This client alert is Part 5 of our series providing insight into Medicare graduate medical education (“GME”) reimbursement changes that occurred in 2021. Part 1, which addressed resident moonlighting and redocumentation requirements, is available here. Part 2, which addressed billing requirements for physicians at teaching hospitals (the “PATH” rules) and the rules regarding cap transfers, is available here. Part 3, which addressed the new statutory changes from the Consolidated Appropriations Act of 2020 (“CAA”) relating to GME, specifically Section 126, Section 127 and Section 131, is available here. Part 4 can be found here. This Part 5 addresses the new final rules and policies issued by CMS and published on December 27, 2021 to implement the three GME sections of the CAA.

CMS is seeking comments on several aspects of the new final rule. The deadline for filing comments is February 25, 2022. Hall Render is available to assist in developing comments to be submitted.


Section 126 of the CAA directs the Department of Health and Human Services (“HHS”) to award 1,000 new resident FTE cap slots (IME and DGME) to teaching hospitals that submit applications. Section 127 of the CAA addresses rural-based “rural track” programs, i.e., resident training programs operated by urban teaching hospitals that team up with rural locations to provide some training in the urban hospital and much of the training in a rural area. Section 131 of the CAA addresses certain Medicare participating hospitals that set low FTE caps and low PRAs, and it offers them a one-time opportunity to reset their FTE caps and PRAs under a new resetting process. Generally these new rules are effective February 25, 2022, but due to the complex nature of the subject matter, many other dates will be critical as mentioned in part below. Each of these three developments are complex and are discussed in detail in the following sections.

Section 126: 1,000 New FTE Cap Slots

Each year between federal fiscal year (“FY”) 2023 and FY 2027, CME will award up to 200 new FTE cap slots to eligible hospitals who submit timely applications. CMS must distribute 10% of the total available additional FTE cap slots each to four hospital categories: 1) hospitals in rural areas or hospitals reclassified as rural; 2) hospitals currently training over their existing FTE caps; 3) hospitals in states with new medical schools or new medical school branches since January 1, 2000; and 4) hospitals that serve HPSAs. Across the four categories, CMS also intends to prioritize teaching hospitals that serve HPSAs, with distribution using a method that prioritizes HPSA scores. Given the current shortage of physicians, the demand for these available new FTE cap slots is likely to far outstrip the supply.

Generally, urban hospitals that are reclassified as rural under 42 CFR § 412.103 see their primary GME benefits for IME reimbursement (a 30% increase in IME FTE cap and an ability to create new IME FTE cap with new programs), since CMS considers these hospitals “rural” for IME purposes but still urban for DGME purposes. However, for this Section 126 process, CMS is allowing reclassified hospitals to request and potentially receive both IME and DGME FTE cap.

No hospital can receive more than 25 FTEs in total over the entire distribution period. No hospital will be eligible to receive additional FTE cap slots unless the hospital agrees to increase the total number of residency positions that it supports by the number of newly awarded slots above its current level of training. That is, these newly awarded slots cannot be used for “FTE cap relief.” In addition, a hospital must be currently training residents in excess of its existing FTE caps to be eligible, but CMS will look at the facts relating to DGME and IME FTE caps separately. So, for example, if based on current training levels a hospital is under its IME FTE cap but over on its DGME FTE cap, the hospital could be eligible to apply for DGME FTE cap only.

In each distribution cycle, the number of FTE cap slots awarded may be tied to the specialty program that the hospital plans to create or expand. So, a request to add one new Family Medicine Program residency position to a program could be awarded up to 3 FTE cap slots, since the 3 FTE cap slots are needed to cover the training of the residents who will fill the new GME program positions as each resident progresses through the program. Similarly, a request related to a new Surgery Program residency slot could be awarded up to 5 FTE slots, covering residents to fill the 5 years of the program for one new trainee position.

CMS expects that the demand from hospitals to be awarded additional FTE cap will greatly outpace available new FTE cap supply (200 per year). In its example, CMS points out that just in the 4th priority category, that is, hospitals that serve HPSAs, there are more than 300 teaching hospitals. In addition, new medical schools or branches since January 1, 2000 have opened in 35 states and one territory, making many more teaching hospitals potentially eligible. Combined with the hospitals in the other two priority categories, the odds of any one hospital receiving a significant number of new FTE cap slots will be low.

Given the expected high demand, CMS is also limiting teaching hospitals to the submission of one application each year. However, as with all of the actions CMS has taken to re-distribute FTE caps from closed hospitals, the one way to guarantee that no FTE cap awards will be received is to not apply. So, even though the supply will be limited, for hospitals that fall into one or more of the priority categories, submitting an application is something to consider.

March 31, 2022 will be the first deadline for applications for the FY 2023 distribution, so interested teaching hospitals should watch for the CMS announcements on the process to be followed and apply.

Comment Opportunity: With respect to Section 126 FTE cap eligibility, CMS is seeing comments on two topics: 1) incorporating a measure of care provided outside of a HPSA to HPSA residents, and 2) feasible alternatives to HPSA scores as a proxy for health disparities, for implementing the section 126 methodology. The deadline for filing comments is February 25, 2022. Hall Render is available to assist in developing comments to be submitted.

Section 127: Encouraging Rural GME Training

Since 2000, Medicare laws and regulations have allowed some urban and rural hospitals to receive Medicare DGME and IME funding for residency programs or tracks of programs that train residents predominantly in a rural setting. Since teaching physician availability and patient care volumes may be more limited in the rural setting, some amount of urban training was acceptable, with the urban hospital and the rural hospital both receiving additional payments.

As with Medicare GME overall, the laws and rules applicable to rural training are complex and create some gaps. The provisions of the CAA address the following 4 topics:

  • Increased payments to rural hospitals participating in rural track programs;
  • Allowing urban hospitals to add additional rural locations to existing rural track programs with new funding;
  • Clarifying that a program can qualify for the rural track funding if it is an accredited program where greater than 50 percent of the program occurs in a rural area, and
  • Exempting rural track programs from the 3-year rolling average for IME and DGME payment calculations.

Generally, to build FTE cap the program(s) that the residents are training in must be “new.” Under long-standing CMS interpretation, programs that expand or simply change training sites cannot be considered “new.” To be new a program had to start to exist and gain accreditation “for the first time.”

However, when rural track funding was first created in 1999, CMS interpreted the law to allow urban hospitals to create rural training tracks for existing training programs. For example, an urban hospital with an existing Family Medicine program could add a new, six-resident rural track to the program, and this new track would add to the urban hospital’s Medicare payments. However, since this is not a “new program” to Medicare, the rural hospital where the residents train had no new funding opportunity. In these settings, the urban hospital might have been able to receive Medicare GME payments, but the rural hospital could not.

CMS also interpreted prior law to say that by creating a rural training track for a program, an urban hospital creates rural track DGME and IME FTE caps. With that, the existence of those FTE caps preclude any additional Medicare GME funding relating to the urban hospital adding new and different rural training sites: sites might be added but funding would be capped.

CMS further interpreted prior law to require that adjustments to the FTE caps of rural and urban hospitals could only occur for rural training programs that were “separately accredited.” Under applicable industry accreditation standards (i.e., the ACGME requirements), the only separately accredited rural track programs were those in Family Medicine. So, generally speaking, only separately accredited rural track Family Medicine programs were funded.

Under the IME and DGME payment structures, most of the time a hospital is not paid based only on the number of residents present in the current year, but instead the payment looks to an average of the current year, the prior year, and the year before that, to calculate the “3-year rolling average.” Also for IME, a hospital is subject to its “IRB ratio cap,” meaning that its ratio of residents to beds for its IME calculation is based on the lower ratio from the current or the prior year. Previously, both the 3-year rolling average and the IRB ratio cap applied to rural track programs.

CMS interprets the CAA as providing CMS with greater authority to remedy all four of these problems. Effective for cost reporting periods beginning on and after October 1, 2022, programs that include more than 50% of the education and training occurring in rural areas may create FTE cap for both the rural and urban participating hospitals, when an urban program (the “hub”) adds new and additional rural training sites (the “spokes”), both the hub and the new spokes can create new Medicare GME funding. Rural track programs no longer need to be separately accredited to qualify for Medicare GME payments. Finally, during the 5-year FTE cap building period, the rural track training program residents are excluded from the 3-year rolling average and the IRB ratio cap.

Section 131: Relief for Some Hospitals with Low PRAs and Low FTE Caps

As the Medicare GME reimbursement laws and rules evolved over time, some teaching hospitals created very unfavorable hospital-specific payment factors for their per resident amounts (“PRAs”) and/or their FTE caps. Some hospitals created small PRAs, and that means that their per resident DGME payment would also be small. Other hospitals (including some with small PRAs), also triggered small FTE caps, meaning that no matter how many residents are present for training, the available Medicare reimbursement would be a small amount. In perhaps the most complicated changes created by the CAA, Congress created a one-time re-set opportunity for two categories of teaching hospitals: 1) Category A hospitals, which are hospitals that trained less than 1.0 FTE in its most recent cost reporting period beginning before October 1, 1997, and therefore have a FTE cap of less than 1.0 FTE and likely a small PRA; and 2) Category B hospitals, which are hospitals that trained no more than 3.0 FTEs in any cost reporting period beginning on or after October 1, 1997, and therefore have a FTE caps of 3.0 FTEs or less and likely a small PRA.

In addition, in interpreting the Congressional intent of the CAA “to allow eligible hospitals their second chance at meaningful IME and direct GME reimbursement,” CMS is also creating new policies to allow certain hospitals that may have had residents present in past cost reporting periods but where no reporting of resident costs or FTEs occurred. So for example, if a “hospital’s employee(s) recall that residents were trained at the hospital, but no FTEs were reported on any settled Medicare cost report, as shown in HCRIS,” then that hospital has a reset opportunity, that can occur with the new programs starting between December 27, 2020 and December 26, 2025.

Under the new law, going forward, CMS will reset the FTE caps, and if requested the PRA, for a Category A hospital that begins training at least 1.0 FTEs in a program year between December 27, 2020 and December 26, 2025. Similarly, CMS will reset the FTE caps, and if requested, the PRA, for a Category B hospital that begins training more than 3.0 FTEs in a program year between December 27, 2020 and December 27, 2025.

To determine eligibility, CMS has created a series of files with information from its Healthcare Cost Report Information System (HCRIS), to help hospitals determine if they are eligible for a reset. Potentially eligible and interested hospitals are encouraged to make an inquiry and determination early in 2022, since for at least some groups of potentially eligible hospitals, there is a hard and one-time deadline of July 1, 2022 to file a complete request with the hospital’s MAC. While the July 1, 2022 deadline does not apply to all potentially eligible hospitals under the new CMS policies, assessing the available information, and if needed, submitting the one-time request for PRA and/or FTE cap reconsideration to the MAC will be prudent. CMS stresses that the July 1, 2022 deadline is absolute, with no ability to even supplement previously submitted incomplete information after July 1, 2022.

  • PRAs and FTE cap resets will occur based on different cost reporting years. The PRA reset occurs in the year when the needed number of residents are present, for “old” and “new” programs. FTE cap setting only occurs when “new program” residents are present.
  • The new PRAs are still subject to the PRA limitation for PRAs at new teaching hospitals, meaning that the hospital’s PRA will be the lower of its own actual per resident costs or the updated weighted mean value PRAs for all hospitals in the same geographic wage area.
  • But watch out for Medicare GME affiliation agreements for FTE cap sharing. If FTE cap sharing occurs, then the PRA could be set even if training of less than 1.0 FTE occurs.

Comment Opportunity: With respect to Section 131 FTE cap and PRA resetting, CMS is seeing comment on the following: the review process to determine eligibility for per resident amount or full-time equivalent cap resets in situations where a hospital disagrees with the information on the cost report, in particular from cost reports that are no longer within the 3-year reopening period. The deadline for filing comments is February 25, 2022. Hall Render is available to assist in developing comments to be submitted.

Practical Takeaways

    • Teaching hospitals that are considering growing their resident training programs should consider program expansions or new programs and applying for additional cap spaces once CMS establishes a process for doing so under Section 126.
    • Urban teaching hospitals may wish to evaluate options for establishing or expanding rural track While the Section 127 changes will only apply to cost reporting periods starting after October 1, 2022, there will likely be program accreditation and relationship agreements to address between urban hospitals and rural sites long before then. Very likely, it makes sense to get started on this process in the near future.
    • Hospitals with historically low FTE caps and PRAs should evaluate if the new law applies to them, and if so, their options for establishing new FTE caps and a new PRA by creating new training programs in excess of their current caps. Hospitals with FTE caps of 1.0 FTE or less based on cost years prior toOctober 1, 1997 and hospitals with FTE caps of 3.0 FTEs or less based on cost years after October 1, 1997 should monitor closely the future guidance under this law to consider adding new GME programs and building new FTE cap in the years between now and December 27, 2025. Also, the new CMS policies allowing re-sets for some other hospitals should be closely examined based on the facts present to determine potential eligibility.
    • Determine your status and submit your request! In the words of CMS: “hospitals that believe they have PRAs set based on a small amount of FTEs, and/or have small FTE caps from a cost report prior to enactment more likely have nothing to lose, and would gain from providing contemporaneous documentation to the MAC for an assessment of its reset eligibility.” The one time and hard deadline for complete submissions is July 1, 2022.
    • Make sure that program rotation schedules accurately indicate where the residents train. While not the direct subject of the new rules, for all three of the new provisions, CMS emphasized that the program rotation schedules are the primary documentation used to support IME and DGME payments, for these and all other Medicare GME regulations: “unofficial copies or deviations from the official program rotation schedule and other substitutions will not be accepted.” In the final rule preamble, CMS also clarified other documentation requirements for hospitals and GME programs, and the new or newly restated standards need to be met to secure and protect Medicare GME reimbursement.