United States: Patient Protection And Affordable Care Act: Opportunities For Teaching Hospitals Under The Resident Cap Reduction And Redistribution Program

This article was originally published in the February 2011 issue of Atlanta Hospital News.

The Patient Protection and Affordable Care Act ("PPACA") made a number of changes to the way hospitals and academic medical centers will be reimbursed for training. The Centers for Medicare and Medicaid Services ("CMS") reimburses teaching hospitals for costs incurred in training residents through graduate medical education ("GME") payments and indirect medical education ("IME") adjustments. Under the resident cap reduction and redistribution program contained in PPACA, teaching hospitals may have the opportunity to increase their current resident cap and increase their reimbursement for resident training programs.

GME payments compensate Hospitals for the direct costs of residents' salaries, fringe benefits and teaching physicians' salaries. GME payments are calculated by multiplying the hospital's updated per resident amount by the weighted number of full time equivalent ("FTE") residents working in all areas of the hospital complex (and nonprovider sites, when applicable), and the hospital's Medicare share of total inpatient days. Hospitals receive additional payments under the hospital inpatient prospective system in order to compensate them for the higher indirect patient care costs of teaching hospitals. These IME adjustments are based on a formula that raises inpatient payments by a percentage based on the ratio of FTE residents to hospital beds.

Both GME and IME payments are affected by the number of FTE residents that a hospital is allowed to count and, accordingly, the greater number of FTE residents a hospital counts, the greater the payment. These payments were capped in 1996, based on the number of FTE residents in approved residency training programs as set forth in the hospital's most recent cost reporting period ending on or before December 31, 1996. Following the resident cap, many hospitals lobbied to add additional FTE resident slots and pointed to resident slots unfilled by other hospitals.

PPACA addresses the distribution problem in the Statute by i) reducing certain hospitals' FTE resident caps based on unused FTE resident slots, ii) providing for certain exceptions to the FTE resident cap reductions, and iii) including general criteria that CMS must consider in making a redistribution to other hospitals.

Under the Regulations, effective July 1, 2011, CMS will look at a hospital's last three settled or submitted cost reports ending before March 23, 2010 to determine how many slots will be eliminated. CMS will then use the smallest number of residency slots that went unutilized during the three-year period and reduce the hospital's cap by 65% of that number.

Rural hospitals with fewer than 250 acute care beds and hospitals that participated in a voluntary residency reduction plan and have a plan to fill the unused positions by March 23, 2012 will be exempted from this reduction.

CMS will then redistribute the reduced slots under the reduction plan to qualifying hospitals. Qualifying hospitals will be determined by examining their likelihood of filling the slots within the first three years and whether the hospital has an accredited rural training track program. PPACA requires CMS to allocate 70% of the redistributed slots to hospitals in states with resident-to-population ratios in the lowest quartile and 30% to hospitals located in 1) the ten states with the highest proportion of their populations living in a health professional shortage area, and 2) rural areas. CMS has determined that Georgia falls within the lowest quartile, therefore, hospitals in Georgia may have a greater chance of acquiring these redistributed resident slots.

Some groups have estimated there may be an additional 300 to 500 resident positions available for redistribution under the reduction and redistribution plan. CMS is scheduled to complete its actual hospital-specific estimates by May 1, 2011.

Lately, GME program structures have been of interest to the federal government. Therefore, hospitals should continually evaluate their GME program policies and procedures to ensure their program complies with the new reduction and redistribution program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.