Section 5503 of the Affordable Care Act (ACA) required CMS to redistribute 65 percent of each teaching hospital's unused direct graduate medical education (DGME) and indirect medical education (IME) slots to other teaching hospitals. Under this unused slot redistribution program, CMS awarded 726 DGME slots and 628 IME slots to 58 hospitals in 2011. Of these slots, 70 percent were redistributed to hospitals located in states with a resident-to-population ratio in the lowest quartile, and 30 percent were allocated to hospitals located in one of the top 10 states with the greatest proportion of the population living in federally designated health professional shortage areas, or to hospitals located in rural areas.

A hospital that was awarded slots through the Section 5503 program was obligated to meet several requirements over the five-year period from July 1, 2011, through June 30, 2016, to avoid forfeiting any of its awarded slots. First, the hospital was subject to the "primary care average" requirement, which requires the awardee to maintain a minimum number of FTE primary care residents that equals or exceeds the hospital's average number of such FTEs across the three cost years immediately prior to enactment of the ACA.

Second, the hospital was required to meet the so-called "75 percent threshold," which requires the awardee to ensure that at least 75 percent of the positions attributable to the cap increase were used for residency training in primary care (i.e., family medicine, general internal medicine, general pediatrics, preventive medicine or osteopathic general practice) or general surgery. Under the "75 percent threshold," 25 percent of the slots were permitted to be used for cap relief, but only if all other requirements were met.

Third, a hospital using its Section 5503 slots for a program expansion (as opposed to a new residency program) was required to fill all of its awarded slots by the fourth cost-reporting period after the award. Hospitals using the slots to begin new residency programs were given an extra year.

Now that the five-year period has ended, Dentons has become aware that CMS is engaging its contractors to review awardee hospitals' use of their Section 5503 slots. Hospitals have begun receiving audit letters requesting data related to the Section 5503 regulatory requirements. To the extent CMS removes any Section 5503 slots from hospitals it deems did not satisfy the statutory and regulatory requirements, Section 5503 obligates the agency to again redistribute the slots according to the initial Section 5503 redistribution criteria.