Since 1997, Congress has placed a limit or "cap" on the number of full-time equivalent (FTE) residents each hospital may claim and for which the hospital may be reimbursed through Medicare direct graduate medical education (DGME) and indirect medical education (IME) payments. Under current law, the Centers for Medicare & Medicaid Services (CMS) is required to apply a weighting methodology to convert each teaching hospital’s direct graduate medical education (DGME) cap to a weighted cap. This policy was intended to limit the timeframe that Medicare will make full DGME payments for a resident to the amount of time it takes a resident to become board certified in the first specialty for which the resident begins training (also known as the initial residency period or IRP). Accordingly, each resident training within the IRP is counted as 1.0 FTE, but each resident training beyond the IRP is counted as 0.5 FTE for DGME payment purposes. The most common situation in which a resident trains beyond the IRP is for fellowship training (see Dentons previous article regarding Medicare's treatment of fellowship training).

This weighting of residents who train beyond the IRP is statutorily required. The statute does not contemplate how a hospital should be paid however, if the result of the weighting reduces the hospital's weighted cap below its originally-established weighted FTE cap. In theory, a hospital should be able to be paid up to the amount of its originally-established weighted FTE cap, but CMS currently applies the formula to convert the unweighted DGME cap to a weighted cap in a way that disadvantages hospitals whose proportion of fellows to total residents has increased compared to the base year when the caps were set. In this respect, CMS’ cap-weighting methodology ultimately penalizes hospitals that have disproportionately grown their fellowship programs since the cap was originally established, by paying them for fewer FTEs than their originally-established weighted FTE cap permits.

Understanding the methodology CMS uses to weight each hospital’s DGME cap and how CMS counts residents when applying this methodology is important to both large established academic medical centers and teaching hospitals planning to expand in the future. The Dentons team listed here can help you understand:

• The formula CMS uses to weight the DGME cap and how it is applied,
• How CMS counts residents and fellows in approved and unapproved programs for GME payment purposes,
• How to determine a resident’s IRP, and
• Prior training experiences that could count toward a resident’s IRP.

Understanding these concepts will allow your teaching hospital to take into account the GME payment implications of structuring and expanding residency and fellowship training programs.