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66
K. I. Voorhees et al.
Fig. 10.1 Medicare DGME Payment Formula. Source: CRS analysis
of Title XVIII of the Social Security Act (SSA) and relevant regulations. Note: The adjusted rolling average FTE count is subject to the
Fig. 10.2 Census Region Average Per Resident Amount, Adjusted to
October 2022*. Source: “Medicare GME payments for new residencies—the basics”. AACOM/AOGME GME Development Institute presentation June 20, 2023 by L.Sanner MD, K.Voorhees, MD Consumer
Price Index-Urban from U.S.Bureau of Labor Statistics, CPI-U Data
non-primary care. These calculations are based on Fiscal
Year 2018 data downloaded from the Robert Graham Center
https://www.graham- center.org/maps- data- tools/gme- datatables.html A user guide and FAQ to the GME payment
tables is available at https://www.graham- center.org/content/
dam/rgc/documents/maps- data- tools/gme_teaching_hospitals/GMEtablesuserguide.pdf Weighting is explained later
under “Residency Caps” in this chapter.
A GME-naïve hospital that is planning to participate in a
new GME training program will have its PRA set in the rst
year that it claims a total of >1.0 FTE residents in that scal
year. In this “PRA setting year,” the PRA is set at the lower
of either the total allowed GME expenses claimed by the
hospital versus a local/regional comparison number. So,
claiming enough valid GME expenses in that rst year is
critical for a hospital to establish an adequate PRA.
The PRA “comparison number” used to establish a new
teaching hospital’s PRA depends on how many established
teaching hospitals—that have PRAs—are in the same CoreBased Statistical Area (CBSA) as the new teaching hospital.
GME cap. Congressional Research Service R44376 ⋅ VERSION 7 ⋅
UPDATED. Federal Support for Graduate Medical Education: An
Overview https://crsreports.congress.gov/product/pdf/R/R44376/7
Tables. https://www.bls.gov/news.release/cpi.t01.htm. * PRA’s were
originally set in 1998 and are updated annually based on the Consumer
Price Index for All Urban Consumers (CPI-U) which can be found at:
https://www.bls.gov/news.release/cpi.t01.htm
If the new teaching hospital is in a metropolitan CBSA and
there are ≥3 established teaching hospitals in that CBSA
then the comparison number is the weighted (by FTE) average PRA for all the established teaching hospitals in that
CBSA.Established hospitals’ primary care and non-primary
care PRAs are weighted separately but the new hospital will
only get a single PRA applicable to all trainees. If there are
<3 established teaching hospitals in the new teaching hospital’s CBSA then the comparison number is the “updated
1998 census region average PRA,” which is updated using
the Consumer Price Index-Urban as of the scal year when
the PRA is set. (Fig. 10.2). For hospitals that are not in a
metropolitan CBSA, the comparison number is derived from
all the teaching hospitals in the entire state that are not in
metropolitan CBSAs. If there are ≥3 such hospitals outside a
metropolitan CBSA in the entire state, then the weighted
average PRA of all those non-metro hospitals is the comparison number. If there are <3 such established teaching hospitals, then the comparison number is the updated 1998 census
region average PRA.See Fig.10.2.
10 Graduate Medical Education Funding
67
Before the CAA 2021, hospitals would often unknowingly nd themselves with a PRA set at $0 if a GME-naïve
hospital had informally allowed a few residents into their
hospital for brief periods in the past. For example, a rural
hospital might have allowed residents from an established
urban hospital to do an elective rural rotation at their facility.
Even if these few rotations were provided at no cost,
Medicare rules required that the GME naïve hospital claim
the time on its cost reports even for very small numbers of
residents. By doing so they potentially hindered their ability
to be funded for a new GME program in the future. If that
hospital then started a new residency they might be judged
by Medicare as already having participated in an established
residency program—with no claimed costs for these few
rotations—leading to an “inadvertent zero PRA” and permanent ineligibility for any DME payments. If the outside rotating resident was from a new program (one that had not
already received their cap) then this could also have inadvertently started the hospital’s 5-year cap clock for both DGME
and IME which might result in setting a very low cap.
CAA 2021 Section 131 stated that henceforth if a GMEnaïve hospital had less than 1.0 resident FTE in a year, it was
not required to claim resident time thus avoiding inadvertent
PRA setting or cap clock starting. On the other hand, it is
often advantageous for a new teaching hospital that is ramping up a new GME program to choose to set their PRA as
early as possible.
Section 131 also allows hospitals with inadvertently low
caps or PRAs to have them reset if they meet specic thresholds for very low initial caps (<1.0 FTEs for pre-1997 teaching hospitals, ≤3 FTEs for newer teaching hospitals). The
PRA can be reset if the hospital starts claiming FTEs from
established or new programs above the threshold cap number. A cap addition under section 131 can only happen if the
hospital starts claiming residents from a new program that
started after 27 December 2020. This opportunity expires on
26 December 2025 [18, 19]. The easiest way to determine if
a hospital is eligible for a PRA and/or cap clock reset is to
look at the Hospital Analyzer using Healthcare Provider Cost
Reporting Information System (HCRIS) les, which can be
found in the following reference [20]. Note that medical students and non-ACGME accredited fellows will not impact
the setting of the PRA, as they are not eligible “GME trainees” and don’t qualify a hospital for Medicare GME payments. The PRA is set when the rst resident(s) begin
training at the hospital, and to set the PRA the hospital needs
to incur the costs and claim the resident(s) on their Medicare
Cost Report. Since the Consolidated Appropriations Act of
2021 Section 131, the hospital PRA would be set when resident presence exceeds 1.0 FTE [18, 19].
A hospital can have their PRA set when starting their own
programs, or a hospital may establish a PRA when they are
not ready to start their own program but want to allow resi-
dents from other established programs to rotate there. If the
hospital waited for multiple residents to train in their facility
to set their PRA, they would have to pay for and claim all of
them. If a hospital did not want to start their own program yet
but wanted to allow residents from established programs to
be able to do rotations at their hospital, they could intentionally set their PRA to make sure it gets set at the maximum
allowable. The hospital could have one upper level resident
rotate at their hospital for a year, pay their salary, benets,
and other costs at a level that exceeds the regional average,
and claim the resident on their Medicare Cost Report. The
hospital may need to have a second resident rotate for a
month or two to make sure they clearly have greater than a
1.0 FTE resident count. This will stimulate an audit by the
Medicare Administrative Contractor (MAC), which will set
the PRA.This process can take a couple of years. After the
PRA is set, the hospital no longer needs to pay the salary and
benets for residents coming to their hospital from established programs. They would just need an agreement with
the sponsoring institution sending the resident, as to who
will pay the salary and benets. If the hospital tried to set
their PRA with multiple residents rotating at their hospital,
they would need to pay for all of them which would be more
costly than paying for a single resident. So it is less expensive to set the PRA with one resident. The hospital should
hold off on allowing additional residents to rotate after the
initial resident until the PRA is set. The hospital should still
avoid having residents from new programs as they would
start the clock on the 5-year cap.
During the PRA setting year, if community, local, or state
sources of funding are paid directly to the program, bypass-
ing the hospital, then there is a risk that this will be deducted
from what Medicare will pay for when determining DGME
support for the hospital. Medicare views community support
as ongoing [21]. If these funds are paid to a hospital rather
than the program, these funds are not considered community
support [21].
For Managed Medicare (Medicare Advantage or Part C),
the DGME Payment Formula reduces a portion of a hospital’s patient load by a specied percentage to fund nursing
and allied health education (NAHE) [22, 23].
In Fig.10.1, in the calculation of DGME there is mention
of Adjusted Rolling Average FTE Count. The Consolidated
Appropriations Act Section 127 from 2021, with nal rule in
2022, removed the rolling average for new programs. In past
years, CMS would average the number of residents over the
number of years in the program’s initial residency period,
even when a new program was in their startup phase without
full classes for all years rather than use the actual number of
FTE residents in the last year. This was changed in CAA
Section 127, which removed this averaging for new RTPs
starting after October 2022, as well as RTPs started before
this date but still in their cap building period [18, 24, 25].
68
K. I. Voorhees et al.
This provision includes both the rural and the partnering
urban hospital [18, 24, 25]. Rolling averages are still used in
year-to-year hospital claims for established programs.
Indirect Medical Education (IME)Payments
Medicare IME payments were originally intended to cover
the presumed increased costs of patient care when GME
trainees were present in the hospital. It quickly became clear
that IME payments—generally twice DGME payments
though with wide variability from hospital to hospital—were
actually providing needed support for GME costs themselves
since DGME alone was insufcient to sustain any program
and there was often no other entity to assist in defraying
GME costs. Many believe that the logic of IME payments is
awed since residents and fellows should be taught costeffective care and often improve the efciency of care in
teaching hospitals. However, decreasing or eliminating IME
payments would likely cause many hospitals to stop supporting GME programs. This would create a national workforce
crisis unless an alternative funding system evolved to take
the place of the IME payments.
IME payments are calculated as a percent add-on to each
DRG payment the hospital is paid from Medicare. This calculation is applied to all Medicare DRGs, regardless of
whether or not a resident or fellow is involved in the care of
a particular patient.
The IME formula (Fig.10.3) is dependent on the number
of FTE trainees claimed under the hospital’s IME cap. There
are two IME adjustments: the operating adjustment and the
much smaller capital adjustment. Hospitals receive operating
DRG and capital adjustments to their DRG payments
[26–28]. For the IME operating adjustment, the “intern and
resident to bed ratio” (IRB) is used in the formula. Hospitals
with more residents per bed get correspondingly higher percentage add-ons to their DRG payments. For the capital IME
adjustment, the “resident to average daily census ratio”
(RADC) is used.
In the operating IRB calculation, residents are only
counted up to the IME cap. Staffed beds are counted. Certain
beds are excluded including well baby beds, psychiatry beds,
rehabilitation beds, custodial care beds, and ambulatory surgery beds. Medical/Surgery and Newborn ICU beds are
counted. Since 2012, labor/delivery and postpartum beds are
also counted. Increases in the IRB lag for 1year. The formula uses the smaller of the current year’s IRB versus the
prior year’s IRB.The multiplier used is 1.35, which has been
the same since October 2007. This equates to a percent add
on of 5.5%. CMS states that this multiplier represents a 5.5%
increase in the IME payment for every 10% increase in the
IRB ratio [26–28].
The capital IME (Fig.10.3) adjustment is also constrained
by IME caps. The capital IME calculation uses the residents
to average daily census (RADC) ratio. This increase is associated with Medicare’s capital prospective payment system.
The calculation produces a factor that is then multiplied
times capital DRG payments. Capital payments include such
things as depreciation, interest, rent, and property-related
insurance and tax costs.
In general, the term “IME” is used in this chapter and
elsewhere in regulations to refer to the operating IME payment [26–28].
Residency Caps
For programs in existence in 1996, their Medicare-funded
positions were capped at the beginning of 1997, based on the
number of residency positions that the hospital was claiming
at that time. Hospitals were capped for DGME positions as
well as for IME positions, meaning the cap is the maximum
number of positions that will be funded by Medicare GME.In
1996, there were differences between DGME and IME caps
because before 1996 hospitals could not claim time residents
spent in outside clinics for IME but could claim that time for
DME. The rules changed in 1996 such that new teaching
hospitals that established a cap after 1997 could claim almost
all resident time for both DME and IME so their DME and
IME caps are generally the same.
The “Initial Residency Period” is the minimum number of
years required for board eligibility in the rst specialty the
resident begins training in. When Medicare counts residency
positions toward the cap, they fully count the number of
GME trainee positions claimed through the minimum number of years to achieve board eligibility. So, for family medicine it would be 3years, and general surgery 5years. For
family medicine programs that have 6 residents per class
Fig. 10.3 Medicare IME Operating and Capital Adjustment Formulas.
Source: CRS analysis of Title XVIII and relevant regulations. Notes:
IRB=an intern and resident-to-bed (IRB) ratio and RADC=residentsto- average daily census ratio. Both the IRB and RADC are subject to
the GME cap. Other limits and restrictions to the formula may apply.
Congressional Research Service R44376 ⋅ VERSION 7 ⋅ UPDATED.
Federal Support for Graduate Medical Education: An Overview.https://
crsreports.congress.gov/product/pdf/R/R44376/7
10 Graduate Medical Education Funding
69
(and if this is the rst residency for all 6 resident and if all
resident time is claimed by one hospital), the cap would be
18.
When ACGME-accredited fellowship positions are
counted toward establishment of the cap, the residents would
have already completed their time to board eligibility. This
brings up another term: “Weighting Factor.” For residents in
their initial residency period, the weighting factor is one. For
residents, or more commonly fellows beyond their initial
residency period, their weighting factor is 0.5 when counting
positions toward the new DGMC cap for a hospital. When
setting caps and counting fellows, the fellow’s weighting
factor is 0.5 for DGME and 1.0 for IME caps [29, 30].
Currently, there are several exceptions to a hospital’s
Medicare cap limit. One is for new teaching hospitals—socalled GME-naïve hospitals. They can develop as many
“new GME programs” as they would like that meet ACGME
accreditation requirements and have 5years to do so after
they rst start claiming residents for each program. Other
exceptions apply to rural residencies and will be discussed
separately.
For a residency program in a GME-naïve hospital or at a
capped rural hospital to be eligible for new Medicare GME
funding, the new program must have a new separate program
director, new separate faculty, and new separately recruited
residents [31, 32]. If the new program does not meet all three
criteria, it would be considered to be an expansion of an
existing program, and therefore not eligible for new GME
funding. Seethe section “RuralTrack Programs" below for
nuances of this provision for RTPs. The rural hospital’s ability to add new GME programs and build additional cap
applies to both the location of the hospital which results in
new DGME and the classication of the hospital that drives
new IME.Reclassication is now causing a dramatic shift in
how new GME programs can be funded. See the discussion
below in section Other Hospital Types and Medicare
GME Funding Implications and subsection Rural Referral
Centers.
New urban teaching hospital GME claims are capped
5 years after the rst GME trainee from a new ACGMEaccredited GME program begins training at that hospital.
This may not only be residents from a new program that the
hospital itself is sponsoring, but it can also be residents from
new programs coming to that hospital from an outside sponsor. CMS considers a new program to be an accredited program that has not yet been capped, that is, a program that is
less than 5years old. If a new hospital wanted to eventually
develop new programs and preserve the opportunity for
Medicare GME funding, they should be careful not to allow
a trainee from a new ACGME-accredited program to train
there, so as not to start their 5-year cap clock before they are
ready to develop their own programs. A similar caution
applies to PRA setting. The new urban teaching hospital
planning multiple GME programs should orchestrate the
start of the various programs from different specialties that
they would like to develop, so that each program has an
opportunity to have at least a full class of residents before the
hospital’s 5-year cap clock ends. The Medicare cap for each
of the hospital’s residency programs is determined by counting the number of residents in the largest class at the 5th year
and multiplying by the number of years to board eligibility.
Then all of the caps for all of the programs of that hospital
are added together to come up with the total caps (DGME
and IME) for the hospital.
Once established, caps reside with the hospital rather than
the program. A hospital can close one program and reallocate these cap positions to expand a different program.
Hospitals can share caps if they are either partners in training
for the same GME program, neighbors located nearby, or
“siblings” owned by the same health system. Caps are shared
via annual Medicare GME Afliation agreements. Capsharing agreements are an important way for hospitals with a
cap higher than they currently need to share with hospitals
with more residents in training than their cap (termed “over
the cap”). Not all cap sharing is benign, as the hospital lending some of their unused cap slots, may at a later time decide
they wanted these cap slots back for their own developing
programs, thus leaving the hospital that received the shared
slots to lose their funding. Teaching hospitals owned by the
same health system can share caps between hospitals located
many hundreds of miles away which has led to program closures in one state when a more desired/lucrative program is
expanded in another specialty in another state. Caps related
to Rural Track Programs (RTPs) have different rules and are
explained below [33, 34].
Setting the GME cap correctly is very important as each
cap position can represent $100,000–$200,000 per resident
per year. Payments can vary widely. The median per FTE
resident Medicare GME payment for all US IPPS teaching
hospitals in FY18 was $41,673 for DGME, $97,058 for IME,
and a total of$144.083 [45]. The DGME and IME payment
history for all US IPPS hospitals is available on the Robert
Graham Center website (https://www.graham- center.org/
home.html).
Reporting Resident Activity toReceive
Medicare GME Payment
Hospitals submit a report, called the Intern Resident
Information System (IRIS) report to the Medicare
Administrative Contractor (MAC), which describes where
each resident or accredited fellow is located for each halfday of their training. Hospitals are only allowed to count
resident time within their facility or in non-provider (nonhospital) sites if the hospital pays for the residents’ salary
70
K. I. Voorhees et al.
and benets during that time [35]. A hospital is not allowed
to count time for a resident who is out of the country or doing
a pure research elective not involving patient care. A hospital
is not allowed to claim time a resident spends in another hospital unless that hospital is a Critical Access Hospital that
can then be counted as a non-provider site if the claiming
IPPS hospital sending the resident paid for the resident salary and benets. The details in the IRIS report are summed
up in the cost report that is provided by the hospital to their
MAC. Hospitals have 3 years to make any corrections or
adjustments to their cost report, at which time it is closed. All
cost reports are subject to MAC audit, and most are audited
which can result in nal payment adjustments.
Resident Eligibility Periods andImpact onGME
Funding
When a resident begins a training program, they establish an
initial eligibility period as described above. This represents
the minimum time from the start of training until they
become board eligible. For family medicine this period is
3years, and for general surgery 5years. After their full funding from their initial residency period is used up, they are
then eligible for 50% of DGME and 100% of IME, assuming
they would still be within the hospitals’ cap space.
Fellowships are handled in the same way. Once residents
have graduated from their residency and have completed
their initial eligibility period and they then enter a fellowship, they will be paid 50% of DGME and 100% of IME,
assuming the hospital has cap space for them [28, 29]. If a
resident transfers from one specialty to another, their initial
eligibility period remains the same. For example, if a resident transfers from family medicine after 1year to general
surgery, they would be eligible for full funding for 2 more
years. Conversely, if a resident transfers after 3years from
general surgery to family medicine, they would still be eligible for 2 more years of full funding.
Rural Track Programs
Since the late 1990s rural hospitals have been allowed to add
new GME programs and expand their cap each time they add
a new program. A special type of rural residency is a RTT
that was renamed Rural Track Program (RTP) in 2021 with
passage of the CAA. RTPs are a partnership between an
urban hospital(s) and a rural hospital and/or rural clinic. For
a program to be identied as an RTP and receive Medicare
GME funding, each resident needs to spend at least 50% of
their time training in rural place(s)—outside of metropolitan
CBSAs [29, 36, 37]. Note that the CMS denition of rural
places for RTP purposes is more restrictive than other federal
rural designations such as designations developed by the
Federal Ofce of Rural Health Policy (FORHP).
Much of the United States land mass is rural, and much of
rural United States is in Primary Care, Dental and Mental
Health Professional Shortage Areas [38, 39]. Three out of
ve health professional shortage areas for the nation are in
rural regions [41–43]. Much of the rural physician workforce
is aging out. A 2019 AAMC study found that 25% fewer
rural physicians will be practicing by 2030. Medical students
from rural areas fell by 28% between 2002 and 2017, and
medical students from rural areas are more likely to practice
in rural areas [41, 42]. Between 40% and 45% of graduates
of Family Medicine rural track programs enter rural practice
compared to only 4.8% of graduates across all GME specialties [43]. Figure10.4 illustrates the relationship between a
resident–physician’s rural background and rural training and
eventual practice in a rural area.
One of the best ways to produce the physician workforce
that will ultimately practice in a rural location is to train residents in a rural place. About 56% of family medicine residency graduates practiced within 100miles of where they
trained [44–47]. Similar trends exist for other specialties.
Therefore, in order to produce more new rural physicians,
there need to be training programs located in rural areas.
Fortunately, some aspects of the Medicare GME funding
system provide advantages for increasing rural training. A
Fig. 10.4 Variables
impacting FM residency
graduates ultimately choosing
a rural practice
10 Graduate Medical Education Funding
71
core advantage is that rural IPPS hospitals can add new GME
programs and receive additional Medicare funding. In addition, qualifying RTPs allow both the urban and rural hospital
partners to receive new Medicare GME funding.
While RTP residents need to spend greater than 50% of
their time outside a metropolitan CBSA, they usually need to
spend some time training in an urban place though there is no
specied minimum. Urban rotations for RTP residents typically involve higher volume experiences and specialty experiences unavailable in the rural area. Often, RTP residents in
the classic 1+2 model for family medicine RTPs spend most
of their urban time in the PGY-1year and most of their rural
time in the PGY-2 and PGY-3years, respectively. However,
urban and rural time don’t need to follow that order and can
be mixed in other ways. Urban training time is usually coordinated with a program in the same specialty in the urban
place. As of the CAA 2021, new RTPs don’t need to be separately accredited to confer RTP funding eligibility on their
partner hospitals. They can function as expansions of a current urban residency as long as they maintain some distinctness in curriculum and resident recruitment. RTP rules allow
both the partner urban hospital and rural IPPS hospitals to
receive new Medicare DGME and IME funding regardless of
whether the RTP is separately accredited. However, separate
accreditation and meeting CMS “new program” requirements are critical to overall Medicare GME funding when
the partner urban hospital is a Rural Referral Center (RRC).
IPPS hospitals can’t claim time residents spend at other
IPPS hospitals. The situation is entirely different for the time
residents spend at “non-provider” sites. “Provider” is the
CMS term for an IPPS hospital. A clinic that is operated by an
IPPS hospital is often—but not always—operated as a “provider” site, and time residents spend at a hospital providerbased clinic count as hospital time and can’t be claimed by
another hospital. Time residents spend at “non- provider” sites
can be claimed by any IPPS hospital involved in the residency
as long as that IPPS hospital pays the residents’ salary and
benets for that time. If the hospital is not the residents’
employer, then payments need to be made to the residents’
employer for that time. Typical “non-provider” sites include
free-standing clinics, FQHCs, RHC clinics operated by a hospital but designated “non-provider,” Critical Access Hospitals
(CAH) and Rural Emergency Hospitals (REH). Thus, for
RTPs where the rural training takes place only in non-provider sites (e.g., a CAH and a rural clinic) the urban hospital
can claim and be paid for all the RTP residents’ time. When
there is both an urban IPPS hospital and a rural IPPS hospital
involved in an RTP, a strategic decision can be made about
which hospital will claim non-provider time such that the
overall Medicare GME revenue will be maximized [48, 49].
A new RTP sets an “RTP cap exception”—basically an
RTP cap distinct from a hospital’s overall cap—for each partner IPPS hospital for the 5th year of claiming RTP residents.
The calculation process is the same for RTP caps and general
caps. The largest class in the 5th year is multiplied by the
specialty duration (3years from Family Medicine), and the
program-specic total cap is apportioned to each claiming
hospital by summing up the rst 5years of claims. For example, a Family Medicine 5-5-5 RTP using the 1 + 2 model
might have 5 residents in their fth year PGY-1 class, 3in the
PGY-2year, and 4in their PGY-3year yielding a cap for all
IPPS hospitals together of 5× 3 =15. Assuming the urban
hospital has claimed ~33% of the FTEs over 5 years they
would get an RTP cap addition of 5 while the rural IPPS hospital would get an RTP cap addition of 10. In the real world,
these numbers might be quite different if not all resident time
could be claimed by the partner hospitals (e.g., a few rotations
at a children’s hospital, the VA, or internationally), or the
urban hospital might have claimed all the rural clinic time if
it would generate more Medicare GME revenue to do so.
Once it is set, the “RTP cap exception” can’t be used for
claims for non-RTP residents. If the hospital closes its RTP
then that cap goes dormant until the hospital participates in
another RTP. CAA 2021 section 127 allows hospitals that
already participate in RTPs can build additional RTP cap if
they involve a new specialty or a different rural community.
OtherHospital Types andMedicare GME
Funding Implications
There have been many efforts to help rural hospitals maintain nancial viability, and many of these efforts have
focused on increasing Medicare reimbursement for rural
hospitals.
Critical Access Hospitals andRural Emergency
Hospitals
One of the largest and most important programs for rural hospitals has been the creation of the Critical Access Hospital
(CAH) and more recently, Rural Emergency Hospital (REH)
designations. They are dened by CMS regulations that primarily set a minimum distance from neighboring hospitals
and limitations on hospital census (≤25 for CAHs, ≤50 for
REHs) and length of stay. REHs must stop providing overnight inpatient care other than for observation or skilled nursing rehabilitation [46, 50–54]. They are paid by Medicare
using the hospital-specic allowable costs these hospitals
incur for patient care of Medicare enrollees. They get similar
advantageous cost-based reimbursement for inpatient and
outpatient care. CAHs and REHs are NOT paid under the
IPPS system. Thus, they do not participate in the Medicare
GME payment system, don’t receive DGME or IME, and
don’t have PRAs nor caps. They can make cost claims for
GME program expenses and receive “Medicare’s share” +1%
paid for these expenses. This GME expense payment will
72
K. I. Voorhees et al.
always be less than the total costs claimed and there is nothing akin to IME payments to supplement these payments. It is
now common for CAHs and REHs to be claimed as non-provider sites by IPPS hospitals that are partners in a rural-based
residency that uses the CAH and/or REH [48, 49].
Inpatient Prospective Payment System (IPPS) Subtype Hospitals
Many rural IPPS hospitals would not qualify to become
CAHs or REHs or would not want to because of these
restrictions. CMS developed several programs that help larger
and more comprehensive rural hospitals and allow them to
keep their IPPS status. These programs have primarily
involved creating subtypes of IPPS hospitals: Rural Referral
Centers (RRCs), Sole Community Hospitals (SCHs),
Medicare Dependent Hospitals (MDHs), and smaller programs such as the Rural Hospital Demonstration Project, lowvolume adjustment hospitals (LVA), Disproportionate Share
Hospitals and Essential Access Community Hospital (EACH).
We will only discuss the rst three types in detail with implications for Medicare GME funding.
Rural Referral Centers
IPPS hospitals have a “geographic location” designation and
a “classication” designation. Decades ago, the location and
classication of hospitals were the same. Rural located hospitals were classied rural, and urban located hospitals were
classied urban. Now the location and classication designations of IPPS hospitals are often NOT the same. A large
number of urban-located hospitals are being reclassied as
rural, while a much smaller number of rural located hospitals
are being reclassied as urban.
From a GME funding perspective, rules affecting DGME
and IME are in separate parts of the much-amended Social
Security Act. The result is that rules affecting DGME are tied
to a hospital’s location, while rules affecting IME are tied to
a hospital’s classication [55–61].
Why is reclassication happening? The answers relate to
various advantages an IPPS hospital can obtain when they
reclassify. There are advantages to being “urban” mainly due
to a higher wage index built into Medicare reimbursement
formulas for urban locations. The advantages of becoming
“rural” are many, especially for GME funding:
• The process of reclassication from urban to rural results
in a temporary decrease in their wage index, but then
opens a window for the hospital to regain their urban
wage index—or even a higher nearby urban wage index—
a year after classication.
• If a reclassifying hospital changes IPPS hospital type
(e.g., to a RRC or SCH), in the process of doing so it often
newly qualies for 340B drug pricing [55–57].
These are huge nancial advantages for reclassifying hospi-
tals both for GME and general operations. The ability to ultimately upgrade their wage index and qualify for 340B drug
pricing is likely a larger advantage than increases in GME caps.
Many hospitals that have reclassied currently do no GME.To
retain both of the GME benets ((a) the 30% cap increase for
IME and (b) the ability to expand IME cap positions), the
reclassied hospital must remain rural for a period of 10years.
If they reclassify back to urban in less than 10years, they lose
both of these benets and need to repay CMS for any money
they received due to those benets [54–56].
The ability to switch wage indexes back from rural to
urban after a year has been a main driver for the explosion in
the number of urban-located hospitals that have reclassied
as rural. This capability resulted from several lawsuits in
2015 and 2016 and subsequent Medicare rule changes that
codied the result of these lawsuits [55–61].
Most urban hospitals that reclassify do this by adopting
Rural Referral Center (RRC) status, but there are other avenues available. An IPPS hospital can be designated as a RRC
if it has 275 or more beds and meets one of many criteria for
receiving patient referrals from rural areas. The detail of how
to convert to a RRC can be found in the ecfr.gov (electronic
federal register) at § 412.96 c3, c4, and c5 [55]. For urban
hospitals already over their cap, the 30% IME cap increase is
used immediately to help fund positions the hospital was
already self-funding. The increase in urban hospitals taking
advantage of this and reclassifying themselves as rural has
been enormous, and the number reclassifying continues to
increase (Figs.10.5 and 10.6).
• When an urban located IPPS hospital is reclassied as
rural it gets an immediate 30% IME cap increase over the
hospital’s original IME cap.
• An urban-located rural reclassied hospital can start “new
GME programs” if the program meets all three “new program” criteria: new separate program director, new separate faculty, and new separately recruited residents. Each
new program will add to the hospital’s IME cap. It will
NOT add to their DGME cap since the hospital remains in
a geographically urban location.
Fig. 10.5 Medicare GME payments: focus on hospital issues (slide
15) PresentedJuly 12, 2023 to the AACOMby Louis Sanner, MD, Kent
Voorhees, MD, with assistance from Alan Douglass MD
10 Graduate Medical Education Funding
73
Fig. 10.6 Medicare GME payments: focus on hospital issues(slide 17). PresentedJuly 12, 2023 to the AACOM byLouis Sanner, MD, Kent
Voorhees, MD, with assistance from Alan Douglass MD
Some rural-located IPPS hospitals have reclassied as
“urban” to take advantage of a higher urban wage index. In
general, these are rural hospitals located in designated
“Lugar” counties, a county that is adjacent to metropolitan
CBSAs. Being in a Lugar County allows a rural hospital to
have the option of reclassifying as urban. However, taking
advantage of this option may have signicant effects on
GME opportunities and funding. An established rural teaching hospital that reclassies as urban loses its ability to add
IME cap slots for new GME programs. It can still be a partner in an RTP since it is still located in a rural place.
When the urban hospital partner in an RTP is a rurally
reclassied hospital (usually by being an RRC), the RTP
needs to be separately accredited and meet all “new GME
program” criteria for the reclassied urban hospital to receive
both DGME and IME for RTP resident FTE claims. This is
because the hospital only qualies for “urban partner” RTP
resident claims for DGME since it is urban located, but it
does not qualify for IME claims under RTP rules because it
is rural classied—thus not an “urban partner” for
IME.However, if the RTP is also a “new GME program” the
rurally reclassied hospital will qualify for new IME because
any “new GME program” allows it to add IME cap for any
new program. If the RTP is not separately accredited, then it
won’t be judged a “new program” since it can’t have a separate program director [53–55].
Sole Community Hospitals
Sole Community Hospitals (SCHs) [58, 62, 63] are IPPS
hospitals that meet certain qualications akin to CAHs in
terms of distance from other hospitals but can be larger (up
to 50 beds) and provide more extended services. SCHs get a
7.1% addition to their outpatient payments, but this does not
apply to Medicare GME payments. Each year Medicare pays
the SCH for inpatient care using one of the two rates: the
hospital- specic payment rate (HSR) or the federal rate—
whichever is higher in that year. The federal rate uses the
DRG system as would be applied to any standard (no subtype) IPPS hospital. A HSR is calculated on historically
reported inpatient costs from 1982, 1987, 1996, or 2006. The
HSR rate is applied to all inpatient care with a case mix
adjustment that roughly mirrors DRG categories. If a SCH
teaching hospital is paid at the federal rate it gets full IME.If
the hospital is paid using the HSR it only gets IME payments
for Medicare Advantage (MA or Schedule C) care. The rationale for getting lower (or no) IME payments for the HSR
cost-based rate for traditional Medicare is that the 1983 theory of IME assumes there are increased care costs being
incurred when residents are involved in hospital care and
thus those costs should have been reected in setting the
HSR. We believe this is a fundamentally awed theory as
IME is what makes GME programs nancially viable. The
SCH IME exception for MA payments is likely based on the
74
K. I. Voorhees et al.
assumption that MA payments do not include increased educational care “inefciency” costs. The choice between getting the federal rate versus the HSR each year is made by
adding the federal DRG payments plus FULL IME compared to the HSR case-mixed adjusted payments plus the
limited IME from MA.The SCH gets paid that year using
the higher total. Medicare Advantage (MA) is a common
payment source for some SCHs and uncommon for others.
When a teaching SCH with no MA gets paid the HSR and
thus no IME, it will be very difcult for them to support a
residency. Sole Community Hospitals also need to provide
obstetrical deliveries and emergency pediatric hospital care
for their rural community, since there is no nearby hospital
and children and pregnant people are rarely Medicare
patients. As a result, “Medicare’s share” will be signicantly
less than urban hospitals that do not need to provide obstetric
or pediatric care. This will serve to lower the hospital’s percentage of Medicare further decreasing their DGME. All
these factors make it so that SCH Medicare GME funding
will typically be substantially lower than their residency
costs. Therefore, in general, SCHs cannot afford to be the
only hospitals participating in a GME program. An RTP is a
partnership between hospitals and can partially adjust for
this SCH shortfall by having non-provider resident time
(e.g., rural clinic) claimed by the urban partner hospital
which will get more Medicare GME payments per FTE
claimed. This approach requires close cooperation between
RTP partner hospitals.
extended to September 30, 2024. It is unclear whether the
program will again be extended beyond that date.
Changes inCensus Boundaries
The Ofce of Management and Budget (OMB) provides
periodic updates to the CBSA classications for US counties
considering each decennial census and interim census data
analysis. This can mean that counties that were in a rural
county may nd themselves newly incorporated into a metropolitan CBSA or vice versa. This will change the “location” designation for hospitals within that county. It may also
change the classication of the hospital (urban to rural or
vice versa), but there are provisions for affected hospitals to
apply to retain their urban versus rural classication. Both
location and classication changes will affect the hospital’s
ability to participate in new GME programs. These changes
may also affect the qualication of currently planned and
currently operating RTPs. Teaching hospitals and GME programs need to monitor their rural versus urban status and
discuss changes with their Medicare Administrative
Contractor (MAC) to understand how to cope with the CBSA
map changes [64] look for (f)(1)(iv)D.
CAA of2021 Section 126: Increasing Rural GME
Positions
Medicare-Dependent Hospital
The Medicare-Dependent Hospital (MDH) designation provides enhanced inpatient care payment to support small rural
hospitals with 100 or fewer beds for which Medicare patients
make up at least 60% of the hospital’s inpatient days or discharges. MDH classication is not available to hospitals
already classied as Sole Community Hospitals [54, 58, 62]
but can be combined with Rural Referral Center (RRC) status. MDHs receive an enhanced payment from Medicare for
their inpatient care and are paid either by the Federal Rate or
the Hospital Specic Rate (HSR), similar to Sole Community
Hospitals where the hospital-specic rate is almost always
higher than the federal rate. MDH base years were 1982,
1987, or 2002 which is slightly different from the
SCH.DGME is always paid fully using the standard IPPS
hospital formula. IME is rst calculated as usual for a standard IPPS hospital (for both traditional Medicare and
Medicare Advantage) and if the federal rate is higher than the
HSR then full IME is paid. If the HSR is higher than the
federal rate then the hospital is paid for patient care using the
federal rate plus 75% of the difference between the federal
rate and the HSR.IME is then discounted to be only 25% of
what it would be at the federal rate [62]. The MDH program
was set to expire September 30, 2022, and was recently
The Consolidated Appropriations Act of 2021 had three sections that impacted Medicare GME funding—sections 126,
127, and 131. Section 127 affected rural residencies and section 131 set up a PRA and cap reset program for low PRA or
low cap hospitals. These were described in detail under the
corresponding sections of this chapter above. Section 126 set
up a new mechanism to apply for additional cap positions
described in detail here.
Section 126 authorized 1000 new Medicare GME-funded
cap slots, with a maximum of 200 per year for 5years [25,
65]. In order to qualify to receive the additional slots, a hos-
pital must qualify in one of the four categories: (1) hospitals
in rural areas, (2) hospitals training a number of residents in
excess of their GME cap, (3) hospitals in states with new
medical schools or branch campuses, (4) hospitals that serve
areas designated as a health professional shortage area—
referring to geographic HPSAs and not population HPSAs.
A hospital can determine if it is in a HPSA by putting their
address in the following link: https://data.hrsa.gov/tools/
shortage- area/by- address [38, 39].
Section 126 required that at least 10% of the cap slots
were to go to hospitals in each of the four categories and that
no single hospital could receive more than 25 additional cap
slots. The language to implement Section 126 was changed
10 Graduate Medical Education Funding
75
so that all of the slots necessary for a resident to complete
their training in their requested specialty would be covered.
For example, a family medicine resident would receive three
slots, and a general surgery resident would receive ve slots.
The language was also changed so that in a single year, a
hospital would only be eligible to receive one of those slots.
The hospital could apply for the additional slots in subsequent years. A criterion for increasing the GME cap is the
likelihood of the hospital being able to ll the position(s)
[38, 39].
Because of the fact that a hospital can only receive cap
slots for one resident to complete their training, and there is
no guarantee of receiving additional slots in subsequent
years, this mechanism would not be a way to start new programs such as family medicine and receive accreditation.
Family medicine has a minimum class size of two residents
for ACGME accreditation so it will require six cap positions
to fund a minimum 2-2-2 program. Since Section 126 is for
funding of new positions, a hospital couldn’t start a new program with a full class with only one position funded and use
this mechanism to fund the other positions in subsequent
years. They would no longer be new positions, and there is
no guarantee of being funded in subsequent years.
This cap expansion bill would work to expand existing
programs where it would be adding a position for a class
thereby potentially helping to place these positions in rural
or underserved areas. The rst year of allocation of slots was
in 2022 and the second 200 were allocated in 2023. This program will expire in 2026 when the nal 200 slots are
allocated.
As you see, Section 126 applies to a very small number of
residency programs and while it will provide an important
addition of funding to the few grantees selected it is not
likely to have a large impact on the total number of GME
positions offered in the country. There are proposals to use
this program as a model and add signicantly more new
slots. This would require new legislation.
Medicaid GME Funding
Medicaid is jointly funded by the federal government and the
states. The federal government’s share of most Medicaid
expenditures is called the federal medical assistance percentage, with the remainder being the state’s share. Medicaid
GME funding is directed by each state using state-specic
rules within the parameters allowed by the federal government. Medicaid GME funding reached a total of nearly $7.39
billion in 2022 [17]. This funding mechanism is usually
administered by the state’s Medicaid system.
One benet of Medicaid GME funding is that it is matched
by the federal government using the Federal Medical
Assistance Percentage (FMAP) for Medicaid which has an
associated multiplier. The multiplier makes it easier to do the
calculations [40, 66]. The payment rate is determined by a
formula that compares each state’s per capita income relative
to the US per capita income, with higher reimbursement to
states with lower income. The statutory minimum matching
percentage is 50% in which case the multiplier is 1.0. The
statutory maximum matching percentage is 83%. The FMAP
is adjusted each year. Therefore, the state Medicaid would
double their money on funding used to fund graduate medical education. At the time of writing, the highest FMAP percentage for FY 2024 is for Mississippi at 77.27%, with an
associated multiplier of 3.4. For every $100 Mississippi
invests in GME through Medicaid, the state receives an additional $340in Medicaid GME matching funds from the federal government. In this example, the 77.27% is the federal
government’s share and the state’s share would be 22.73%.
As of 2022, 44 states, including the District of Columbia,
made GME payments under the Medicaid program. CMS
allows GME as an approved component of Medicaid payments for inpatient and outpatient hospital services. If a state
Medicaid program opts to cover GME costs, the federal government provides matching funds. This would be through
add-ons to inpatient and outpatient fee-for-service payments
or by incorporating GME support into Medicaid managed
care payment rates [7, 17]. Twenty-four states distribute
Medicaid GME funding using formulas similar to the way
that federal Medicare GME is paid to hospitals with DGME
and IME.Some states include GME funding in risk-based
Medicaid managed care payments. Eleven states made GME
payments directly to other teaching providers, including
community health centers with approved training programs,
medical schools, and teaching physicians. Twelve states
made GME payments to cover the training of health professionals other than physician residents [17]. Because Medicaid
GME payments can be made in a variety of ways in different
states, program directors should investigate how the payments are made in their state and how it affects their
program.
There are some states that fund various programs through
Section 1115 Medicaid Demonstration Waivers. These are
required to be budget neutral for the federal government,
establishing a cap on federal funds through the life of the
waiver [67]. If costs exceed this cap, the states are responsible for covering the excess costs. Medicaid waivers are generally approved for a 5-year period and then need to be
renewed, resulting in some uncertainty about future Medicaid
GME funding, making this a difcult way to run a residency.
The residency doesn’t know if funding will be available to
pay for a newly matched class. The timing of the renewal
process is generally after a residency program must make a
decision about matching a class. An example of a workaround is in Colorado, where Medicaid GME funding for
three rural track programs is provided for a full 3 years,