Proposed CMS Rule on Direct/Indirect Graduate Medical Education (GME/IME) For Training in Nonhospital Sites
CMS issued a proposed rule today at, 72 Fed. Reg. 4779 (Feb. 1, 2007), which would modify its policies on claiming GME/IME in nonhospital settings, effective July 1, 2007. Specifically, CMS is proposing to modify its definition of the requirement that hospitals must pay "all or substantially all of the costs for the training program in the nonhospital setting." Historically, CMS has interpreted this term to mean that hospitals must pay 100% of the residents' salaries and fringe benefits (including travel and lodging, where applicable), as well as "reasonable compensation" for the supervisory physicians' time spent on direct GME activities at the nonhospital site. CMS has also historically (although not consistently) taken the position that any supervisory teaching physician that is compensated via a predetermined salary or set amount, rather than based solely on his/her patient encounters, is being compensated in part for teaching activities. Thus, CMS has stated that hospitals must pay the nonhospital sites for that portion of salaried physicians' time spent on direct GME activities, in order to claim resident FTEs in the nonhospital training site, even where the physicians have agreed to volunteer their time spent teaching or to accept de minimis compensation for that time.

Under the proposed rule, CMS indicates that it will permit hospitals to claim FTEs in nonhospital training sites based on less restrictive criteria. CMS is now proposing:

• To change the definition of the term "all or substantially all of the costs for the training program in the nonhospital setting," in 42 CFR 413.75(b) for GME and in 42 CFR 412.105(f)(1)(ii)(c) for IME, to mean "at least 90% of the total cost of the costs of the residents' salaries and fringe benefits (including travel and lodging where applicable) and the portion of the cost of teaching physicians' salaries attributable to direct GME," not including overhead costs. CMS makes clear in the preamble to the rule that hospitals could meet this threshold by either documenting that: (a) paying only the residents' salaries and fringe benefits (including travel and lodging, where applicable) met the 90% threshold, or (b) payment to residents, plus a portion of the cost of the teaching physicians' salaries attributable to direct GME teaching and supervision activities, meets the 90% threshold. This change may allow hospitals that have historically used volunteer supervisory physicians, or paid only de minimis amounts to those physicians, to more easily document that they meet the requirements for claiming FTEs in non-hospital training sites, on or after 07/01/07.
  
  
• CMS also proposes to allow hospitals to either calculate the 90% threshold based on actual time and cost data, or to use certain proxies for the teaching physicians' costs. The proposed proxy for calculating teaching physician costs at the nonhospital training site is based on national average salaries and a presumed number of hours spent in direct GME teaching activities per week. CMS proposes to allow hospitals to use 3 hours per week as a presumptive standard of the number of hours a supervisory physician spends on non-patient care, GME activities. Hospitals could then identify the total compensation associated with supervisory physician time spent on direct GME by (a) dividing 3 hours by the number of hours the nonhospital site is open each week, prorated based on percentage of time residents train at the site throughout the year, and (b) multiply that percentage by the national average salary of that teaching physician's specialty (regardless of the specialty in which the residents are training), taken from AMGA's most recent national survey as of the beginning of the hospital's cost reporting year. If residents do not rotate to the nonhospital site throughout the entire year, the time for the teaching physician would be prorated based on the percentage of the year in which residents do train at the site (e.g., for site that is open 40 hours a week, but where residents only train 3 months out of 12, the physician's time calculation would be: 3/40 x 0.25 = 1.9 percent x national average salary). 72 Fed. Reg. 4822-23, 4827. Hospitals would be permitted to add the foregoing proxy of teaching physicians' cost to the costs of the residents' salaries and fringes, to calculate 100% of the costs of training at the nonhospital site, and then pay 90% of those costs via any combination of payment for residents' salaries/fringe (which, alone, could meet the 90% threshold) and/or payment of some portion of the supervisory teaching physicians' costs.
  
  
• CMS also proposes to permit hospitals to limit supervisory physician costs, for purposes of meeting the 90% threshold, by assuming a 1:1 resident-to-training physician training ratio where the ratio of residents to training physicians is less than 1:1. Thus, if there is 1 resident for every 2 teaching physicians at the site, the hospital may calculate total costs of the one FTE resident (salary, fringe, and any travel/lodging) plus the actual or proxy calculation for one teaching physician, and to exclude the costs associated with a second teaching physician; if there are 3 residents to every 7 physicians, the hospital can calculate costs based on 3 FTE residents and 3 physicians, etc. CMS will assume that all physicians at the nonhospital training site are involving in training the residents, unless the hospital documents otherwise.
  
  
• Hospitals can still document that the 90% threshold is met either via a written agreement with the nonhospital site, or via concurrent payment of 90% of the training costs by the end of the third month following the month in which the training occurred. The written agreement would need to specify the total amount of nonhospital training site costs, that the hospital will pay 90% of those costs, the specific amounts it will pay to the site, and specify whether this amount reflects only resident salaries and fringe benefits (including travel/lodging if applicable) or also reflect an amount for teaching physician compensation. CMS reiterates that if a written agreement is used, the hospital must still liquidate accrued liabilities identified in the agreement within the time frame required by 42 CFR 413.100(c)(2)(i) (1 year after the end of the cost reporting period). CMS also states that written agreements between hospitals and medical schools, or other institutions operating multiple non-hospital training sites, must break out the costs of each program at each nonhospital site, rather than reporting a lump sum for multiple sites. Hospitals that continue to provide in-kind, non-monetary compensation for supervisory physician teaching activities must be able to document that the value of the in-kind compensation is at least equivalent monetarily to the portion of the actual or proxy-based costs for the physician attributable to nonpatient care GME activities.
  
  
• Unfortunately, however, CMS continues to assert an unfavorable position on treatment of nonhospital training sites at which two or more hospitals rotate their residents, stating in the proposed rule: "Similarly, as under current policy, if two (or more) hospitals both train residents in the same accredited program, and the residents rotate to the same nonhospital site(s), the hospitals cannot share the costs of that program at that nonhospital site (for example, by dividing the FTE residents they wish to count according to some pre-determined methodology), as this violates the statutory requirement at section 1886(h)(4)(E) of the Act that the hospital incur "all, or substantially all, of the costs for the training program in that setting." 72 Fed. Reg. 4829. We do not believe that this is a valid position on CMS's part, but we anticipate seeing increased fiscal intermediary scrutiny of FTEs claimed at nonhospital sites shared among multiple hospitals.

The foregoing proposal is CMS's attempt to respond to congressional and industry criticism of its denials related to volunteer training physicians, or those arrangements involving de minimis compensation for training physicians. If adopted in final rule, hospitals may wish to assess their current compensation arrangements to determine if they meet the 90% threshold, based solely on resident salaries and fringes (in which case, no in-kind or monetary compensation to supervisory physicians is needed), or if they need to modify their nonhospital training site agreements in response to the foregoing rule. Also, the option to use the physician cost proxy may substantially reduce the administrative burden of documenting actual costs, based on time studies or otherwise. CMS is soliciting comments on whether or not: (a) to use the mean or median national average salary amounts for determining teaching physician costs, (b) to consider geographic variations in physician salary amounts, (c) to use other national surveys, aside from the AMGA survey, and (d) alternative proxies for physician time spent on non-patient care GME activities. Comments on the rule are due by 04/02/07.

If you have any questions regarding the foregoing, or would like assistance in commenting on the proposed rule, please contact Lisa Dobson Gould or Sandy Pitler.