CMS finalized a proposal to allow the temporary transfer of Medicare graduate medical education (“GME”) full-time equivalent (“FTE”) cap slots from teaching hospitals that terminate their Medicare provider agreement or close a residency program to hospitals that continue training their departing residents or fellows. CMS made relatively few changes to the rule that it proposed earlier this year as part of the annual update to its Inpatient Prospective Payment System regulations. Hall Render’s summary of that proposal is available here. The new rule will be effective on October 1, 2020, the beginning of the new Federal fiscal year.

What Changed?

  • CMS created a new definition of “displaced resident” to make it easier for Medicare GME FTE cap to transfer from hospitals that close programs or close entirely to other hospitals that agree to continue the residents’ training. Going forward, an important date will be the date that the program or hospital closure is publicly announced, which may be long before the actual date of closure. CMS also clarified the treatment of incoming new residents, residents on away rotations and residents on leave.
  • Since CMS’s existing definition of “resident” includes interns, residents and fellows, the new rule will allow the transfer of cap slots for any intern, resident or fellow for whom CMS would make DGME or IME payments. This also means that a GME FTE cap transfer will be available when a hospital closes a GME training program, regardless of whether the program is called an internship, a residency or a fellowship, provided that CMS would make DGME or IME payments for interns/residents/fellows in the program. (For the sake of clarity, this alert uses the terms “resident” and “residency” to refer to all such persons and programs.)
  • CMS also finalized a regulation that changes the IME modifier—used in the formula for calculating indirect graduate medical education payments—to 1.35. This change was mandated by statute, and CMS did not receive any comments on the change.

Summary of Proposal

CMS’s new rule addresses the distribution of GME FTE cap slots when a teaching hospital or a resident training program closes. Under current regulations, a hospital that accepts and trains displaced residents (“Receiving Hospital”) from a hospital or program that closes is eligible to receive cap slots from the closing hospital or hospital closing a program only if the displaced residents were physically present at the closed hospital/closed program on the day prior to, or the day of, closure. This “day prior to or day of” rule caused significant difficulty for residency programs, residents and teaching hospitals to align continuity of training with possible CMS GME reimbursement. The Proposed Rule also addressed situations faced by matched entering residents who had not yet started, residents assigned to off-site rotations and residents on leave at the time the hospital or program closes. It also changes the key date to be the date that the closure is publicly announced—rather than the actual date of closure—allowing residents to pursue other training opportunities after learning of an impending closure.

Changes from Proposal and Policy Statements

CMS finalized the substance of its proposal without significant changes, so the FTE caps of hospitals that announce a hospital or program closure on or after October 1, 2020 can be more effectively transferred to the Receiving Hospitals where their residents will complete training. CMS did adjust the new rule and issue a few key policy statements in response to comments from industry stakeholders:

  • CMS clarified that the way in which a resident matches with, or agrees to train at, a closing hospital or program does not impact the ability to temporarily transfer FTE cap slots to a Receiving Hospital. This change came in response to a comment that the use of the word “match” could imply that only residents who had been assigned to the hospital through the National Resident Matching Program would be eligible for a cap transfer. As modified, the rule now applies to a resident who “[i]s accepted into a GME program at the closing hospital or program but has not yet started training at the closing hospital or program.” While this situation is rare, this new rule now allows, for example, a transferring resident who was accepted into but had not yet started a program at a closing hospital to possibly have FTE cap follow them to a Receiving Hospital.
  • CMS’s new rule provides that the key date for determining whether a resident would qualify for a cap transfer is the day that the closure is publicly announced. Significant work is required of hospitals, programs and residents when teaching hospitals or residency programs close and the “day prior to or day of” rule caused significant practical difficulty. With the important date now being the date of public announcement, affected parties will have from the announcement to the actual date of the hospital or program closure to work to assure the continuity of resident training.
  • CMS clarified that FTE cap transfers are a voluntary act on the part of the closing hospital or hospital that closes a program. Since many hospitals train residents in excess of their FTE caps, CMS clarified that this rule change does not mean that every displaced resident will be accompanied by a GME FTE cap slot. Instead, a closing hospital or a hospital that closes a program will have a choice in how (or whether) to transfer its FTE cap slots to Receiving Hospitals. A commenter requested that CMS require that cap space be distributed evenly among all displaced residents, with each such resident being allotted a fraction of an FTE. CMS declined to adopt this proposal, believing that differences in residents’ situations may justify distributing the cap unevenly and that the closing hospital or hospital that closes a program is in the best position to make this determination.

Practical Takeaways

  • Receiving Hospitals should be aware that the procedures for securing additional FTE cap slots will vary depending on whether the hospital is closing in its entirety or if a hospital is closing a training program. If the whole hospital is closing, then the Receiving Hospital must notify its MAC of the identity of its new residents within 60 days of the day that it begins teaching them. If the closing hospital is training residents “over its FTE caps,” then a process must also be created for the closing hospital to apportion its FTE cap slots to the possible Receiving Hospitals, with the details of that process left to the hospitals. Receiving Hospitals will need to be cautious and proactive to make sure that the closing hospital clearly notifies CMS and provides documentation to the Receiving Hospital regarding which slots follow which residents, even where the closing hospital was not training residents over its FTE cap.
  • If the hospital is shutting down a resident training program, then the Receiving Hospital must submit a signed, dated voluntary FTE transfer statement form from the closing hospital and the hospital closing the program must make submissions too. Failure to meet these paperwork requirements could result in a total loss of the Receiving Hospital’s ability to claim a temporary cap increase while the displaced residents finish their studies.
  • A cap transfer under this rule is only a temporary transfer, and it impacts both DGME and IME cap. From a reimbursement perspective, the Receiving Hospital’s DGME and IME reimbursement calculations will use the temporarily increased cap slots and the Receiving Hospital’s existing DGME and IME modifiers and other factors that contribute to its GME reimbursement. The permanent reassignment of FTE cap slots is accomplished by CMS under its “ACA 5506” process.