If a teaching hospital meets certain regulatory requirements, the hospital is generally permitted to loan its cap slots to other hospitals through a Medicare GME affiliated group agreement. (See Sharing FTE Caps: Threshold requirements for entering into Medicare GME affiliation agreements.) Urban teaching hospitals that established their DGME and IME FTE caps after 1996—that is, subsequent to their 1996 fiscal year—are, however, subject to an important restriction on cap-sharing, which does not apply to rural teaching hospitals or to urban hospitals whose caps were established in the 1996 base year or to urban hospitals whose caps were established in the 1996 base year set by the Balanced Budget Act of 1997.

Under current CMS regulations, urban teaching hospitals that began training residents after the 1996 cap-setting base year are prohibited indefinitely from loaning DGME or IME FTE cap positions to other hospitals through GME affiliated group agreements. They may receive slots from other teaching hospitals through these agreements, but they may not loan any of their own slots.

Explaining the agency's rationale for this restriction in the FY 2006 inpatient PPS proposed rule, CMS stated: "We established this policy because of our concern that hospitals with existing medical residency training programs could otherwise, with the cooperation of new teaching hospitals, circumvent the statutory FTE resident caps by establishing new medical residency programs in the new teaching hospitals solely for the purpose of affiliating with the new teaching hospitals to receive an upward adjustment to their FTE cap under an affiliation agreement." In other words, CMS did not want a hospital to be able to establish GME caps for the sole purpose of "giving away" those slots to other hospitals.

CMS intentionally excluded rural teaching hospitals from this restriction, noting that for rural hospitals, low patient volumes could make it difficult to meet accreditation requirements, which would mean that rural hospitals may have to rotate residents to other hospitals to supplement their training. Thus, rural hospitals are permitted to loan new cap slots through GME affiliated group agreements to support such rotations.