The proposed OPPS update and ASC payment changes rule for calendar year 2011 contains multiple regulatory proposals implementing the changes to Medicare graduate medical education (GME) reimbursement enacted by PPACA. These modifications generally are positive for hospitals that incur the costs of GME, easing a number of restrictions imposed by CMS that limited the amount of resident time that could be claimed by hospitals. However, some of the changes may not go as far as hospitals may have hoped.

Counting Resident Training Time in Nonhospital Settings

PPACA, Section 5504(a), removed the requirement that a hospital incur "all or substantially all" of the costs of training in a nonhospital setting, eliminating the burdensome requirement imposed by CMS that a hospital determine the portion of teaching physicians' salaries attributable to teaching activities at the nonhospital site. CMS has proposed regulatory revisions at 42 C.F.R Section 412.105(f) and a new section 413.78(g) conforming to the new statutory language that a hospital must simply incur the costs of the salaries and fringe benefits of the resident during the time the resident spends in the nonprovider setting in order to count that resident for indirect medical education (IME) and GME purposes. The proposal also includes changes to the definition of "all or substantially all" at section 413.75(b) to be effective for cost reporting periods beginning between July 1, 2007, and July 1, 2010.

Section 5504(a) and (b) of PPACA also amended the GME statute to explicitly permit hospitals to share the costs of residency training programs in nonhospital settings effective for cost reporting periods beginning on or after July 1, 2010 (GME), and for discharges occurring on or after July 1, 2010 (IME). Although the prior statute did not expressly prohibit the sharing of training costs in nonhospital settings, CMS explained in the preamble that it has "historically interpreted" the statute as prohibiting hospitals from claiming residents training in a nonhospital site unless a single hospital incurred all of the costs of training in that nonhospital setting. Although the agency's "historical policy" on this issue is not expressly contained in its current regulations, CMS has proposed revisions to 42 C.F.R. Section 413.78 (and a conforming cross-reference at 412.105(f)(1)(ii) for IME) specifying that hospitals may proportionally share the costs of resident training at nonhospital sites, as long as there is a written agreement between the hospitals stating the number of residents that will be counted by each hospital, and the "reasonable basis" for the proportional division of the residents and costs between the hospitals.

To assist CMS in determining whether nonhospital site resident training in primary care specialties increases as a result of the relaxed statutory and regulatory changes to the rules applicable to nonhospital settings, Section 5504(a) also requires hospitals to maintain records of time spent by residents in nonprovider settings, and to compare that time to time spent in a "base year." CMS has proposed that cost reporting periods beginning on or after July 1, 2009, and before June 30, 2010, be the base year. Hospitals will be required to maintain records of the total unweighted direct GME full-time equivalent count (before application of the cap) of resident training time in nonhospital settings for primary care specialties, and additional lines will be added to the cost report for hospitals to report this information.

Finally, CMS explicitly recognizes in the preamble the uncodified congressional language contained under Section 5504(c), which states that the provisions of sections 5504(a) and (b) shall not be applied in a manner that would require the reopening of settled cost reports except where the provider has a jurisdictionally proper appeal pending on the issue of GME or IME payments as of March 23, 2010. In other words, it appears that CMS recognizes that Congress has ordered cost reports that are the subject of pending appeals on IME and GME to be reopened and revised in accordance with the statutory provisions under Section 5504. If hospitals have appeals on relevant GME or IME issues, they should seek to administratively resolve them with their fiscal intermediaries.

Counting Resident Time Engaged in Didactic and Scholarly Activities

CMS proposes to amend the direct GME regulations governing resident counting in nonhospital settings primarily engaged in furnishing patient care to permit hospitals to count certain nonpatient care activities (i.e., didactic conferences and seminars, but not research that is not associated with care of a particular patient) in accordance with PPACA, Section 5505. CMS has proposed to maintain its current definition of "patient care" at 413.75(b) for purposes of further defining the statutory phrase "nonprovider settings in which the primary activity is the care and treatment of particular patients" (e.g., doctor's offices and community health clinics but not medical schools, dental schools or hotels where seminars are held). Therefore, although the statutory and regulatory changes are expansive in theory, the new rules may not be as helpful in practice. For example, although the rules now permit didactic and seminar time to be counted, a seminar that occurs in a hotel or medical school cannot be counted.

For IME purposes, CMS proposes to permit the counting of time spent in the same nonpatient care activities as for GME (again, excluding research that is not related to the care of a particular patient), but only for time spent training in the hospital or provider-based hospital outpatient department settings. CMS's prior regulations excluding such time had been the subject of intense debate and litigation, and Congress stepped in to end the dispute.

While the GME amendments are effective for cost reporting periods beginning on or after July 1, 2009, the IME amendments are applicable to cost reporting periods beginning on or after January 1, 1983. This "retroactive" effective date essentially constitutes a clarification by Congress that CMS's position on the exclusion of nonpatient care activities in the hospital setting from the IME count was an improper interpretation. Section 5505 also specified that research activities not associated with the treatment or diagnosis of a particular patient are excluded from the allowable IME count of FTE residents effective for cost reporting periods beginning on or after October 1, 2001. This effectively legislates the regulatory change with similar language that was adopted by CMS in 2001 and that has been the subject of debate.

Finally, CMS is amending its regulations to conform to Sections 5505(a) and (b) of PPACA, which clarify that, effective for cost reporting periods beginning on or after January 1, 1983, a hospital may count residents' vacation, sick leave and other approved leave time (e.g., jury duty, voting leave or court leave) in its IME and GME FTE count, as long as the leave does not prolong the total time the resident participates in the approved program.

Like Section 5504, Section 5505 of PPACA contains an uncodified section (d) that dictates that the changes would not require the reopening of any settled cost reports as to which there is not a jurisdictionally proper appeal pending as of March 23, 2010. Thus, hospitals with cost reporting appeals containing relevant GME and IME issues should seek to have the provisions of Section 5505 applied to such appeals.

Redistribution of Resident Positions

The proposed rule also contains a detailed description of CMS's proposal to implement the redistribution of resident positions required by Section 5503 of PPACA. The agency's proposal for such redistribution will be discussed in more detail in the next issue of the Health Law Update.