the American Association of Colleges of Osteopathic Medicine

This analysis was prepared by Venable, LLP, on behalf of AACOM.

The Centers for Medicare and Medicaid Services (CMS) issued a final rule with comment period (Final Rule) in the Federal Register on December 27, 2021 to finalize certain provisions of the Fiscal Year 2022 Inpatient Prospective Payment Systems (IPPS) and Long-Term Care Hospital Prospective Payment Systems (LTCH PPS) proposed rule. The Final Rule implements the legislative changes to Medicare direct graduate medical education (GME) and indirect medical education (IME) payments to teaching hospitals that were included in sections 126, 127, and 131 of the Consolidated Appropriations Act, 2021 (CAA). The final rule is effective February 25, 2022. CMS has also released a summary of the IPPS Rule, including FAQs here.

Multiple osteopathic priorities are included in the final rule because of direct outreach to CMS by AACOM and more than a dozen colleges of osteopathic medicine, as well as osteopathic GME professionals, residents and students. These priorities include:

Reserving at least 10 percent of the new GME slots for rural areas;
Maintaining the hospital eligibility criteria to apply for the new GME slots;
Increasing maximum award sizes to 5.0 full-time equivalents per hospital per year; and
Adjusting application deadlines for qualifying hospitals to apply for the new GME slots.

Important Deadlines

February 25, 2022 – Comments due on certain provisions. See below.
March 31, 2022 – Application deadline for qualifying hospitals to apply for new residency slots. View application information.
July 1, 2022 – A hospital may request reconsideration by its Medicare Administrative Contractor (MAC) if it disagrees with eligibility information in the Healthcare Cost Report Information System (HCRIS).

Key Points of the Final Rule

Establishes policies to distribute 1,000 new Medicare-funded physician residency slots to qualifying hospitals, phasing in 200 slots per year over five years. This will be the largest increase in Medicare-funded residency slots in over 25 years. The first round of 200 residency slots will be announced by January 31, 2023 and will become effective July 1, 2023. Priority will be given to hospitals as follows:

Located in rural areas or treated as being in a rural area;
Training residents over their Medicare GME cap;
Located in states with new medical schools or branch campuses on or after January 1, 2000; and
Serve areas designated as health professional shortage areas (HPSAs).

Allows rural teaching hospitals participating in an accredited rural training track (RTT) to receive increases to their full-time equivalent (FTE) caps. CMS is attempting to make additional strides to close the health equity gap in rural communities, which tend to experience health care workforce shortages.
Permits hospitals to establish new medical residency training programs after hosting medical resident rotators for short durations in the past. Some hospitals inadvertently limited their ability to receive Medicare funding for residents in a new training program by accepting residents that rotated to the hospital from other training programs in past years.
Enables hospitals with an extremely low or $0 per resident amounts (PRAs) that meet certain criteria to reset and establish new PRAs. The hospital must train residents in a cost reporting period beginning on or after December 27, 2020 and before December 25, 2025.
Provides those hospitals that have very low FTE resident caps to replace those caps if they begin training residents in a new program beginning on or after December 27, 2020 and before December 26, 2025.

Changes in the Final Rule

CMS finalized a deadline of March 31, versus January 31 in the proposed rule, for the application deadline for qualifying hospitals to be considered for an increase in residency caps in section 126.
CMS has modified their proposal in the Final Rule to adjust the size of the award to the length of the program for which a hospital is applying. Specifically, the maximum award amount is contingent on the length of the program for which a hospital is applying, with up to 1.0 FTE being awarded per program year, not to exceed a program length of five years or 5.0 FTEs.
CMS clarified that a hospital qualifies for direct GME residency positions under Category Two if it is over its direct GME cap; qualifies for IME residency positions under Category Two if it is over its IME cap; and qualifies for both direct GME and IME residency positions if it is over both its direct GME and IME caps. They have further clarified that a hospital may only apply for direct GME and/or IME residency positions if it does not have sufficient room to start a new program or expand an existing program under its existing direct GME and/or IME caps, respectively.

CMS solicits comments on the following two issues to inform potential future rulemaking

How to account for health care provided outside of a Health Professional Shortage Area (HPSA) to HPSA residents, and feasible alternatives to HPSA scores as a proxy for health disparities in the prioritization of additional FTE cap slots; and
The review process to determine eligibility for PRA or FTE cap resets in situations where a hospital disagrees with the information on cost reports that are no longer within the three-year reopening period.

A more detailed analysis of the final rule’s GME provisions follows.

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Provisions of the Final Rule with Comment Period

Payment for Indirect and Direct Graduate Medical Education Costs

The CAA included three provisions affecting Medicare direct GME and IME payments to teaching hospitals. Section 126 of the CAA makes available 1,000 new Medicare-funded GME positions (but not more than 200 new positions for a fiscal year), to be distributed beginning in fiscal year 2023, with priority given to hospitals in 4 statutorily-specified categories. Section 127 of the CAA makes statutory changes relating to the determination of both an urban and rural hospital's FTE resident limit for direct GME and IME payment purposes with regard to residents training in an accredited RTT, and the 3-year rolling average set out in the Act used to calculate payments for these hospitals. Section 131 of the CAA makes statutory changes to the determination of direct GME PRAs and direct GME and IME FTE resident limits of hospitals that hosted a small number of residents for a short duration.

Distribution of Additional Residency Positions under Section 126

Under the Final Rule, a hospital will show a “demonstrated likelihood” of filling the additional positions (sometimes equivalently referred to as slots) for which it applies by demonstrating that it does not have sufficient room under its current FTE resident cap(s) to accommodate a planned new program or expansion of an existing program. To do so, a hospital must submit copies of its most recently submitted Worksheets E, Part A and E-4 from the Medicare cost report (CMS-Form-2552-10) as part of its application for an increase to its FTE resident cap, and must demonstrate and attest to a planned new program or expansion of an existing program by meeting at least one of two “Demonstrated Likelihood” criteria.

“Demonstrated Likelihood” Criterion 1 (New Residency Program). The hospital does not have sufficient room under its FTE resident cap, and the hospital intends to use the additional FTEs as part of a new residency program that it intends to establish on or after the date the increase would be effective (that is, a new program that begins training residents at any point within the hospital's first five training years beginning on or after the date the increase would be effective). Under “Demonstrated Likelihood” Criterion 1, the hospital will be required to meet at least one of the following conditions as part of its application:
- Application for accreditation of the new residency program has been submitted to the ACGME (or application for approval of the new residency program has been submitted to the ABMS) by the application deadline.
- The hospital has received written correspondence from the ACGME (or ABMS) acknowledging receipt of the application for the new residency program, or other types of communication concerning the new program accreditation or approval process (such as notification of site visit) by the application deadline.
“Demonstrated Likelihood” Criterion 2 (Expansion of an Existing Residency Program). The hospital does not have sufficient room under its FTE resident cap, and the hospital intends to use the additional FTEs to expand an existing residency training program within the hospital's first five training years beginning on or after the date the increase would be effective. Under “Demonstrated Likelihood” criterion 2, the hospital will be required to meet at least one of the following conditions as part of its application:
- The hospital has received approval by the application deadline from an appropriate accrediting body (the ACGME or ABMS) to expand the number of FTE residents in the program.
- The hospital has submitted a request by the application deadline for a permanent complement increase of the existing residency program.
- The hospital currently has unfilled positions in its residency program that have previously been approved by the ACGME and is now seeking to fill those positions.

Determination of hospitals that are located in a rural area or are treated as being in a rural area (Category One)

The SSA requires the Secretary to distribute not less than 10 percent of resident positions available to each of four categories of hospitals. The first of these categories consists of hospitals that are located in a rural area or are treated as being located in a rural area. This category is referred to as Category One.

CMS uses Core-Based Statistical Area (CBSA) as the standard to determine eligibility. Certain CBSAs are designated as urban, while those without the designation are considered rural. Given the fixed number of available residency positions, CMS has proposed a deadline by which a hospital must be treated as being located in a rural area for purposes of Category One. If a hospital is not listed as reclassified to rural, but has been subsequently approved by the CMS Regional Office to be treated as being located in a rural area for purposes of payment under the IPPS as of the application deadline for additional positions for the fiscal year, the hospital must submit its approval letter with its application in order to be treated as being located in a rural area for purposes of Category One.

Determination of hospitals for which the reference resident level of the hospital is greater than the otherwise applicable resident limit (Category Two)

The second category consists of hospitals in which the reference resident level of the hospital is greater than the otherwise applicable resident limit. This category is referred to as Category Two.

CMS has generally referred to a hospital’s number of unweighted allopathic and osteopathic FTE residents in a particular period as the hospital's resident level. They have clarified that a hospital qualifies for direct GME residency positions under Category Two if it is over its direct GME cap; qualifies for IME residency positions under Category Two if it is over its IME cap; and qualifies for both direct GME and IME residency positions if it is over both its direct GME and IME caps. They have further clarified that a hospital may only apply for direct GME and/or IME residency positions if it does not have sufficient room to start a new program or expand an existing program under its existing direct GME and/or IME caps, respectively.

Determination of hospitals located in states with new medical schools, or additional locations and branch campuses (Category Three)

The third category consists of hospitals located in states with new medical schools that received “Candidate School” status from the Liaison Committee on Medical Education (LCME) or that received “Pre-Accreditation” status from the American Osteopathic Association (AOA) Commission on Osteopathic College Accreditation (the COCA) on or after January 1, 2000, and that have achieved or continue to progress toward “Full Accreditation” status (as such term is defined by the LCME) or toward “Accreditation” status (as such term is defined by the COCA); or additional locations and branch campuses established on or after January 1, 2000, by medical schools with “Full Accreditation” status or “Accreditation” status. This category is referred to as Category Three.

CMS has proposed that hospitals located in the following 35 states and 1 territory be referred to as Category Three hospitals: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin.

Determination of hospitals that serve areas designated as health professional shortage areas under section 332(A)(1)(A) of the Public Health Service Act (Category Four)

The Health Resources and Services Administration (HRSA) designates certain areas as health professional shortage areas (HPSAs). The PHSA states that a “health professional shortage area” is “an area in an urban or rural area (which need not conform to the geographic boundaries of a political subdivision and which is a rational area for the delivery of health services) which the Secretary determines has a health manpower shortage.” HRSA designates HPSAs for primary care, mental health, and dental health.

CMS will consider geographic HPSAs for primary care and mental health providers for purposes of determining hospitals that serve areas designated as HPSAs.

A hospital can qualify under Category Four if it has its main campus, or a provider-based facility, physically located in a primary care or mental health only geographic HPSA. Additionally, as part of the qualification requirements under Category Four, in the residency program for which the hospital was applying, at least 50 percent of the residents’ training time over the duration of the program would have to occur at those locations in the HPSA. In addition, a Category Four Hospital must submit an attestation, signed and dated by an officer or administrator of the hospital who signs the hospital's Medicare cost report, that it meets the 50 percent requirement.

Determination of Qualifying Hospitals

Under the Final Rule, a qualifying hospital is one a Category One, Category Two, Category Three or Category Four hospital, or one that meets the definitions of more than one of these categories.

Number of Residency Positions Made Available to Hospitals and Limitation of Individual Hospitals

The SSA limits the aggregate number of total new residency positions made available in a single fiscal year across all hospitals to no more than 200. CMS expects the demand from hospitals for the aggregate number of total residency positions made available for each fiscal year to significantly exceed the 200 maximum. To address this the proposed rule limited the increase in the number of residency positions made available to each individual hospital to no more than 1.0 FTE each year. However, after hearing concerns about their proposal, CMS has modified their proposal in the Final Rule to adjust the size of the award to the length of the program for which a hospital is applying. Specifically, the maximum award amount is contingent on the length of the program for which a hospital is applying, with up to 1.0 FTE being awarded per program year, not to exceed a program length of five years or 5.0 FTEs. A hospital may not submit more than one application in any one fiscal year. Hospitals that receive awards in a given round of applications will be able to reapply in subsequent years, either for the same program or for a different program, but with no guarantee of receiving additional residency positions.

Prioritization of Applications from Hospitals for Residency Programs that Serve Underserved Populations

CMS will prioritize applications from qualifying hospitals (that is, hospitals that qualify under categories One through Four, as previously described) for residency programs that serve underserved populations in geographic HPSAs or population HPSAs.

Use of Geographic HPSAs and Population HPSAs

Under the PHSA, HRSA also designates HPSAs on the basis of a shortage of services for a specific subset of the population (“population HPSAs”) rather than the entire population in an area as is the case in geographic HPSAs. These population subsets include, but are not limited to: Low-income populations, Medicaid-eligible populations, Native American populations, homeless populations, and migrant farmworker populations.

In order to more fully address health inequities for underserved populations, CMS will prioritize the applications from hospitals that serve the specific designated underserved population of a population HPSA.

Use of HPSA scores for prioritization

CMS proposes to allocate 1.0 FTE to each hospital with the highest HPSA score, prorating only in the event that the number of hospitals with the highest score exceeds the number of residency positions available. If the number of hospitals with the highest score is less than the number of residency positions available, each hospital with the next highest score would receive 1.0 FTE, with proration again occurring only in the event that the number of hospitals with this score exceeds the number of positions remaining. CMS would continue in this manner, moving on to hospitals with the next highest score until all available positions are distributed. Under this proposal, hospitals applying for residency positions for programs that do not serve HPSAs would not be categorically excluded, but those applications would have the lowest priority.

CMS agreed with comments previously submitted that training should not be limited to hospital settings physically located in the HPSA to the exclusion of other settings physically located in the HPSA. For a geographic HPSA, any and all program training based on resident rotation schedules (or similar documentation) that occurs in the HPSA at program training sites that are physically located in the HPSA and treat the HPSA's population, including nonprovider settings and Veterans Affairs facilities, will count towards meeting the 50 percent training criterion. For a population HPSA, any and all program training based on resident rotation schedules (or similar documentation) that occurs in the HPSA at program training sites that are physically located in the HPSA and treat the HPSA's designated population, including nonprovider settings and Veterans Affairs facilities, will count towards meeting the 50 percent training criterion.

Alternative Considered for Prioritization

As an alternative to CMS’s proposed prioritization approach, in the proposed rule, they considered a simpler prioritization approach for FY2023 that would allow additional time to work with stakeholders to develop a more refined approach for future years. Under this alternative approach, CMS would distribute 200 additional residency positions for FY2023 among hospitals that qualify in Category One, Category Two, Category Three, and/or Category Four, with higher priority given to applications from hospitals that qualify in more categories. That is, hospitals that qualify under all four categories would receive top priority, hospitals that qualify under any three of the four categories would receive the next highest priority, then any two of the four categories, and finally hospitals that qualify under only one category.

After consideration of comments received, CMS decided not to finalize the alternative methodology for FY2023.

Hospital Attestation to National CLAS Standards

To ensure that the residents are educated and trained in culturally and linguistically appropriate policies and practices, CMS has proposed that all applicant hospitals would be required to attest that they meet the National Standards for Culturally and Linguistically Appropriate Services in Health and Health Care (the National CLAS Standards) to ensure the section 126 of the CAA additional residency position allocation broadens the availability of quality care and services to all individuals, regardless of preferred language, cultures, and health beliefs.

Implementation of Section 127 OF THE CAA, “PROMOTING RURAL HOSPITAL GME FUNDING OPPORTUNITY”

To encourage the training of residents in rural areas, the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) added a provision that, in the case of a hospital that is not located in a rural area (an urban hospital) that establishes separately accredited approved medical residency training programs (or rural tracks) in a rural area, or has an accredited training program with an integrated rural track, the Secretary shall adjust the urban hospital's cap on the number of FTE residents, in an appropriate manner in order to encourage training of physicians in rural areas.

Since implementation of the rural training track provision from the BBRA, stakeholders and advocates of residency training in rural areas have raised concerns about inequities and unintended consequences of the BBRA provision. First, the BBRA provision allows an urban hospital to receive additional cap slots based on the time that residents in the RTT train at the urban hospital. However, the provision does not specify that the Secretary provide a cap adjustment for rural hospitals participating in RTTs. As a result, unless the RTT program was new, the rural hospital could not receive FTE resident cap increases, resulting in direct GME and IME payments going only to the urban hospital for the urban portion of the training, with no attending funding going to the rural hospital for the rural portion of the training. Second, the statutory provision does not specify that the Secretary may provide a cap adjustment to urban hospitals or rural hospitals when an urban hospital adds additional rural locations to already existing RTTs. Third, the provision stated that the Secretary would adjust the caps of an urban hospital that establishes separately accredited approved medical residency training programs (or rural tracks) in a rural area. Historically, the Accreditation Council for Graduate Medical Education (ACGME) has separately accredited family medicine programs in the “1-2 format” (meaning, residents in the 1-2 format receive their first-year experience at a core family medicine program in an urban area, and their second- and third-year experiences at another site, which may or may not be rural). Because the ACGME has historically accredited family medicine programs in the 1-2 format, CMS interpreted the provision to mean that the development of rural tracks in specialties other than family medicine may not be feasible. Fourth, residents added to an RTT were previously not exempt from the 3-year rolling average for IME and direct GME. CMS believes that section 127 of the CAA remedies all each of those concerns.

Cap adjustment for urban and rural hospitals participating in rural training track programs

As amended by the BBRA, the SSA provided for IME and direct GME FTE resident cap adjustments for an urban hospital that establishes separately accredited rural tracks; however, the statute did not provide for a similar adjustment to rural hospitals participating in rural tracks. If an urban hospital already had an accredited family medicine residency program, it could establish from that existing family medicine program, for the first time, a rural track, and, assuming all applicable requirements are met, that urban hospital could receive IME and direct GME FTE resident cap adjustments. However, with regard to a rural hospital participating in the second and third years of training in the rural track, since the BBRA language did not mention cap adjustments to rural hospitals, only if the program is new for Medicare payment purposes can the rural teaching hospital also receive an FTE resident cap adjustment for the program. CMS has proposed to make various changes to the regulation text for “Residents training in rural track programs” to accommodate the rural track FTE limitations for both urban and rural hospitals.

Cap Adjustments when the urban hospital adds additional rural training tracks

If an urban hospital already had an accredited family medicine residency program, it could, for the first time, establish a rural track from that existing family medicine program and, assuming all applicable requirements were met, such hospital could receive the IME and direct GME FTE resident cap adjustments. Because the SSA gave this explicit permission for FTE resident cap adjustments to an urban hospital that establishes a rural track, the rural track program does not need to be new for Medicare payment purposes in order for the urban hospital to qualify for the FTE resident cap adjustments. However, after establishing its first RTT, the urban hospital can receive a rural track limitation adjustment for additional established RTTs only if those additional programs are “new” for Medicare payment purposes.

CMS believes that section 127 of the CAA permits it to adjust the resident caps of an urban hospital wishing to create additional RTTs after establishing its first RTT, while also adjusting the resident caps of the rural hospital(s) added by creating the subsequent RTTs. Section 127 of the CAA amends the Act to state that for cost reporting periods beginning on or after October 1, 2022, in the case of a hospital not located in a rural area that established or establishes a medical residency training program (or rural tracks) in a rural area . . . adjust in an appropriate manner the limitation under subparagraph (F) for such hospital and each such hospital located in a rural area that participates in such a training. Because the law now states “established or establishes,” both past tense and future tense. This is new authority that was not previously held; that is, the authority to prospectively allow (under certain circumstances) cap adjustments to existing RTTs expanded in a cost reporting period beginning on or after October 1, 2022. That is, the provision gives explicit permission to adjust the RTT limitations of an urban hospital wishing to create additional RTTs after establishing its first RTT, while also adjusting the resident caps of the additional rural hospital(s) added by creating the second (or third, etc.) RTT. CMS proposes to prospectively allow increases to the IME and direct GME caps of both the participating urban and rural hospitals that expand a qualifying RTT.

Removal of requirement that rural track must be “separately accredited”

Previously, the Secretary would adjust the caps of an urban hospital that establishes separately accredited approved medical residency training programs (or rural tracks) in a rural area. Historically, the ACGME has separately accredited family medicine programs in the “1-2 format” (meaning, residents in the 1-2 format receive their first year experience at a core family medicine program, and their second and third year experiences at another site, which may or may not be rural). Because the ACGME has only accredited family medicine programs in the 1-2 format, hospitals have not been able to seek additional funding opportunities for rural tracks developed in specialties other than family medicine. Since implementation of the original BBRA provision, stakeholders have expressed concern that FTE cap adjustments have not been permitted for sending residents to rural areas if the program was not a separately accredited family medicine RTT. Section 127 of the CAA removes the requirement that the rural track be “separately accredited.” Now, in the case of a hospital not located in a rural area that established or establishes a medical residency training program (or rural tracks) in a rural area, or establishes an accredited program where more than 50 percent of the training takes place in a rural area, the Secretary may adjust the resident cap in an appropriate manner. (Residency programs, whether they are “rural tracks” or any other program, must still be accredited under the law in order to receive IME and direct GME payments.

CMS has proposed that effective for cost reporting periods beginning on or after October 1, 2022, so long as the program in its entirety is accredited by the ACGME, regardless of the specialty, it may qualify as an RTT and urban and/or rural hospitals may receive rural track FTE limitations, assuming all other requirements are met.

Requirement that greater than 50 percent of the program occurs in a rural area

Under existing regulations, the urban hospital establishing the RTT may only receive a cap/rural track FTE limitation to count residents in the RTT if the urban hospital rotates residents to either a rural hospital or rural nonprovider site, for more than 50 percent of the duration of the program. CMS had previously adopted this greater than one-half duration rule based on the fact that residents training in separately accredited 1-2 family medicine RTTs spend greater than 50 percent of their training time in rural areas, and also wanted to ensure that cap adjustments would not be allowed for minimal rotations to rural areas.

Section 127 of the CAA states that in the case of a hospital not located in a rural area that established or establishes a medical residency training program (or rural tracks) in a rural area or establishes an accredited program where greater than 50 percent of the program occurs in a rural area, the Secretary shall, consistent with the principles of subparagraphs (F) and (G) and subject to paragraphs (7) and (8), prescribe rules for the application of such subparagraphs with respect to such a program. CMS feels this is now statute where it was previously a regulation.

Therefore, for all accredited specialties, CMS has proposed to allow an urban hospital to include in its FTE count, not to exceed its rural track FTE limitation, residents training in the urban hospital that are designated to rotate to a rural area for greater than 50 percent of the duration of the particular program. In addition, a rural hospital that is partnered with the urban hospital in the RTT would similarly include in its FTE count, not to exceed its rural track FTE limitation, the time residents train in the rural hospital only if the residents rotate to a rural area for greater than 50 percent of the duration of the particular program. For example, greater than 50 percent of the duration of a 3-year family medicine program would be more than 18 months rotating to a rural area; greater than 50 percent of the duration of a 4-year psychiatry program would be more than 24 months training in a rural area.

Exemption from the 3-year rolling average during the 5-year rural track FTE limitation window

CMS believes that section 127 of the CAA amends the Act to provide for an exemption from the 3-year rolling average of the urban hospital and rural hospital during the 5-year growth window for FTE residents participating in rural tracks. The revised section states that in the case of a hospital not located in a rural area that established or establishes a medical residency training program (or rural tracks) in a rural area or establishes an accredited program where greater than 50 percent of the program occurs in a rural area, the Secretary shall consistent with the principles of subparagraphs (F) and (G) and subject to paragraphs (7) and (8), prescribe rules for the application of such subparagraphs with respect to such a program. Subparagraph (F) is the FTE resident cap, and subparagraph (G) refers to the 3-year rolling average.

Just as residents in new programs are exempt from the 3-year rolling average until the cost reporting period that coincides with or follows the start of the sixth program year, similarly, effective for RTTs started in cost reporting periods beginning on or after October 1, 2022, for each rural track started, full-time equivalent residents at an urban hospital or rural hospital in a rural track program would be excluded from the rolling average calculation during the cost reporting periods prior to the beginning of the applicable hospital's cost reporting period that coincides with or follows the start of the sixth program year of each rural track.

Background on Establishment of PRAs and FTE Resident Caps for Hospitals Hosting Residency Training

The Act does not require a hospital to incur costs, be the program sponsor, or train a certain minimum number of FTE residents, in order to become a teaching hospital. Accordingly, the regulations define “Teaching hospital” as a hospital engaged in an approved GME residency program in medicine, osteopathy, dentistry, or podiatry. CMS’s historical policy is that if a hospital has residents that are training in an approved GME residency program(s), and if the training is according to a planned and regular schedule (that is, not spontaneous or random), then they consider the hospital to be a teaching hospital, even if—

It is not incurring the costs of the residents' salaries and fringe benefits,
It is not the sponsor of the program,
It is only training a very small number of FTE residents, and
The program in which the residents are training does not have to be a “new” program under Medicare rules.

In the past, a number of hospitals have found themselves in the situation of establishment of a low PRA, when they served as a training site for only small numbers of residents from programs sponsored by a medical school or another hospital. In many cases, these hospitals did not incur any salaries for those residents and may have incurred only insignificant overhead costs associated with the residents' presence at their facilities and, therefore, their PRAs were either very low or $0. Such low PRAs preclude meaningful direct GME payment in the future if these hospitals expand their training of residents and incur significant costs associated with the training. Section 131(a) of the CAA amends the Act to direct the Secretary, for such hospitals with such extremely low or $0 PRAs that meet certain criteria, to establish new PRAs. Under the revised statute, a new teaching hospital’s PRA is based on the lower of its actual GME costs per FTE during a specific base year, or the weighted average PRA of existing teaching hospitals located in the same core- based statistical area (CBSA) as the new teaching hospital. The statute does not require that a hospital train a certain minimum number of FTE residents in order to establish permanent caps. Hospitals wishing subsequently to participate in training residents in a significant manner were precluded by low FTE resident caps from receiving meaningful IME and direct GME payments. Section 131(b) of the CAA addresses this problem by amending the Act to direct the Secretary, for hospitals that meet certain criteria and that have very low FTE resident caps, to “adjust”—that is, redetermine—those caps if the Secretary determines that the hospital begins training residents in a program year beginning on or after enactment (December 27, 2020) and before 5 years after enactment (December 26, 2025).

Hospitals Qualifying to Reset their PRAs

Section 131(a) of the CAA also amends the Act to describe the categories of hospitals that qualify to receive a replacement PRA. For ease of reference CMS refers to these hospitals as Category A and Category B. A Category A Hospital is one that, as of the date of enactment (December 27, 2020), has a PRA that was established based on less than 1.0 FTE in any cost reporting period beginning before October 1, 1997. Typically, a Category A hospital is one that trained less than 1.0 FTE in its most recent cost reporting period ending on or before December 31, 1996, and received a very low or $0 PRA. A Category B Hospital is one that, as of the date of enactment (December 27, 2020), has a PRA that was established based on training of no more than 3.0 FTEs in any cost reporting period beginning on or after October 1, 1997, and before the date of enactment. The Secretary shall establish a new PRA in lieu of low PRAs if the hospital trains at least 1.0 FTE (in the case of a Category A hospital) or more than 3.0 FTEs (in the case of a Category B hospital). The recalculation period begins on December 27, 2020, and ends 5 years later.

CMS proposes that that to redetermine the PRA, the training occurring at a Category A Hospital or a Category B Hospital need not necessarily be training residents in a new program; the residents may be in either an approved program that is “new” for Medicare IME and direct GME purposes, or may be in an existing approved program.

Calculating the Replacement PRA and Cost Reporting Requirements

Consistent with the new statute, CMS proposes to use as the PRA base period the first cost reporting period beginning on or after December 27, 2020 in which either the Category A Hospital or Category B Hospital trains their requisite threshold FTEs; that is, at least 1.0 FTE is trained at Category A Hospital, and more than 3.0 FConsistent with the new statute, CMS proposes to use as the PRA base period the first cost reporting period beginning on or after December 27, 2020, and before December 26, 2025, or the earliest cost reporting period beginning after December 27, 2021, in which either the Category A Hospital or Category B Hospital trains their requisite threshold FTEs; that is, at least 1.0 FTE is trained at Category A Hospital, and more than 3.0 FTEs are trained at Category B Hospital. CMS proposes to amend the regulations to establish the replacement PRA as the LOWER OF:

The hospital’s actual cost per resident incurred in connection with the GME program(s) based on the cost and resident data from the hospital’s replacement base year cost reporting period; and
The updated weighted mean value of per resident amounts of all hospitals located in the same geographic wage area is calculated using all per resident amounts (including primary care and obstetrics and gynecology and nonprimary care) and FTE resident counts from the most recently settled cost reports of those teaching hospitals.
If there are fewer than three existing teaching hospitals with per resident amounts that can be used to calculate the weighted mean value per resident amount, for base periods beginning on or after October 1, 1997, the per resident amount equals the updated weighted mean value of per resident amounts of all hospitals located in the same census region.

Hospitals Qualifying to Reset Their FTE Resident Caps

CMS proposes that FTE resident caps would only be reset when a Category A Hospital or Category B Hospital “begins training” FTE residents in a new residency program(s). CMS has defined the term “begins training” under the statute to mean future training in a new program for the first time on or after enactment. They have determined that the relevant factor in determining the timing of resetting their FTE resident caps would be if the hospital first begins training the requisite amount of FTE residents at some point in a cost reporting period beginning on or after December 27, 2020 (date of enactment) and 5 years after (December 26, 2025).

Calculating the Replacement FTE Resident Caps and Cost Reporting Requirements

CMS proposes to calculate the replacement FTE resident caps by using the first program year of the 5-year cap building period in which either the Category A Hospital or Category B Hospital “begins training” their requisite threshold FTEs. Then CMS will calculate the FTE resident caps based on the sum of the products of the highest number of FTE residents in any program year during the fifth year of the first new program's existence and the number of years in which residents are expected to complete the program based on the minimum accredited length for each type of program. The adjustment to each qualifying hospital's cap for new residency training program(s) would be equal to the sum of the products of—

The highest total number of FTE residents trained in any program year during the fifth year of the first new program’s existence at all of the hospitals to which the residents in the program rotate;
The number of years in which residents are expected to complete the program, based on the minimum accredited length for each type of program.
The ratio of the number of FTE residents in the new program that trained at the hospital over the entire 5-year period to the total number of FTE residents that trained at all hospitals over the entire 5-year period.

CMS will issue instructions to the MACS and to hospitals to provide for an orderly process of request and review for the purpose of receiving replacement FTE resident caps. CMS is also proposing not to establish permanent FTE resident caps for hospitals training residents in new programs begun on or after December 27, 2020, until they determine that in a cost reporting period beginning on or after December 27, 2020, the hospital trains at least 1.0 FTE in a new medical residency program. Permanent FTE caps for new programs would no longer be triggered if the amount of FTEs being trained by a hospital in the new program equates to less than 1.0 FTE.

Summary of Finalized Policies with Regard to Section 131 of the CAA

CMS is finalizing the following policies with regard to section 131 of the CAA:

Finalizing policies for resets related to cost reports that are open, reopenable, or not yet settled. CMS will post a file on the CMS website containing an extract of the HCRIS cost report worksheets on which the FTE counts, caps, and PRAs, if any, would have been reported, starting with cost reports beginning in 1995. CMS is also seeking public comment regarding how to handle reviews of PRAs or FTE caps from cost reports that are beyond the 3-year reopening period (with the exception of Category A and Category B hospitals that agree with the HCRIS posting).
Hospitals must first consult the HCRIS posting on CMS's website to determine reset eligibility. MACs will not reach out to hospitals.
In cases where no PRA or caps are reported on a settled cost report, or when PRAs or caps are reported without any FTEs, and a cost report is settled but reopenable, the hospital gets the benefit of a reset without further review by the MAC.
If, for open or reopenable cost reports, there is a PRA and/or FTE caps reported on the HCRIS web posting, and the hospital believes its PRA in fact was established based on not more than 3.0 FTEs, or its IME and/or direct GME FTE caps were based on not more than 3.0 FTEs, a hospital has a 1-time opportunity to request reconsideration by its MAC which must be submitted electronically and received by the MAC on or before July 1, 2022.
Hospitals that disagree with the 1-time MAC determination may appeal to the PRRB, assuming all conditions for appeal are met.
Eligible hospitals for resets are those only that have a PRA base period that started prior to enactment and/or FTE cap building window that occurred/closed in a cost reporting period that started prior to enactment (December 27, 2020).
FTE cap resets will only be based on new programs started after enactment and 5 years after (by December 26, 2025).
Hospitals that qualify for a PRA reset may use as the new PRA base period either the earliest cost reporting period beginning between enactment and 5 years after in which they train FTES in a new program, or the first cost reporting period beginning after issuance of this final rule with comment period. In any case, residents need not be on duty during the first month of the cost reporting period from which the per resident amount is established.
Effective with cost reporting periods beginning on or after December 27, 2020, a PRA would be established if a hospital trains less than 1.0 FTE as a result of participating in a Medicare GME affiliation agreement. Otherwise, no PRA would be established until a hospital trains at least 1.0 FTE. In any case, residents need not be on duty during the first month of the cost reporting period from which the per resident amount is established.
Effective with cost reporting periods beginning on or after December 27, 2020, a hospital must report training of less than 1.0 FTE on its Medicare cost report if that training is as a result of participating in a Medicare GME affiliation agreement. Otherwise, a hospital must report FTEs on its Medicare cost report when it trains at least 1.0 FTE.
Hospitals eligible to reset their PRAs would get a new PRA replacing their old PRA(s); hospitals eligible to reset their FTE caps would receive an FTE cap adjustment equal to the sum of the original FTE cap and the new program FTE cap adjustment.

Please contact AACOM Government Relations at aacomgr@aacom.org with questions or for further information.

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