. If, therefore, you report on your hospital cost report that you incurred "no expenses" relating to those residents (perhaps the home teaching hospital continues to incur the residents' stipends and benefits, for example), then CMS would set your hospital's permanent PRA at zero. As a result, your hospital would never be able to receive DGME payments through the Medicare program, even if you decide to start a residency program of your own in the future.
  • If residents rotate to your hospital from a new program at an existing teaching hospital or from a new teaching hospital (a hospital in its five-year cap-building period), both your PRA and DGME and IME resident caps will be "triggered" for your hospital. Though the period for calculating the PRA is based on when the rotators began training at your hospital, the five-year cap-building period begins on the date the first residents in that program began training at the home teaching hospital.

The effects of having a PRA set at zero and caps set based solely on rotators working at the hospital at a fraction of a resident full time equivalent (FTE) can be disastrous for hospitals that desire to begin larger training programs. Non-teaching hospitals are, therefore, wise to contact legal counsel before agreeing to host resident rotators.