Section 5504(a) and (b) of the Affordable Care Act mandate that all resident time spent in nonhospital settings (e.g., physician clinics) be counted toward a provider’s full-time equivalent (FTE) resident count for both IME and GME purposes if a hospital incurs the costs of the resident’s stipends and fringe benefits for the time the resident spends in the nonhospital setting. Furthermore, sections 5504 (a) and (b) explicitly permit hospitals to count a proportional share of the time residents spend in nonhospital settings in situations where more than one hospital share the costs of resident training in nonhospital settings (according to CMS, hospitals were not previously permitted to count FTEs relating to shared nonhospital training programs because one hospital must incur all of the costs in the nonhospital setting in order to claim any FTEs rotating to that setting). Section 5504(c) of the Affordable Care Act, which is uncodified, states that the amendments contained in section 5504 “shall not be applied in a manner that requires reopening of any settled hospital cost reports as to which there is not a jurisdictionally proper appeal pending as of the date of the enactment of this Act on the issue of payment for [IME] or [GME]…” Many observers interpreted the law and CMS’s proposed rule as stating that cost reports that are the subject of pending appeals on IME and GME should be revised in accordance with section 5504 of the Affordable Care Act. See 75 Fed. Reg. at 46,385 (Aug. 3, 2010). However, in the recently-posted preamble to the final rule, CMS states that “there appears to be a misreading of our interpretation of section 5504(c),” and set forth its interpretation that section 5504 has a stated effective date of July 1, 2010, and therefore cannot apply to any prior periods. According to CMS, section 5504(c) “does not require reopening in any circumstance,” including circumstances where a provider has a pending appeal on an IME or GME issue. CMS’s new interpretation of section 5504(c) will likely be challenged by hospitals with such appeals, as it is arguably contrary to the plain language of the Affordable Care Act. The final rule (CMS-1504-FC) is scheduled for publication in the Federal Register on November 24, 2010, and is currently available by clicking here.