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Legal Insights and Perspectives for the Healthcare Industry

In the complex world of Medicare reimbursement, there are a multitude of payment formulae, mathematical adjustments, and reimbursement calculations that translate congressional policy into operational payments for hospital providers. But sometimes the Centers for Medicare and Medicaid Services (CMS) doesn’t get the math right. Recently, the US District Court for the District of Columbia found that academic medical centers have been subject to one such calculation error that implicates the amount such teaching hospitals receive as payment in support of direct graduate medical education (GME). Milton S. Hershey Med. Ctr. v. Xavier Becerra, Civ. Action No. 19-2680 (May 17, 2021). Based on the court’s reasoning, teaching hospitals operating above their full-time equivalent (FTE) resident cap may have been systematically underpaid as a result of the regulatory payment formula for determining the weighted FTE amount of residents used to calculate the GME payment. Other hospitals have recently followed Hershey Medical into the DC District Court seeking similar decisions.

CMS reimburses teaching hospitals for direct costs associated with resident stipends, supervisory physician salaries, and administrative costs associated with operating a GME program based on historically set “approved per-resident amounts.” In essence, the GME payment formula involves the multiplication of this “approved per resident amount” by the “weighed resident FTE amount” and the Medicare “patient load.” See 42 USC § 1395ww(h).

According to Hershey Medical, for certain hospitals operating GME programs above their resident FTE cap, the GME regulation at issue, 42 CFR § 413.79 (c)(2)(iii), materially changes the weights assigned to residents in their initial residency period (residents) and/or those training after their initial residency period (fellows) from those assigned by the statute in 42 USC § 1395 ww(h). This, in turn, reduces the “weighted FTE amount” used by CMS to calculate the overall GME payment and has resulted in underpayments to certain academic medical centers operating above their GME or indirect medical education (IME) resident FTE cap.

The statute assigns a 1.0 weight to each FTE resident and a 0.5 weight to each FTE fellow. 42 USC § 1395ww(h)(4)(C). The court’s opinion hinged on the fact that the regulatory calculation in 42 CFR § 413.79(C)(2)(iii) necessarily resulted in weighting either (or both) residents or fellows as less than their respective 1.0 or 0.5 values ascribed by the statute—“at least for those residents and fellows that the cap permits.” Hershey Medical, Civ. Action No. 19-2680, at 14. The court provided examples of its mathematical “proof” as part of the decision. Since the regulation cannot ignore the plain dictates of the statute, the court found that the regulation was invalid.

Academic medical centers with GME training programs operating above their resident FTE cap, particularly programs with significant numbers of fellows, may be affected by the court’s holding. CMS has appealed the Hershey Medical decision to the US Court of Appeals for the DC Circuit, and the agency will have an opportunity to defend its calculation at the next level, but the district court’s decision provides a mathematical proof supporting its statutory analysis.

To the extent academic medical centers have not already moved to recover underpayments caused by the regulatory weighted FTE calculation, they should strongly consider claiming the affected amounts on their pending cost reports using the protest instructions set forth in the Provider Reimbursement Manual, Part II, Section 115. Based on regulatory changes it made in November 2015, CMS considers claiming the “protested” amounts associated with the flawed GME calculation on the hospital’s cost report to be a jurisdictional requirement for pursuing appeals for underpayments arising from the Medicare cost report. Taking this important procedural step will help preserve an academic medical center’s right to receive payment in accordance with the statutory GME reimbursement requirements for the affected cost reporting period should the DC Circuit Court confirm CMS’s fuzzy math.