One of the chief concerns of a new teaching hospital as it begins training residents is establishment of its full‑time equivalent (FTE) resident limit or, as it is commonly known, "FTE cap." Teaching hospitals' FTE caps dictate the maximum numbers of allopathic and osteopathic residents for which a hospital may claim Medicare graduate medical education (GME) reimbursement. For the most part, with very few exceptions, FTE caps, once established, cannot be reset.

New teaching hospitals can begin to build their FTE caps by training residents who are participating in "new programs." Whether a program is considered truly new, such that it will "trigger" and contribute to a new teaching hospital's FTE cap, depends on a multi-factor analysis that is not always straightforward. Indeed, a new teaching hospital's cap-setting process is fraught with pitfalls relating to this "new program" quandary, sometimes involving, for example, incidental resident rotators from other hospitals' "new" programs.

Those issues aside, even when a hospital sets out to build its FTE cap with deliberation and foresight, the cap-setting calculation holds its own surprises.

New teaching hospitals that began training residents on or after October 1, 2012 have a five-year window in which to grow their new program participation, starting from the first year of the hospital's very first new program. In the fifth year of the first new program's existence, the new teaching hospital's FTE cap will be calculated, in part, based on all "new program" training that has occurred at the hospital over the entire five-year period. (The FTE cap will be effective at the start of the sixth year.)

While the actual calculation is somewhat more complicated, the new calculation methodology, which the Centers for Medicare & Medicaid Services (CMS) adopted in its FY 2013 Hospital IPPS Final Rule, can be distilled into the following three major steps.

1. The maximum total number of cap slots associated with each new program at the new teaching hospital is determined according to how full each program is during the operative cap-setting year (i.e., the fifth year of the first new program's existence). Generally, the more residents training in the program at any level, the higher the number of available cap slots for that program. 

2. CMS then prorates the total number of FTE cap slots for each program according to the proportion of overall resident training in the program that occurred at the new teaching hospital vis‑à‑vis training at other partnering training institutions that also hosted resident rotations for the program. 

3. The combined number of cap slots allocated under steps one and two for each new program in existence at the new teaching hospital is the new teaching hospital's total FTE cap.

Step two above is important and represents a significant change in CMS policy. The result is that teaching hospitals that design "new programs" that include out-rotations (i.e., resident rotations to other partnering institutions) can take a huge hit when their FTE caps are calculated. By sending rotators out of the new hospital during the five-year cap-building period, new teaching hospitals reduce the maximum number of FTE cap slots to which they are entitled under the new cap-setting regulations. It pays to hog residents!

If you are considering becoming a teaching hospital, or if you are currently in your cap-building period, the GME @ Dentons team can help you plan your new program growth strategy to maximize your FTE cap. If your cap-building window has closed, and you are in the process of receiving your FTE cap, we can help you understand the cap-setting methodology to ensure that your cap is calculated correctly. If you suspect that your FTE cap has been miscalculated, you must act immediately to preserve your appeal rights. Dentons can help.