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MEDICARE ALERT FOR TEACHING HOSPITALS
CMS Begins Implementing MMA’s
Redistribution of Unused Residents
Hospitals Must Act by June 14, 2004
By Susan
L. Fine
[May 2004]
Effective July 1, 2005, with Section 422 of the
Medicare Modernization Act of 2003 (MMA), Pub. L. 108-173, Congress
directed the Secretary of Health and Human Services ("Secretary")
to reduce the Indirect Medical Education/Direct Graduate Medical
Education (IME/GME) FTE intern and resident 1996 caps (adjusted
for affiliated groups as of July 1, 2003 and FTEs in rural areas)
for hospitals not using all their FTEs, and redistribute those
FTEs to other hospitals to increase their caps. In implementing
these provisions, the Center for Medicare and Medicaid Services
(CMS) has already set a short timeline for hospitals to respond.
On April 30, 2004, CMS issued Transmittal No. 77 notifying hospitals
that they must submit requests by June 4, 2004
(CMS just issued an extension to June 14, 2004
via Pub. 100-20, OTN, Trans. 87, May 26, 2004) to adjust their
FYE 2002 “resident levels” or adjust the year that
will serve to establish their resident levels (“resident
reference period”). These are critical points for determining
whether and how much a hospital is subject to an FTE cap reduction.
At the same time that CMS will be making FTE cap reductions,
the Secretary has been authorized to increase a hospital’s
IME/GME FTE cap if the hospital can show it will use additional
FTEs within the first three cost reporting periods beginning
on or after July 1, 2005. Hospitals must submit detailed applications
to increase their FTE caps by Dec. 1, 2004.
This alert identifies key elements of CMS’s procedures
and suggests steps that hospitals may take to both protect their
current FTE level or to increase their FTE caps.
For hospitals underutilizing their FTEs in the
"resident reference period," their FTE caps will be
reduced by 75 percent of the difference between the 1996 cap
and the "resident level" for the most recent cost
report period ending on or before Sept. 30, 2002 that is "settled
(or, if not, submitted (subject to audit))." This means
that the resident level might be based on a hospital's FYE Sept.
30, 2002, June 30, 2002 or Dec. 31, 2001 that is either settled
or submitted, unless a request to use the year in which July
1, 2003 falls is granted. If hospitals wish to request an adjustment
to their "resident reference period," they must submit
requests by June 14, 2004. If appropriate, hospitals should
consider submitting:
- A request to use the “resident reference period”
that includes July 1, 2003 (i.e. the FYE Sept. 30,
2003, Dec. 31 2003, or June 30, 2004, whichever is applicable)
if they expanded an existing program and the additional
FTEs were not reflected on the most recently settled cost
report as of April 30, 2004.
- A request for an adjustment to the 2002 “resident
level” to increase the FTE count by the number of the
new residents for a newly established program if
they obtained approval before Jan. 1, 2002 for a new program
that was not in operation during the year used for the resident
level.
The precise elements of the requests are included in Transmittal
77 and the May 11, 2004 proposed rule. Hospitals should review
those criteria. Where there are ambiguities, hospitals may want
to consult with legal counsel to determine how to complete the
application or whether an application is appropriate under the
circumstances.
On May 11, 2004, CMS issued its proposed rule 1428-P (which
was published May 18, 2004 in 69 Fed. Reg. 28196) setting forth
the specific procedures and criteria it will be using in redistributing
FTEs. The aggregate increase in the caps cannot exceed the estimate
of the aggregate reduction in the caps. Hospitals must submit
applications to increase their FTE cap by Dec. 1, 2004.
Key elements of CMS’s proposed distribution procedures
include:
- In establishing the “resident pool” from which
CMS will allocate added FTEs to increase hospital caps, intermediaries
will conduct audits and make estimates of FTE cap reductions
by May 1, 2005; these estimates will determine how many FTE
slots can be redistributed;
- In order to apply for an increase in the FTE cap, a hospital
must submit a lengthy application, which includes a detailed
“Evaluation Form” for each residency program for
which it is requesting an increase and supporting documentation
to CMS by Dec. 1, 2004 (deadline is extended
to Mar. 1, 2005 under certain circumstances);
- In order to be considered for the FTE cap increase, a hospital
must first show the likelihood that it will be able to fill
the additional FTE slots within the first three cost reporting
periods beginning on or after July, 2005 by supplying extensive
and detailed documentation demonstrating that it meets at
least one of four criteria. For example, a hospital must show:
- that it submitted an application to the appropriate
accrediting body for approval of a new residency program
by Dec. 1, 2004;
- documentation of the expansion of an existing program;
- documentation that the hospital is already training
residents in an existing residency training program in
excess of its existing cap; or
- documentation from the appropriate accrediting body
of the hospital’s risk of lost accreditation as
a result of an insufficient number of residents in the
program;
- If a hospital has established the threshold criteria above,
CMS has established six priority levels by which it will evaluate
applications; the priority levels are based on the three statutory
priorities and expanded to address hospitals that might fall
within more than one priority category;
- Within each priority level, CMS will consider 10 criteria
and give points based on the hospital satisfying each criteria:
- Medicare utilization;
- geriatric residency program;
- rotations in rural areas or rural designated facilities;
- training of displaced residents;
- application for a new program before Aug. 5, 1997 and
receipt of accreditation before Aug. 5, 1998;
- 1996 cap that does not reflect the full complement of
residents for which a new program was accredited before
the 1996 FTE cap became permanent;
- location in HPSA or physician scarcity county;
- rural track residency program site;
- affiliation with a historically black medical college
(The Committee Conference Report mentioned priority for
historically “large” medical colleges, but
CMS has interpreted this as a scrivener’s error
and that it was intended to read historically “black”
medical colleges); and
- sponsorship by medical school that is designated as
a Center of Excellence for Underserved Minorities;
- Notifications of FTE cap increases will be made by July
1, 2005; and
- Any increase in the IME FTE cap would not apply to the cap
in the IME ratio from the prior year, resulting in a one-year
delay in receiving reimbursement from the increase in the
cap.
Hospitals should begin doing their own calculations and evaluating
the risks and opportunities for their residency programs. In
addition, hospitals should consider taking proactive steps to
maximize their opportunities and preserve rights to challenge
intermediary or CMS action as the process unfolds. Specifically,
in addition to addressing the immediate June 14, 2004 deadline
described above, hospitals might consider doing the following:
- Review risks and opportunities created by the redistribution
statute and CMS’s proposed procedures for reducing and
increasing FTE caps;
- Make your own determination of the figures and periods that
should be used in the reduction process, including the 1996
cap, 2002 FTE count, applicable reference year;
- Determine whether the hospital can, as a threshold matter,
appropriately establish that a likelihood exists that it would
use additional FTE slots within the first three cost reporting
periods beginning on or after July 1, 2005;
- Determine whether the hospital qualifies as a hospital entitled
to priority to receive an increase in its FTE cap. Those with
priority generally are as follows:
- Rural hospitals (hospital located in any area outside
an MSA);
- Urban hospitals in small urban area (urban hospital
with a population of more than $1,000,000);
- Hospitals that currently or will operate a residency
training program in an allopathic or osteopathic specialty
for which there are not other residency training programs
in the state;
- If you are planning to establish a new residency program,
do so within the timeframes set forth in the application criteria;
- For rural hospitals having bed counts near the 250-bed threshold
for exemption, review your number of “acute care inpatient
beds” and when CMS makes its count, determine if CMS
properly counted beds in accordance with Medicare law (i.e.
CMS may not count beds that unavailable for inpatient care
and beds used for services other than acute care (i.e.
observation));
- Be vigilant and proactive throughout the intermediary audits
and other stages of the process;
- Challenge or preserve rights to appeal inappropriate use
of incorrect or improper data from the cost report through
appeal of cost report audit adjustments;
- Where applicable and appropriate, consider challenges to
intermediary or CMS action that violates the statute; and
- Consider making comments to the proposed rule by the deadline
of 5 p.m., July 12, 2004.
For further information, contact:
Kathleen
H. Drummy, Los Angeles, (213) 633-6870, kathydrummy@dwt.com
Gerry
Hinkley, San Francisco, (415) 276-6530, gerryhinkley@dwt.com
Kent
B. Thurber, Portland, (503) 778-5202, berniethurber@dwt.com
This Health Law Advisory is a publication
of the Health Law Group of Davis Wright Tremaine LLP. Our purpose
in publishing this Advisory is to inform our clients and friends
of developments in health care law. It is not intended, nor
should it be used, as a substitute for specific legal advice
as legal counsel may only be given in response to inquiries
regarding particular situations.
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