On August 28, 2024, the Centers for Medicare & Medicaid Services (“CMS”) published the Fiscal Year 2025 Inpatient Prospective Payment System (“IPPS”) Final Rule (“Final Rule”), which can be found here (Hall Render’s alert on the 2025 IPPS Final Rule can be found here). Among other things, the Final Rule finalized updates to Graduate Medical Education (“GME”) reimbursement policies for teaching hospitals under the Medicare program. These updates include CMS’s policy to implement the distribution of new residency slots required under Section 4122 of the 2023 Consolidated Appropriations Act (“CAA”), a renewed request for information (“RFI”) on the topic of how CMS should recognize new GME programs, and the annual Medicare Advantage (“MA”) Direct GME (“DGME”) payment reduction to fund nursing and allied health education programs. Additionally, CMS announced the closure of Sacred Heart Hospital, a teaching hospital formerly operating in Eau Claire, Wisconsin, triggering the redistribution of the hospital’s full-time equivalent (“FTE”) resident caps through another round (“Round 23”) of the Affordable Care Act’s Section 5506 application and selection process. Each of these developments will likely have significant implications for teaching hospitals and other GME stakeholders.
Section 4122 FTE Cap Slot Increase
Section 4122 of the 2023 CAA requires CMS to distribute an additional 200 FTE residency slots. The Final Rule finalizes CMS’s policy proposal to implement this distribution. Previously, CMS finalized a policy to distribute 1,000 FTE slots over five years as required under Section 126 of the 2021 CAA (our summary of CMS’s December 27, 2021 Final Rule implementing Section 126 from the CAA of 2020 relating to GME can be found here.) However, the distribution of slots under Section 4122 differs from the Section 126 distribution in several significant aspects: (1) it only authorizes the distribution of 200 FTE slots; (2) it requires 100 of the 200 slots to be reserved for psychiatry or psychiatry subspecialty programs; and (3) it limits the distribution of slots to qualifying hospitals to 1.0 FTE in the event 200 or fewer hospitals qualify and less than 1.0 FTE on a pro rata basis if more than 200 hospitals qualify. CMS largely finalized its policies related to the distribution of the 200 FTE slots under Section 4122 as described in the FY 2025 IPPS Proposed Rule (“Proposed Rule”), without modification. As a result, the actual FTE cap award to available individual qualifying hospitals will likely be relatively small. This is because CMS intends to distribute at most 1.0 FTE to qualifying hospitals under the Section 4122 distribution, so these slots alone will likely be insufficient to induce a hospital to start or expand a teaching program. However, if a hospital has other economic or non-economic incentives to start or expand a program, then it may make strategic sense for the hospital to consider coordinating its planning process with the intent to obtain additional FTE slots through the Section 4122 distribution. Applications for this process are due March 31, 2025, and any FTE gained will be effective July 1, 2026.
Renewed RFI on “New” Programs and Residents
In the Proposed Rule, CMS proposed a policy for determining whether residents in a program are genuinely “new” for purposes of defining a “new program” for Medicare reimbursement benefits, such as how Indirect Medical Education (“IME”) cap can increase for hospitals that start new programs and are reclassified as rural under 42 C.F.R. § 412.103. The Proposed Rule also included an RFI through which CMS sought input on criteria for determining whether program directors, teaching staff and comingled residents are “new” for purposes of defining a “new program.” However, in response to the proposal and RFI, CMS received many wide-ranging comments, and commenters did not arrive at a consensus on the best approach for criterion for ensuring the newness of residents. As a result, CMS did not finalize the policy to define a new program as comprised of at least 90% of resident trainees who have not had previous training in the same specialty as the new program, as described in the Proposed Rule. Instead, CMS used the Final Rule to introduce a new RFI to seek additional input on the appropriate criteria to determine the “newness” of residents.
In response to CMS’s RFI in the Proposed Rule, Hall Render submitted a comment urging CMS to create a “safe harbor” for new programs that operate separately but concurrently with other programs such that the program director, faculty and residents are still linked to the other programs. This proposal suggested that a program should be deemed “new” when the program receives its new accreditation, even if the program director, faculty and/or residents previously worked or trained at the other programs, so long as the other programs continue to operate as existing programs for the first year of the “new” program. CMS recognized the utility of a “safe harbor” and strongly encouraged further public input in the Final Rule and its renewed RFI, citing to its “broad statutory authority” to determine policy in this area.
The deadline for submitting comments to CMS for this RFI is October 15, 2024, and comments can be submitted to GME_Program_Newness@cms.hhs.gov.
Reduction to DGME Payments and Redistribution of FTE Resident Caps
The Final Rule finalized CMS’s annual nursing and allied health education program Medicare Advantage add-on rates and DGME MA payment reductions. Teaching hospitals should note that the DGME MA percent reduction for CY 2023 will be 2.74% to account for the costs of nursing and allied health education programs linked to services provided to MA enrollees.
Closure of Sacred Heart Hospital, Eau Claire, WI
CMS also provided notice that it would soon begin the process of redistributing DGME and IME caps resulting from the closure of Sacred Heart Hospital in Eau Claire, WI. In total, there are 7.62 IME and 7.8 DGME FTE slots available for distribution. Those slots will be distributed in accordance with the application process for redistributing FTE slots following the closure of a teaching hospital established under Section 5506 of the Affordable Care Act. The application period for hospitals to apply for these FTE slots is open and applications must be submitted by October 30, 2024. Applications for Round 23 can be submitted through the MEARIS portal. Policy and procedure for doing so can be found here underneath the Section 5506: Preservation of Resident Cap Positions from Closed Hospitals heading.
Practical Takeaways
- Given the relatively small number of FTE slots expected to be awarded to individual hospitals under Section 4122 of the 2023 CAA, there may be little utility in structuring the development or expansion of a program around these Section 4122 FTE slots. However, hospitals that otherwise have an economic or other compelling incentive to open or expand a teaching program should consider applying for the Section 4122 FTE slots.
- Teaching hospitals and other GME stakeholders should give serious consideration to submitting comments in response to the Final Rule’s RFI on input regarding what qualifies a resident as “new.” CMS noted in the Final Rule its “broad statutory authority” in determining what qualifies as a “new” program, so the RFI presents a real opportunity for GME stakeholders to provide input, particularly as it relates to the need to develop an appropriate safe harbor for assessing program newness in a manner not dependent on the proportion of residents without previous experience training in the same specialty.
- In light of the redistribution of Sacred Heart Hospital’s FTE resident cap following its closure, teaching hospitals looking to expand GME should consider applying before October 30, 2024.
If you have any questions on this topic, GME reimbursement or if you would like assistance responding to the RFI or applying for FTE slots, please contact:
- Scott Geboy at (414) 721-0451 or sgeboy@hallrender.com;
- Mayo Alao at (720) 282-2026 or malao@hallrender.com;
- Zeke Shen at (414) 721-0912 or zshen@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Zachary Renier, Summer Associate, for his assistance in preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
