On December 30, 2009, the District Court for the Eastern District of Michigan joined numerous district courts in ruling that resident research time must be included in a hospital's full-time equivalent (FTE) resident count for purposes of indirect medical education (IME) reimbursement during time periods prior to 2001. See Henry Ford Health System, d/b/a/ Henry Ford Hospital v. Sebelius, 2009 WL 5217661 (E.D. Mich. 2009).

The Eastern District of Michigan joined the Southern District of Ohio, the District of Arizona, the Northern District of Illinois and the District of Rhode Island in finding that the IME regulation in place prior to 2001, which called for residents to be included in a provider's IME FTE count if they are assigned to "the portion of the hospital subject to the prospective payment system," allows the inclusion of residents engaged in educational research.

The Henry Ford court held that the regulation's reference to "the portion of the hospital subject to the prospective payment system" is a geographic (as opposed to functional) question, and that such a conclusion is mandated by a reading of the regulation in its entirety, as well as the agency's intent at the time of rulemaking.

The Henry Ford decision runs counter to a recent First Circuit Court of Appeals decision in which the First Circuit held that the regulation was ambiguous, and therefore, the Secretary's refusal to include resident research time in the IME count was permissible. See Rhode Island Hospital v. Leavitt, 548 F.3d 29 (1st Cir. 2009). Thus far, Rhode Island Hospital is the only circuit court decision on the IME research time issue; the Arizona and Ohio cases were not appealed, and it remains to be seen whether Henry Ford will be appealed and whether a circuit split on the issue may result.

In addition to the IME research time issue, the Henry Ford case involved two additional questions: whether the Secretary improperly excluded two of the hospital's residency programs from inclusion in the 1996 cap exclusion for counting FTE residents, and whether the Secretary improperly denied a remand to the intermediary for consideration of the hospital's claims for reasonable cost reimbursement under Medicare Part B.

With respect to the former question, the court held that although the two residency programs at issue trained residents prior to the FTE cap cutoff date, the programs did not gain accreditation until later, thus allowing the programs to meet the definition of "new programs" and meet the regulatory exception for counting residents in new medical residency training programs established on or after January 1, 1995, and before August 5, 1997. 42 CFR § 413.86(g)(1998).

Concerning the latter issue, the court held that the provider did not provide sufficient evidence to support its alternative argument in support of obtaining Medicare Part B reimbursement for the costs of unapproved programs at the administrative level, and therefore, the Secretary's refusal to remand the issue to the intermediary to review the evidence was proper.