Medicare Reimbursement Payments for Training Physicians Will Be Increased

Due to a recent decision in the U.S. District Court for the District of Columbia, Milton S. Hershey Medical Center v. Becerra, hospitals’ Medicare reimbursements for training residents and fellows will be boosted.

Within the Medicare Act, Congress created an avenue to reimburse hospitals for costs related to training residents and fellows. Reimbursable costs include resident stipends, supervisory physician salaries, and administrative costs. These reimbursements are called the direct graduate medical education (DGME) payment.

The DGME payment is the product of three ingredients: (1) The per-resident amount (PRA), (2) the three year weighted average of full-time equivalent residents (FTE) working at the hospital, and (3) the Medicare patient load. The first two ingredients together are called the ‘approved amount.’

Generally, medical residencies last five years. Fellowships are additional training in a specialty which usually occur outside of the initial residency period. For the purpose of the FTE calculation, the Medicare Act requires weighting hospital residents at 1.0 and fellows at 0.5.

A 1997 Congressional amendment capped the FTE numbers based on each hospitals’ 1996 count of residents and fellows. Also, in 1997, the Secretary of Health and Human Services (HHS) invoked a regulation in order “to address situations in which a hospital increases the number of full-time equivalent residents over the cap.”

The HHS regulation calculation works as follows:

1996 cap/unweighted FTE x weighted FTE’s = post regulation weighted FTE.

For example, under the HHS regulation:

• If a hospital’s 1996 cap is 10 and they have 8 residents (weighted at 1.0 each), and 2 fellows (0.5 each), the weighted FTE calculation equals 9. 10/10 x 9 = 9.

• If the hospital adds 2 additional residents, exceeding their 1996 cap, the weighted FTE total would be a lower number. 10/12 x 10 = 8.33.

In short, the HHS regulation effectively reduced the weighted FTE amount when a hospital exceeds their 1996 cap resulting a lower DGME payment to the hospital.

A group of hospitals challenged the HHS regulation as applied to them in Milton S. Hershey Medical Center v. Becerra. Each plaintiff hospital exceeded their 1996 cap during various fiscal years back to 2005. The plaintiffs argued that their reimbursements were unlawfully reduced because of the HHS regulation.

Hospitals can appeal reimbursement decisions to a subsection of the Center for Medicare and Medicaid Services of the department of HHS, The Provider Reimbursement Review Board (“Board”). The plaintiffs appealed their DGME payments to the Board. However, the Board did not have authority to decide if this Medicare regulation was valid, so the appeal was sent to the court for judicial review.

The hospitals argued that the regulation was “contrary to the statute and arbitrary and capricious as applied to them.” The defendants countered by saying that the issues were not brought up during the notice-and-comment period before the regulation was enacted, so the plaintiffs waived their claims. Defendants also argued that the regulation is a reasonable exercise of the HHS Secretary’s discretion because the Medicare statute is ambiguous.

First, the Court found that the plaintiffs did not waive their claims. Parties that are affected by an agency’s application of a regulation can challenge the application of that regulation by saying that it conflicts with the statue that gave the regulation its authority. Here, the plaintiffs challenged how the regulation applied to the calculation of their DGME reimbursement, so their claim was not waived even though they did not bring it to light during the regulation’s question and answer period.

Next, the Court addressed the issue of whether the HHS regulation was inconsistent with the Medicare statute as applied to the plaintiffs. The Court determined that the statutory language unambiguously expressed Congress’s intent.

Regulations created under 42 U.S.C. Section 1395ww(h)(4)(c) “shall provide, in calculating the number of full-time equivalent residents in an approved residency program” that the weights for residents are 1.0 and fellows are 0.5.

Revisiting the earlier example:

• If a hospital with a cap of 10 has 8 residents and 2 fellows– the post regulation weighted FTE is 9.

• If a hospital adds 2 fellows (exceeding their cap)—the post-regulation weighted FTE is 8.33.

If a hospital exceeds its cap, the effect is to change the congressionally mandated weighting of fellows and residents. The example above shows that the FTE is less when the cap is exceeded. The Court explained that the specific wording of the statue and the inclusion of the word “shall” did not allow the secretary of HHS to override Congress in order to change the weighting of the FTE. “Shall” is mandatory, and therefore the HHS Secretary did not have the authority to override the statute.

The Court then looked to other provisions in the statute to determine whether the Court’s interpretation was in line with the surrounding provisions. The Court found that its’ interpretation was in line with the other provisions of the statute because Congress clearly gave the HHS Secretary discretion in other areas. For example, one provision authorized the HHS Secretary to “assign an ‘appropriate weighting factor of his choosing.” Additionally, Congress gave the HHS Secretary latitude to effect the FTE in other ways. The statute allows the Secretary to define words associated with approved leave that are incorporated in resident accounting. The Secretary was also permitted by the statute to give “special consideration” to new, rural hospitals, and “special consideration” was also left undefined. The Secretary also has power under the statute to adjust the cap for hospitals “in order to encourage the training of physicians in rural areas.” This shows that Congress gave discretion in other areas; but not for the weighting of fellows and residents. The statue was specific in how residents and fellows should be weighted.

The defendants argued that the statute was silent on how the weighted FTE would be calculated when hospitals exceeded the unweighted FTE cap. The Court quoted Judge Henderson, who once explained, “’Thou shall not kill’ is a mandate neither silent nor ambiguous about whether murder is permissible if committed after 5:00 p.m.—or, for that matter, if committed in the billiard room with the candlestick . . . .” Even though the statue is silent for when the hospitals exceed their cap, it doesn’t matter because Congress was not silent or ambiguous when saying what the weights for residents and fellows permitted.

The defendants next argument was that the specific words in (h)(4)(a), “establish rules consistent with the paragraph” gives the HHS Secretary discretion to adjust the weighting factors, as long as they are consistent with the paragraph. The Court said that Congress spoke ‘in plain terms’ ‘to circumscribe,’ not ‘to enlarge, agency discretion.”

The defendants’ final argument was that since their formula incorporated the statutory weights for residents and fellows, that the regulation was valid. Here, while statutory weights were incorporated in the HHS formula, the HHS formula had the effect of reducing the resident and fellow weights, which effectively works the same as if HHS would have expressly written that the weights should be reduced. Therefore the regulation was invalid.

The Court entered an order to have the plaintiff hospitals’ DGME payment recalculated and paid, with interest.

Because of this decision, teaching hospitals who were not party to the suit should consider appealing their DGME payments to the Board. The effect of this decision is different for each hospital because of the number of residents and fellows employed, and differing 1996 caps. However, some hospitals may receive an increased amount of their Medicare reimbursements.

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Vasilios J. (Bill) Kalogredis, Esq. has been exclusively advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.

*Lamb McErlane PC Summer Associate Terisa Shoremount contributed to this article. Terisa is a third-year J.D. candidate at Widener University Delaware Law School, and a 2021-2022 Josiah Oliver Wolcott Fellow.