The recent D.C. U.S. District Court ruling in Milton S. Hershey Medical Center v. Xavier Becerra, involved a dispute regarding the calculation of direct graduate medical education payments from the Centers for Medicare and Medicaid (CMS) under Medicare. More specifically, the plaintiffs, who are teaching hospitals, challenged a regulation issued by the Secretary of the U.S. Department of Health and Human Services, which essentially reduced the weighted number of full-time equivalent residents (FTEs) a hospital may claim for reimbursement when the hospital’s unweighted FTE count exceeds the number of FTEs the hospital reported on or before December 31, 1996 (the “1996 cap”). The hospitals claimed that the regulation conflicts with the statutorily mandated method for calculating a hospital’s weighted FTEs under Medicare.

The Court held that the regulation was unlawful because it conflicted with the resident and fellow weighting factors that are required under the Medicare statute. Accordingly, the Court remanded the case back to CMS to recalculate the hospitals weighted average FTEs consistent with the statutory requirements.

Please see below for a description of the two calculation methods (statute vs. regulation).

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Statutory Calculation of Weighted FTEs

Under the Medicare statute, the weighted FTEs are calculated using (1) the weighting factor 1.00 for residents in their initial residency period (i.e., residents), and (2) the weighting factor .50 for residents who are not in their initial residency period (i.e., fellows). For example, if a hospital employs 90 residents and 10 fellows, the weighted FTE calculation would result in 95 FTEs calculated as follows:

90 residents x 1.00 =      90

10 fellows x .50 =             5

Total =                            95

Calculation of Weighted FTEs under HHS Regulation

The regulation states that if a hospital’s FTEs in a reporting period exceed the 1996 cap, the hospital’s weighted FTEs will be reduced in the same proportion that the FTEs for that reporting period exceed the 1996 cap. The calculation formula under the regulation is – (1996 cap/ unweighted FTEs) x weighted FTEs = post-regulation weighted FTEs. Below are two examples of this calculation.

Example 1. Assuming the hospital’s 1996 cap is 100 (having employed 90 residents and 10 fellows at the end of 1996), and that the hospital adds 10 more fellows, the post-regulation weighted FTE calculation would result in 90.91 FTEs calculated by substituting the relevant numbers in the formula as follows: (100/110) x 100 = 90.91 (see below for formula data).

1996 cap = 100

Unweighted FTEs = 110; (90 residents + 20 fellows)

Weighted FTEs = 100; ((90 residents x 1.0) + (20 fellows x .50))

Example 2. Assuming again that the hospital’s 1996 cap is 100, and that the hospital’s current FTEs remain the same as the 1996 cap, the post-regulation weighted FTE calculation would result in 95 FTEs calculated by substituting the relevant numbers in the formula as follows: (100/100) x 95 = 95 (see below for formula data).

1996 cap = 100

Unweighted FTEs = 100; (90 residents + 10 fellows)

Weighted FTEs = 95; ((90 residents x 1.0) + (10 fellows x .50))

When a hospital’s current FTEs are below or at the 1996 cap, the post-regulation weighted average FTEs reflect the statutory FTE weighting factors. But, when the hospital’s FTEs exceed the 1996 cap, the post-regulation weighted FTEs no longer reflect the statutory FTE weighting factors.  As noted above, the Court held that the regulation was unlawful because it conflicted with the resident and fellow weighting factors that are required under the Medicare statute.