HHS OIG Report on Alternative Medicare Payment Methodologies

Mark B. McClellan, M.D., Ph.D.

Administrator

Centers for Medicare & Medicaid Services (CMS)

Hubert Humphrey Building

Suite 314 G

200 Independence Ave., SW

Washington, DC 20201

RE: HHS OIG Report on Alternative Medicare Payment Methodologies for the Costs of Training Medical Residents in Nonhospital Settings

Dear Administrator McClellan:

On December 8, 2004 the Office of Inspector General (OIG) released the abovereferenced report. The report cont ains a comprehensive analysis of resident training in nonhospital sites, focusing on volunteer supervisory physicians. On behalf of the undersigned organizations, we write to urge that, like the OIG, CMS recognize volunteer supervisory physicians in nonhospital sites for purposes of direct graduate medical education (DGME) and indirect medical education (IME) payment policy. We ask the Agency to immediately undertake regulatory actions that acknowledge volunteerism and permit hospitals and nonhospital sites to determine jointly the amount of supervisory costs, if any, that must be paid by the hospital.

Section 713 of the Medicare Modernization Act (MMA) mandated the OIG’s report, largely because of confusion and ambiguity regarding when hospitals may count resident training time in nonhospital sites for purposes of DGME and IME payments.

The undersigned strongly support nonhospital ambulatory training for medical residents.These sites--including physician offices, nursing homes, and community health centers--are cornerstones of ambulatory training for graduate medical education programs and provide access to healthcare in areas where it might not otherwise be available. These sites provide an important educational experience because of the broad range of patients and conditions treated. Such training also is critical to residents’ education, ensuring they will be exposed to settings where they may ultimately practice. It is particularly important for primary care programs that include a great deal of ambulatory training in their educational programs.

The Medicare statute permits teaching hospitals to claim resident time spent at nonhospital sites if the hospital incurs “all or substantially all” of the training costs at that site. Under the CMS regulations in effect through 1998, this requirement was met if the hospital paid the residents’ stipends and benefits. Effective January 1, 1999 CMS, on its own authority, changed its regulatory definition of “all or substantially all” to require hospitals to also incur “the portion of the cost of teaching physicians’ salaries and fringe benefits attributable to direct graduate medical education.” 42 C.F.R. §413.75(b) and 42 C.F.R. §413.78(e).

The vast majority of resident supervision is done by volunteer physicians. Consequently, to comply with the new regulatory requirements, hospitals have modified their written agreements to specify there are no supervisory costs because the supervising physician is volunteering. CMS has recognized the use of volunteer supervisory physicians in two regulation preambles and a program memorandum. See 63 Fed. Reg. at 40996 (July 31, 1998), 64 Fed. Reg. at 41518 (July 30, 1999), and Medicare Program Memorandum A-98-44 (December, 1998). However, Medicare fiscal intermediaries are disallowing nonhospital resident counts for the hospital’s failure to incur supervisory costs, even though the agreements between the hospital and nonhospital site state that the supervising physician is volunteering.

To better understand the use of volunteer supervising physicians at nonhospital sites, Congress requested the OIG to conduct a study as part of the MMA legislation. Section 713 of the MMA also imposed a one-year moratorium (that expired on December 31, 2004) on CMS’ disallowances associated with family practice residents’ training at nonhospital sites by allowing hospitals to count these residents without regard to the financial arrangement between the hospital and the supervisory physician.

The OIG’s report is a comprehensive study of resident training in nonhospital sites, with emphasis on whether physician supervisory costs exist. Teaching hospitals work with an extraordinary number of nonhospital sites to provide ambulatory educational experiences for medical residents. The report estimates that approximately 18,000 nonhospital settings received residents from about 840 teaching hospitals--an average of 21 sites per hospital--representing 51 different specialty programs. Moreover, the OIG found that 80 percent of the supervising physicians were volunteers and that they were “not coerced into volunteering their time to supervise residents.” OIG Report at 6.

The OIG also estimated that approximately 37,100 residents rotate to nonhospital settings part time, equaling about 6,800 resident full time equivalents (FTEs). While this amount is less than 10 percent of the total resident FTE count associated with Medicare support for teaching hospitals, the associated Medicare payments represent critical financial support for teaching hospitals and their ambulatory graduate medical education programs. This also is critical training for all specialties that practice in settings that are predominantly ambulatory or nonhospital in nature, such as primary care specialties.

The OIG report set forth five alternative methodologies for Medicare to make payments associated with resident training at nonhospital sites. Alternative three would:

allow the teaching hospital and nonhospital setting to determine which costs at the nonhospital setting the teaching hospital would pay in addition to the residents’ salaries and fringe benefits. As long as the teaching hospital reimbursed the nonhospital setting for the costs stipulated in the written agreement between the teaching hospital and the nonhospital setting, Medicare would make both DGME and IME payments to the teaching hospital for the FTEs that rotate to the nonhospital setting. OIG Report at 11

We strongly support this alternative. By virtue of its inclusion in the report, the OIG recognizes that this methodology is reasonable and complies with the Medicare statute. We all agree with the OIG's assessment that the two parties are in the best position to determine what, if any, supervisory costs exist that should be paid by the hospital to the nonhospital site.

We respectfully suggest that CMS implement the following actions as soon as possible:

In addition, we ask CMS to reaffirm that the level of payment, if any, should be determined by the parties. CMS established this policy in 1998:

These agreements and amounts paid by the hospital to the nonhospital site may be the product of negotiation between the hospital and the nonhospital site. The hospital does not have to report the nonhospital site’s GME costs. We anticipate that in the course of any negotiation between the hospital and nonhospital site, the nonhospital site may need to identify its training costs. However, this is a matter between the hospital and the nonhospital. (emphasis added).

63 Fed. Reg. at 40993 (July 31, 1998)

We believe this policy needs to be reconfirmed because recent statements by CMS seem to mandate a payment formula for determining these costs. For example, a letter from CMS to the OIG on December 7, 2004 states that if a salaried teaching physician spends 10 percent of his or her time supervising residents then the hospital “must pay the nonhospital site 10 percent of the supervisory physician’s salary.” December 7 Letter from Administrator McClellan to Deputy Inspector General for Audit Services Vengrin. See also, OIG Report at 2.

In those cases where the parties agree that supervisory costs exist, the parties should have the flexibility to decide how this amount should be determined. If using physicians’ salaries is the only option allowed by CMS, there could be a significant chilling effect on ambulatory training because many physicians believe their salary arrangements and determinations are, and should be, a private matter. Rather than reveal this information as a prerequisite to being a supervisor some physicians might simply choose not to take on this important role.

The Medicare program has a long history of supporting residency training in ambulatory sites. This training is critical because residents need to be educated in settings in which many of them will ultimately practice. Medicare also has a long history of implementing payment policies that are intended to encourage educational experiences for residents, rather than imposing barriers.

Recent actions associated with Medicare’s nonhospital site policies are having a detrimental impact on residency training in these settings. We believe the situation will deteriorate unless CMS clarifies and modifies, where necessary, its policies. The actions we are advocating are reasonable and represent sound policy. We urge CMS to act upon them immediately.

Sincerely,

Alliance for Academic Internal Medicine

American Academy of Family Physicians

American Academy of Pediatrics

American Association of Colleges of Osteopathic Medicine

American Hospital Association

American Geriatrics Society

American College of Emergency Physicians

American College of Obstetricians and Gynecologists

American College of Osteopathic Family Physicians

American College of Physicians

American College of Surgeons

American Medical Association

American Osteopathic Association

American Pediatric Society

Association of American Medical Colleges

Association of Departments of Family Medicine

Association of Family Medicine Residency Directors

Association of Medical School Pediatric Department Chairs

Association of Osteopathic Directors and Medical Educators

Association of Pediatric Program Directors

Association of Program Directors in Internal Medicine

Association of Professors of Medicine

Federation of American Hospitals

National Association of Children's Hospitals

National Association of Community Health Centers

National Association of Public Hospitals and Health Systems

National Rural Health Association

North American Primary Care Research Group

Society for Pediatric Research

Society of Teachers of Family Medicine