CMS Proposes Postgraduate Medical Education Changes in IPPS Proposed Rule 2023

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On May 10, 2022, CMS released its proposed revisions to the prospective inpatient payment system for 2023. CMS proposed two changes that would affect reimbursement for Graduate Medical Education (“GME”) programs at teaching hospitals. First, CMS proposed to update the way it calculates GME Direct Payments (“DGME”) for scholars in certain training programs, in response to the court ruling in Milton S. Hershey v. Becerra Medical Center. Second, CMS proposed to allow urban and rural hospitals jointly training residents in an accredited 1-2 family medicine program separately to share the FTE cap space of the rural track.

CMS also released the Annual Medicare Advantage Nursing and Paramedic Supplementary Payment and the GME Medicaid Advantage Direct Payment Reduction. CMS had previously said it would publish these updates annually in the Federal Register, but it only consistently published them through change requests until this year. In the end, no changes to the reimbursement of nursing and paramedical care were proposed.

Count the Fellows

When counting participants in a GME program to determine whether the teaching hospital has met or exceeded its DGME FTE cap, residents are weighted as 1.0 FTE, while fellows (trainees beyond their period of initial residence) are weighted as 0.5 FTE. This applies only to the DGME, since for calculations of reimbursement for indirect higher medical education, scholarship holders are not weighted. In Milton S. Hershey v. Becerra Medical Center, a group of hospitals challenged a formula used by CMS for many years when the total number of residents and fellows, before applying these weighting factors, exceeds the hospital’s GME cap. To illustrate what was known as the “comrade penalty” policy, CMS provided this example:

If a hospital has a cap of 100 FTEs and trains 90 residents (weight 1.0) and 10 fellows (weight 0.5), it will pay the hospital as if it were training 95 FTEs. However, if the same hospital trained 90 residents and 20 fellows, it would pay the hospital as if it were training 90.91 FTEs. (A full explanation of the old formula can be found on page 87 FR 28411 of the Federal Register).

The Hershey The court ruled that this CMS policy was arbitrary and capricious, and CMS did not appeal this decision. Therefore, CMS is implementing a policy that corrects this error, which will be retroactive to 2001. However, CMS will only apply this policy for cost report periods that are open or can be reopened (and for future cost report periods). All teaching hospitals that have trained fellows and exceeded their DGME FTE caps in recent years will need to closely monitor the CMS final rule to be released later this summer, and once it is final, take the necessary steps to receive the additional reimbursement from the DGME. this will be the likely outcome for at least a few years.

Cap-Sharing for Rural Route Programs

CMS also announced a revision to its policy for GME Affiliate Agreements, which are sometimes referred to as Cap Sharing Agreements. Under these agreements, two or more teaching hospitals that jointly train residents are permitted to share their FTE cap space, allocating to each of the participating hospitals such total FTE cap amount as the parties determine.

In addition to their regular FTE caps, urban teaching hospitals may be reimbursed for residency training programs that take place in part in rural areas. Historically, these programs were limited to separately accredited family medicine programs where program residents trained for one year in an urban hospital and two years in a rural hospital (“1-2 programs”). Based on the CAA, CMS has broadened the meaning of rural track training programs: see our article on the new CMS rules for rural programs here.

Historically, CMS has considered these rural Program 1-2 FTE cap slots to be separate and distinct from the FTEs that are part of the hospital’s overall FTE caps, with one distinction being that CMS has only not allow hospitals to share rural FTEs. cap through cap sharing agreements.

CMS has proposed to change this policy starting in 2023. If finalized, urban and rural teaching hospitals that jointly engage in rural pathway 1-2 programs will be able to share the rural pathway FTE cap by concluding an agreement analogous to health insurance. GME Affiliate Agreement. This flexibility, however, would only apply to urban and rural teaching hospitals that participate in the same separately accredited 1-2 program, and only to residents who participate in the 1-2 program. Notably, CMS is proposing to limit this flexibility to hospitals that had rural FTE limits in place before October 1, 2022, meaning that only hospitals participating in currently existing 1-2 programs would be affected. New feeder programs configured under the CAA-based rural program expansion will not even have feeder cap spaces for at least five years (since the FTE cap is being creation). Accordingly, CMS proposes a policy to defer this issue for rural expansion programs to a later date.

Convenient takeaways

  • Teaching hospitals that have trained residents and fellows should review all open or reopening cost report years to determine if they could benefit from CMS’s proposed updated rules for counting fellows. Although the details of the new rules are not known until this summer, rules offering some relief seem likely. In addition, teaching hospitals that believe they may benefit should take prompt action to preserve their appeal rights for any open or reopenable cost report years.
  • Once finalized, teaching hospitals engaged in 1-2 separately accredited programs may be permitted to enter into GME Rural Track Medicare Affiliate Agreements. With that, it may be prudent to begin to assess whether there may be benefits to sharing the program’s 1-2 FTE cap in 2023, based on the CMS Final Rule released later this summer.


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