The Medicare program reimburses a higher proportion of a hospital’s per-resident direct graduate medical education (DGME) training costs for the limited period of time required for each resident to become board-certified in his or her chosen specialty. Or, at least, this is how it is supposed to work. A number of factors may cause a resident to need to train longer than expected, and when this happens, hospitals take a hit.

The period of time for which Medicare pays higher DGME reimbursement for a particular resident is known as the “initial residency period” (IRP). The IRP is defined as the minimum number of years of residency training required for board eligibility in the first approved program in which the resident begins his or her training. As is apparent from this definition, IRPs are resident-specific, and once established, they do not change. (Click here for a previous edition of GME @ Dentons that introduces IRPs and highlights several IRP‑related issues.)

For years in which residents are training beyond their IRPs, hospitals receive only half of the DGME reimbursement they would otherwise have received for such residents. When residents are training within their IRPs, Medicare counts each resident as one full-time equivalent (or “1.0 FTE”) for DGME payment purposes. Once a resident exceeds his or her IRP, however, Medicare only gives the resident half-credit in the DGME payment formula, counting each such resident as 0.5 FTEs. This process is known as "weighting" the hospital's FTE count.

Because of these weighting rules, for example, fellowsi.e., board-certified or board-eligible physicians who have completed their residencies and are undertaking additional specialty training in an area of interest—can only be counted as 0.5 FTEs for purposes of DGME reimbursement.  But participation in fellowship programs is not the only circumstance that may result in residents training beyond their IRPs. Given the reimbursement significance of IRPs, teaching hospitals should understand the effect that residents' training trajectories can have on DGME reimbursement. Below, we explore three other common situations in which a resident may end up training beyond his or her IRP.

As mentioned above, a resident's IRP is set at the time the resident enters his or her first approved residency program, and it does not change. CMS “tags” each resident with an IRP that is based on the number of years it takes to become board-certified in the resident’s chosen specialty (e.g., three years for family medicine). Thus, a resident who enters a family medicine program will have a three-year IRP, no matter what the resident decides to do from that point forward. Even if the resident switches specialties or has to repeat a year of training in order to become board certified, a hospital will be able to count that resident as 1.0 FTE for three years only. Thus, if this same family medicine resident changes programs after her first year, and transfers into a general surgery residency program (which requires five years of training for board-eligibility), only her first two years in the general surgery program (i.e., the second and third years of her IRP) will be reimbursed to the hospital at full value.

If a resident starts his or her training in a separately accredited “transitional year” program, his or her IRP will be set in the first year following the transitional year program. Because the transitional year is not associated with a specialty, CMS waits to tag the resident with his or her IRP until the resident enters a specialty program. Nevertheless, the resident’s transitional year will still count towards his or her IRP once the IRP is established. Thus, by the time the resident embarks on her specialty training, she has already "used up" one year of full-value DGME reimbursement, and her final year before board eligibility will be reimbursed at half-value.

Alternatively, if a resident trains in a “preliminary” program that is part of a specialty program into which the resident matches simultaneously with, or before starting, the preliminary program, then the resident is tagged with the IRP for the specialty immediately upon beginning the preliminary program. Here again, the specialty program's IRP will be applied in the resident's very first year of training in the preliminary program.

Understanding how CMS uses a resident’s IRP to determine DGME payments is an important part of GME planning and can enable teaching hospitals to avoid audit issues. The Dentons team listed here can help you assess the reimbursement and audit implications of these and other IRP-related issues, such as how research time factors into the IRP, and how to account for short and extended leave taken by residents due to sickness or other life events. Our team helps teaching hospitals to plan effectively and comply with intricate regulatory requirements as they respond to the many anticipated and unexpected ways in which residents may exceed their IRPs.