Many hospital sale and affiliation transactions involve teaching hospitals. Whether the teaching hospital involved is new to training residents or is part of a long-established teaching program, the parties will need to work through a number of issues to determine what Medicare graduate medical education (GME) payments the surviving or new entity will be entitled to receive. In all such transactions, the primary risk is the unintended loss or diminution of GME payments. The regulations around Medicare GME payments are complicated, and the GME merger rules are no exception.

Because of hospital-specific caps on the number of residency positions the Medicare program will help to fund, GME funding is a limited resource. Steps taken during a transaction will affect a hospital's ability to receive and maximize Medicare GME funding.

A teaching hospital in transaction discussions, or a non-teaching hospital thinking about a transaction with a hospital that trains residents, should consider the following:

  • Which Medicare provider number should survive, and which should be retired?
  • What are the GME caps of the separate entities, and what will the new GME cap be for the new entity?
  • What primary care and non-primary care per-resident amounts (used to determine direct GME payments) will apply to the merged entity?
  • What intern and resident-to-bed ratio and ratio cap (used to determine indirect medical education payments) will apply to the merged entity?
  • If a merging teaching hospital participated in GME affiliation agreements to share its Medicare-funded slots with other hospitals, how will those agreements be handled? What needs to happen before the Centers for Medicare and Medicaid Services' (CMS') annual June 30 affiliation agreement deadline?
  • Are any of the hospitals in the middle of a five-year GME cap-building period? If so, what happens to that cap-building period?
  • Will any of the merging hospitals' GME slots be subject to redistribution to other hospitals under the Section 5506 closed hospital provision of the Affordable Care Act?

Each transaction is, of course, unique, and will require fact-specific analyses of each of these issues, and potentially others. It is worth the effort to examine these details during the planning of the deal, however, so that Medicare GME funding can be maintained where possible and paid continuously throughout the transition.