[Federal Register Volume 64, Number 159 (Wednesday, August 18, 1999)]
[Rules and Regulations]
[Pages 44841-44856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21322]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[HCFA-1001-IFC]
RIN 0938-AI27
Medicare Program; Graduate Medical Education (GME): Incentive
Payments Under Plans for Voluntary Reduction in the Number of Residents
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: This interim final rule with comment period implements section
1886(h)(6) of the Social Security Act, as added by section 4626(a) of
the Balanced Budget Act (BBA) of 1997. Section 4626(a) of the BBA
allows qualifying hospitals to receive incentive payments over a 5-year
period for voluntarily reducing the size of their residency programs. A
hospital seeking incentive payments must submit, to HCFA and its
Medicare intermediary, an application that specifies reductions in its
number of residents by 20 to 25 percent.
DATES: Effective date: This interim final rule with comment period is
effective September 17, 1999.
Comment Period: Comments will be considered if we receive them at
the appropriate address, as provided in the ADDRESSES section, no later
than 5 p.m. on October 18, 1999.
ADDRESSES: Mail written comments (one original and three copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1001-IFC, P.O. Box 9010,
Baltimore, MD 21244-9010.
If you prefer, you may deliver your written comments (one original
and three copies) to one of the following addresses:
Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
Washington, DC 20201, or
Room C5-16-03, Central Building, 7500 Security Boulevard, Baltimore,
Maryland 21244-1850.
For comments that relate to information collection and
recordkeeping requirements, mail copies of comments directly to the
following:
Health Care Financing Administration, Office of Information Services,
Security Standards Group, Division of HCFA Enterprise Standards, Room
N2-14-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850; and
the
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Building, Washington, DC 20503, Attn:
Allison Herron Eydt, HCFA Desk Officer.
FOR FURTHER INFORMATION CONTACT: Rebecca Hirshorn, (410) 786-3411.
SUPPLEMENTARY INFORMATION:
Comments
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1001-IFC. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 443-G of
the Department's offices at 200 Independence Avenue, SW, Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
I. Background
Since the inception of Medicare in 1965, the program has shared in
the costs of educational activities incurred by participating
providers. Our regulations at 42 CFR 413.85(b) define approved
educational activities to mean formally organized or planned programs
of study usually engaged in by providers in order to enhance the
quality of patient care in an institution. These activities include
approved training programs for physicians, nurses, and certain allied
health professionals. Medicare makes payments for both the direct and
indirect costs of graduate medical education (GME). Under section
1886(h) of the Social Security Act (the Act) and 42 CFR 413.86,
Medicare pays hospitals for the costs of direct GME. Under
1886(d)(5)(B) of the Act and 42 CFR 412.105, Medicare pays hospitals
for the costs of indirect medical education (IME).
A. Direct Graduate Medical Education
Under sections 1886 (a)(4) and (d)(1)(A) of the Act and 42 CFR
412.113, direct GME costs are excluded from the definition of a
hospital's operating costs and, accordingly, are not included in the
calculation of payment rates under the hospital inpatient prospective
payment system or in the calculation of the rate-of-increase limit for
hospitals excluded from the prospective payment system. Under section
1886(h) of the Act and 42 CFR 413.86, hospitals are paid for direct GME
costs based on Medicare's share of a hospital-specific per resident
amount multiplied by the number of full-time equivalent (FTE)
residents.
B. Indirect Medical Education (IME)
Medicare has made payments to short-term acute care hospitals under
section 1886(d) of the Act on the basis of the prospective payment
system since 1983. Under the prospective payment system, hospitals
receive a predetermined payment for each Medicare discharge. Section
1886(d)(5)(B) of the Act specifically directs the Secretary to provide
an additional payment under the inpatient operating prospective payment
system to hospitals for IME costs. This additional payment, which
reflects the higher operating costs associated with GME, is based in
part on the applicable IME adjustment factor. The adjustment factor is
calculated by using a hospital's ratio of residents-to-beds in the
formula set forth at section 1886(d)(5)(B)(iii) and specified in
regulations at Sec. 412.105.
Psychiatric and rehabilitation hospitals and units as well as long-
term care, cancer, and children's hospitals are excluded from the
prospective payment system and are paid on a reasonable cost basis
under section 1861(v)(1)(A) of the Act, subject to a rate-of-increase
limit. Payments to excluded hospitals for their IME costs are included
in their payments for operating costs and are therefore subject to the
rate-of-increase limit.
Under section 1886(g) of the Act and Sec. 412.322 of the existing
regulations, we also make capital GME payments to hospitals on the
basis of each respective hospital's ratio of residents to average daily
census.
C. The Balanced Budget Act of 1997
Section 4626(a) of the Balanced Budget Act (BBA) of 1997, Public
Law 105-33 (enacted on August 5, 1997), added section 1886(h)(6) to the
Act to set forth provisions that allow Medicare participating hospitals
to receive incentive payments over a 5-year period under approved plans
for voluntarily reducing the number of residents that are in their
approved medical residency training programs. Section 1886(h)(6)(C) of
the Act defines the entities that may qualify for incentive payments
under a voluntary reduction plan and section 1886(h)(6)(B) of the Act
sets forth
[[Page 44842]]
participation and reduction criteria that the plan applications must
meet for approval.
Section 1886(h)(6)(B)(i) of the Act specifies that the application
for a voluntary resident reduction plan must be submitted in a form and
manner specified by the Secretary and must be received no later than
November 1, 1999. Section 1886(h)(6)(B)(ii) of the Act specifies that
the application must provide for the operation of a plan for reducing
the number of FTE residents in approved medical residency training
programs consistent with the requirements of section 1886(h)(6)(D) of
the Act.
Sections 1886(h)(6)(B)(iii) and (iv) of the Act provide that the
applying entity--
Must elect in the application the period of residency
training years (not greater than 5) over which the reduction will
occur; and
Must not reduce the proportion of its residents in primary
care (to the total number of residents) below such proportion in effect
as of the applicable time described in section 1886(h)(6)(D)(v) of the
Act.
The statute directs the Secretary to determine whether the
application, the entity, and plan meet such other requirements as the
Secretary specifies in regulations.
Sections 1886(h)(6) (D) and (E) of the Act specify the requirements
for percentage reductions in the number of residents and the manner in
which the reductions are to take place. Section 1886(h)(6)(F) provides
for a penalty for noncompliance with approved voluntary residency
reduction plans. Section 1886(h)(6)(G) specifies that the Secretary
shall establish rules regarding the treatment of rotating residents as
it relates to providers participating in the voluntary residency
reduction plan.
II. Provisions of the Interim Final Regulations
We are establishing interim final regulations under a new
Sec. 413.88 under 42 CFR Part 413, to incorporate requirements for
incentive payments under voluntary residency reduction plans to
implement section 1886(h)(6) of the Act, as added by section 4626(a) of
the BBA. The specific statutory provisions and the corresponding
regulatory provisions are described below.
A. Participation Criteria
Participation in the residency reduction program under section
1886(h)(6) of the Act is voluntary. Section 1886(h)(6)(A) of the Act
specifies that each hospital that is part of a ``qualifying entity''
may receive incentive payments. Section 1886(h)(6)(C) defines a
``qualifying entity'' as--
An individual hospital that operates one or more approved
residency training programs;
Two or more hospitals that operate one or more approved
residency training programs and apply for treatment as a single
qualifying entity; or
A qualifying consortium as described in section 4628 of
BBA. Section 4628(b) of the BBA defines a consortium as an entity that
consists of a teaching hospital with one or more approved medical
residency training programs and one or more of the following:
--A school of allopathic or osteopathic medicine.
--Another teaching hospital, which may be a children's hospital.
--A Federally qualified health center.
--A medical group practice.
--A managed care entity.
--An entity furnishing outpatient services.
--Any other entity that the Secretary determines to be appropriate.
The members of the consortium must have agreed to participate in
the GME programs that are operated by the entities in the consortium,
and have agreed on a method of allocating the payments among the
members. The consortium must meet such additional requirements as the
Secretary may establish as necessary.
We are incorporating the provision of section 1886(h)(6)(C) of the
Act in the regulations at Sec. 413.88(b). Any hospital that is entitled
to receive direct or indirect medical education payments, or both, from
Medicare may participate in the voluntary reduction plan as an
individual hospital. In addition, two or more hospitals that receive
direct or indirect medical education payments, or both, from Medicare
may participate as a single entity (joint applicant) and apply for a
collective annual resident reduction target.
Section 1886(h)(6)(C)(iii) of the Act cross refers the description
of a qualifying consortium for purposes of making voluntary residency
reduction incentive payments to the description specified in section
4628 of the BBA. Section 4628 requires the Secretary to establish a
demonstration project under which, instead of making GME payments to
individual teaching hospitals, under section 1886(h) of the Act, the
payments would be made to each consortium.
At this time, we are in the initial phase of developing the
demonstration project on the use of consortia and have not yet
established the criteria that a qualifying consortium will have to meet
beyond that described under section 4628(b) of the BBA. Therefore, we
have not included in this interim final regulation provisions related
to consortia and we will not be accepting applications for voluntary
residency reduction plans from entities that may be qualifying
consortia until we have established these additional criteria. If
qualifying entities express an interest in participating as a
consortia, when the criteria for consortia are finalized for the
demonstration project, we will publish a regulation outlining how
consortia qualify for the voluntary residency reduction plan. However,
until we have established these additional criteria, we are allowing a
multihospital entity, that may later qualify as a consortium, to apply
as a joint applicant. In addition, we are allowing an individual
hospital that may later qualify to participate as a member of a
consortium to apply as an individual applicant. In both cases,
participation of an individual hospital or a multihospital entity in
the voluntary reduction plan does not preclude the entity from later
applying to participate as a member(s) of a consortium once the
consortia demonstration criteria have been finalized. We are
considering whether to allow these applicants to modify their
applications so that they can be treated as a consortium for the
remainder of their individual or joint voluntary residency reduction
plans once the consortium definition is finalized. If we were to allow
this alternative, a qualifying entity that is interested in downsizing
its resident numbers in accordance with the percentages required under
section 1886(h)(6) of the Act would be able to participate and
establish its base number of residents prior to knowing whether it
would qualify as a consortium.
B. Submission of Applications and Effective Date of Plans
Section 1886(h)(6)(B)(i) of the Act, as added by the BBA, specifies
that the application must be submitted ``in a form and manner specified
by the Secretary and by not later than November 1, 1999.'' We are
requiring each qualifying entity to sign a statement indicating
voluntary participation in the residency reduction plan
(Sec. 413.88(d)(8)). We will accept applications from qualifying
entities at least one day prior to the first day of the period over
which voluntary reduction will occur but in no case later than the
November 1, 1999 application date specified in the statute
(Sec. 413.88(e)). We
[[Page 44843]]
believe that allowing plan applications to be submitted during this
period will ensure that qualifying entities can apply for incentive
payments for voluntary reduction plans applicable to residency training
programs that begin as early as July 1, 1999.
We also are specifying in Sec. 413.88(e) that each qualifying
entity must submit its application to its Medicare fiscal intermediary
for review. A copy of the application must also be sent to the HCFA
Central Office at the following address: Voluntary Residency Reduction
Plan, Health Care Financing Administration, Plan and Provider
Purchasing Policy Group, Division of Acute Care, Room C4-07-07, 7500
Security Boulevard, Baltimore, Maryland 21244-1850.
Interested entities may contact the Division of Acute Care at (410)
786-3411 for questions on the application process.
Accordingly, we are specifying under Sec. 413.88(f) that residency
reduction plans that are submitted to the fiscal intermediary on or
after September 17, 1999 but on or before November 1, 1999, may be
effective for portions of cost reporting periods beginning no earlier
than the day after the date of the application. In other words, as long
as the application is submitted on or before November 1, 1999, the
entity can choose the effective date of the plan to be as early as the
day after the date of application.
C. Contents and Format of Applications
In accordance with section 1886(h)(6)(B) of the Act, we are
specifying in Sec. 413.88(d) that the qualifying entity must submit an
application that contains the statutorily specified information and
agreements. In addition, under the authority of section
1886(h)(6)(B)(v) of the Act, we are establishing additional
requirements for submittal of data to enable verification of compliance
with the percentage reduction requirements of the statute by the fiscal
intermediary and for annual monitoring and audit purposes.
Under Sec. 413.88(d)(1), we require an application to include a
description of the operation of a plan for reducing the FTE residents
in the qualifying entity's approved medical residency training
programs, consistent with the percentage reduction requirements
specified in section 1886(h)(6)(D) of the Act and described under
section II.E. of this preamble. To ensure that we have sufficient data
and information to ascertain that the voluntary reduction plan meets
the percentage reductions specified in the statute, under
Sec. 413.88(d)(3) we further require the qualifying entity to submit
FTE counts for its base number of residents (as defined in section
II.D. of this preamble), with a breakdown of the number of primary care
residents compared to the total number of residents. A primary care
resident is defined in the existing Medicare regulations at
Sec. 413.86(b) as a resident enrolled in an approved medical residency
training program in family medicine, general internal medicine, general
pediatrics, preventive medicine, geriatric medicine or osteopathic
general practice. We also are requiring the entity to submit its direct
and indirect FTE counts as of June 30, 1997. For joint applicants,
these counts must be provided individually and collectively. This
information will be verified by the fiscal intermediary.
In addition, in Sec. 413.88(d)(4) we are requiring the qualifying
entity to submit, with the application, data on the annual and
cumulative targets for reducing the number of FTE residents and the
ratios of the number of primary care residents to the total number of
residents for the year used to determine the base number and for each
year in the 5-year reduction period. For joint applicants, these data
must be provided individually and collectively. In the case of joint
applicants, the group of participating hospitals will be held to a
collective target. None of the participating hospitals will receive
incentive payments unless the collective target is met.
In accordance with section 1886(h)(6)(D)(iii) of the Act, the
application must include an election of the period of residency
training years during which the reductions will occur
(Sec. 413.88(d)(2)). The reductions must be fully implemented by not
later than the fifth residency training year in which the plan is
effective.
Under Sec. 413.88(d)(5) and in accordance with section
1886(h)(6)(B)(iv) of the Act, we are requiring the qualifying entity in
its application to agree to not reduce the proportion of its primary
care residents to its total number of residents below the proportion
that exists in the residency training program year that the entity used
to determine the base number of residents, as described in section
II.D. of this preamble.
Under the Secretary's authority under section 1886(h)(6)(B)(v) of
the Act to determine other requirements for voluntary reduction plans
and entities as necessary, we are requiring under Sec. 413.88(d)(7)
that for a qualifying entity that is also member of an affiliated group
as defined in Sec. 413.86(b), a statement be submitted along with the
application that all members of the affiliated group (that are not a
part of the qualifying entity) agree to an aggregate FTE cap that
reflects the resident count during each year of the qualifying entity's
plan and the 1996 FTE count of the other hospital(s) in the affiliated
group. In addition, we are requiring under Sec. 413.88(d)(6) that the
qualifying entity, in its application, agree to comply with data
submission requirements deemed necessary by HCFA to make annual
incentive payments during the 5-year residency reduction plan, and to
fully cooperate with additional audit and monitoring activities deemed
necessary by HCFA.
D. Definition of the Base Number of Residents
Under section 1886(h)(6)(D), the residency reduction requirement
for a qualifying entity depends on the entity's base number of
residents. Section 1886(h)(6)(D)(vi) of the Act, as added by section
4626(a) of the BBA, defines the term ``base number of residents'' to
mean--
* * * with respect to a qualifying entity (or its participating
hospitals) operating approved medical residency training programs,
the number of full-time equivalent residents in such an entity's
programs (before application of weighting factors) of the entity as
of the most recent residency training year ending before June 30,
1997 or, if less, for any subsequent residency training year that
ends before the date the entity makes application under this
paragraph.
Under Sec. 413.88(g)(1) of these interim final regulations, we
define the base number of residents using the counting rules for
determining a hospital's direct GME FTE count under existing
Sec. 413.86 with two changes to reflect the provisions of section 4626
of the BBA. First, consistent with section 1886(h)(6)(D)(vi), we
specify that the base number of residents will be determined on the
basis of a July 1 to June 30 ``residency training year,'' rather than
the hospital's cost reporting period. Second, under existing
Sec. 413.86(g), a weighting factor is applied to each resident included
in a hospital's direct GME FTE count. Residents within an initial
residency period are weighted at 1.0 FTE and residents beyond the
initial residency period are weighted at 0.5 FTE. However, consistent
with section 1886(h)(6)(D)(vi) of the Act, in determining the base
number of residents for voluntary residency reduction plans, we are
requiring under Sec. 413.88(g)(1)(i) that FTEs be counted ``before
application of weighting factors,'' so that each resident will be
weighted at 1.0 FTE.
[[Page 44844]]
In summary, we are specifying in Sec. 413.88(g)(1)(i) that the base
number of residents means the lesser of (1) The number of FTE residents
in all approved medical residency training programs of the qualifying
entity (before application of weighting factors under Sec. 413.86(g))
for the most recent residency training year ending June 30, 1996; or
(2) the number of FTE residents in all approved medical residency
training programs of the qualifying entity (before application of
weighting factors under Sec. 413.86(g)) for any subsequent residency
training year that ends before the date the entity submits its plan to
the fiscal intermediary and HCFA. The residency training year used to
determine the base number of residents is the ``base year'' for
determining residency reduction requirements described under section
II.E. of this preamble.
E. Residency Reduction Requirements
Section 1886(h)(6)(D) of the Act, as added by the BBA, specifies
the methodology for determining the number of FTE residents in all of
the qualifying entity's approved medical residency training programs
that must be reduced in order for each type of qualifying entity to
receive incentive payments.
1. Qualifying Entities That Are Individual Hospitals
a. Hospitals with a base number of residents that is greater than
750. If an individual hospital's base number of residents exceeds 750
residents, the voluntary plan must specify a reduction in the base
number of residents by at least 20 percent.
b. Hospitals with a base number of residents between 601 and 750.
If an individual hospital's base number of residents exceeds 600 but is
not in excess of 750, the voluntary plan must specify a reduction in
the base number of residents by at least 150 residents. Alternatively,
the plan may specify a reduction of at least 20 percent if the base
number of residents in primary care is increased during the plan by at
least 20 percent.
c. Hospitals with a base number of residents that is 600 or fewer.
Hospitals with a base number of residents of 600 or less have the
option of reducing the base number of residents by at least 25 percent.
Alternatively, the plan may specify a reduction of at least 20 percent
if the number of primary care residents is increased by at least 20
percent.
We have incorporated these provisions at Sec. 413.88(g)(2).
2. Qualifying Entities With Two or More Hospitals (Joint Applicants)
Joint applicants must reduce their combined base number of
residents by 25 percent; or if there is an increase in the combined
base number of primary care residents of at least 20 percent, by at
least 20 percent. Section 413.88(g)(3) contains this provision.
3. Consortia Applicants
The statute specifies that consortia applicants must reduce the
combined base number of residents by at least 20 percent. As indicated
earlier, we are not accepting applications from consortia until we have
established criteria for consortia under section 4628 of the BBA and
have some experience with the demonstration project. Therefore, this
interim final rule does not contain provisions relating to consortia.
However, until we have issued these criteria, a qualifying entity that
may later qualify as a consortium may apply in the interim as an
individual hospital or multihospital joint applicant as described
above.
Under section 1886(h)(6)(B)(iv) of the Act, a qualifying entity
applicant may not reduce the base year proportion of its primary care
residents to its total number of residents below the proportion that
exists in the residency training program year used to determine the
base number of residents. In other words, the proportion of residents
in primary care at the end of the plan must be at least the same as or
greater than the proportion of total residents in primary care in the
base number of residents. We have incorporated these provisions at
Sec. 413.88(g)(2)(ii)(B), (g)(2)(iii)(B) and (g)(3)(ii).
Section 1886(h)(6)(D)(iv) of the Act specifies that voluntary
residency reductions in the base number of residents must be fully
effective no later than the fifth residency training year in which the
application is effective. The following table illustrates the resident
reduction options under the voluntary plans for the different types of
qualifying entity applicants:
------------------------------------------------------------------------
Type of applicant Reduction option (5 year plan)
------------------------------------------------------------------------
Individual Hospitals:
More than 750 Residents.... 20%.
601 to 750 Residents....... 150 Residents or 20% if primary care residents
increase by 20%.
600 or fewer Residents..... 25% or 20% if
number of primary care residents
increased by 20%.
Joint Applicants............. 25% or 20% if
number of primary care residents
increased by 20%.
Consortia Applicants......... 20%.
All Applicants............... May Not Reduce Primary Care/Total
Resident Ratio.
------------------------------------------------------------------------
F. Incentive Payments
Sections 1886(h)(6)(A) and (E) of the Act prescribe the formula for
calculating the amount of incentive payments. Although hospitals may
participate as a joint applicant (or later as a consortium, as
discussed earlier in this preamble), incentive payments will be made to
individual hospitals through the regular Medicare payment process via
cost reports.
Incentive payments will be made on the basis of a cost reporting
period even though residency reductions under the plan are made on a
July 1 to June 30 medical residency program year. If a hospital cost
reporting period coincides with a residency program training year,
incentive payments may begin at the beginning of the first cost
reporting period in which resident reductions are made under the
voluntary residency reduction plan. For instance, if a hospital chooses
to participate in the voluntary residency reduction plan for the
residency training year July 1, 2000 to June 30, 2001 and the hospital
has a July 1 to June 30 cost reporting period, the first year in which
Medicare may make incentive payments for voluntary residency reductions
would be the hospital's July 1, 2000 to June 30, 2001 cost reporting
period. If a hospital's cost reporting period does not coincide with a
residency training year, the first year in which incentive payments may
be made under the voluntary residency reduction plan would be the
hospital's cost reporting period that overlaps the July 1, 2000
beginning date of the voluntary residency reduction plan. For instance,
if a hospital participates in the residency reduction plan effective
July 1, 2000, and the hospital has a January 1 to December 31 cost
reporting period, incentive payments may be made under the voluntary
residency plan beginning
[[Page 44845]]
in the hospital's January 1, 2000 to December 31, 2000 cost reporting
period. If the hospital's cost reporting period does not coincide with
a July 1 to June 30 residency training year, the applicable hold-
harmless percentages described earlier would be prorated accordingly
over the respective cost reporting period(s). In addition, if the
hospital's cost reporting period does not coincide with a July 1 to
June 30 residency training year, for purposes of calculating the number
of residents in each plan year, the number of FTE residents would be
prorated over the respective cost reporting periods.
In Sec. 413.88(j), we specify that annual incentive payments
through cost reports will only be made to hospitals that are or are
part of qualifying entities over the 5-year reduction period if the
qualifying entity meets specified annual residency reduction goals. An
incentive payment will be made for any given year only when the
participant meets or exceeds the cumulative annual target applicable to
that year. Consistent with section 1886(h)(6)(F) of the Act, if a
participating entity fails to comply with its residency reduction plan
by the end of the fifth residency training year, the hospitals that
comprise the qualifying entity will be liable for repayment of all
incentive payments.
We will allow an entity to update its annual targets as specified
in its plan only under limited circumstances. If the entity has failed
to meet any of its annual targets in a plan year, it will not receive
incentive payment for that particular plan year. To be eligible for
future incentive payments for the duration of the plan, the entity may
update future annual targets for the remaining years of the plan in
order to comply with its cumulative target. We would require the
updated plan to be submitted prior to the beginning of each July 1
medical residency training year during the plan years.
In accordance with section 1886(h)(6)(A) of the Act, each
individual entity participating in the plan will receive incentive
payments based on the following calculation (as specified under
Sec. 413.88(h)): The sum of the entity's direct and indirect GME
payment based on 95 percent of the total number of weighted residents
in the approved medical residency training programs of the qualifying
entity on June 30, 1997 subtracted by the sum of the qualifying
entity's direct and indirect GME payment based on 100 percent of the
number of weighted FTE residents in each of the 5 plan years. This
difference will be multiplied by a decreasing hold-harmless percentage
for the given plan year, to arrive at an individual hospital's
incentive payment.
In accordance with section 1886(h)(6)(E) of the Act, the applicable
hold-harmless percentages are as follows (as specified under
Sec. 413.88(i)):
------------------------------------------------------------------------
Plan year Percentage
------------------------------------------------------------------------
1........................................................... 100
2........................................................... 100
3........................................................... 75
4........................................................... 50
5........................................................... 25
------------------------------------------------------------------------
As stated above, the applicable hold-harmless percentages must be
prorated over two hospital cost reporting periods if the hospital's
cost reporting period does not coincide with the residency training
program year. For instance, a hospital participating in the voluntary
plan will be making reductions on the basis of a July 1 to June 30
program year. If the hospital has a January 1 to December 31 cost
reporting period, the applicable hold-harmless percentages will change
on July 1 of each year, which is in the middle of the hospital's cost
reporting period. For this reason, the applicable hold-harmless
percentage for the cost reporting period will reflect a weighted
average of the residency reductions in each portion of the cost
reporting period. In addition, in calculating the incentive payments we
will apply weighting factors to the total resident count as of June 30,
1997 and for each plan year. This is consistent with our existing
policy under Sec. 413.86(g) of applying weighting factors to resident
FTE counts.
We are providing the following simplified example to illustrate
application of the incentive payment calculation.
Assume a hospital's resident program year is the same as its cost
reporting year, and that it receives $10 million for direct and
indirect GME based on 100 FTE residents as of June 30, 1997. Also
assume that the hospital's average payment per resident for indirect
and direct GME of $100,000 (derived from $10 million/100 residents)
does not change from June 30, 1997 to the end of the 5-year reduction
plan. If the hospital agrees to reduce its FTE count by 5 residents per
year and 25 residents over 5 years, it would be paid as follows:
BILLING CODE 4120-01-P
[[Page 44846]]
[GRAPHIC] [TIFF OMITTED] TR18AU99.001
BILLING CODE 4120-01-C
[[Page 44847]]
As depicted in the preceding chart, in any year of the residency
reduction plan, the hospital receives incentive payments based on 95
percent of its number of residents on June 30, 1997. In each year of
the plan, the incentive payment is based on a declining percentage
(hold-harmless percentage, line (i) in the preceding chart) of the
hospital's direct and indirect GME payment loss associated with
residency reduction below 95 percent of its base number of residents
line (h). In this example, the hospital's revenues for indirect and
direct GME would have declined by a total of $7.5 million ($50 million-
$42.5 million) over a 5-year period if the hospital did not reduce the
number of residents according to the plan. A hospital participating in
the voluntary plan, however, received $2.5 million in incentive
payments. Of the $5 million difference ($7.5 million-$2.5 million),
$2.5 million is due to the hold-harmless percentage (i) and the
remaining $2.5 million is due to the 5-percent adjustment to the number
of residents on June 30, 1997.
Under section 1886(h)(6)(A) of the Act, the determination of the
incentive payments for any year must be made on the basis of the
Medicare payment provisions ``in effect on the application deadline
date for the first calendar year to which the reduction plan applies.''
Thus, the amount of the incentive payment depends on the Medicare
provisions in effect on the application deadline date
(Sec. 413.88(h)(2)). As specified earlier, applications must be filed
at least one day prior to the effective date of the plan but no later
than November 1, 1999. For example, if a hospital wants the reduction
plan provision to go into effect on September 1, 1999, the deadline for
the application would be August 31, 1999. Therefore, the Medicare
payment provisions in effect on August 31, 1999, would be used to
calculate the amount of the incentive payment. The latest date for
applying for incentive payments is November 1, 1999.
G. Repayment Penalty Provision
Section 1886(h)(6)(F)(ii) of the Act, as added by the BBA, sets
forth a repayment penalty following a qualifying entity's completion of
a voluntary residency reduction plan in which the entity received
incentive payments if the entity exceeds the number of residents that
it has agreed to in its plan. We are specifying in Sec. 413.88(k) that
the entity is liable for repayment for the total amount of the
incentive payments if the number of FTE residents increases above the
number of such residents permitted under the reduction plan after the
completion of the plan. If the number of FTE residents increases above
the number of residents permitted under the voluntary reduction plan,
the following provisions of repayment apply:
In any postplan year, a qualifying entity that
successfully completed the reduction plan either as an individual
hospital or a member of a joint applicant is subject to the total
repayment provisions if its resident count exceeds the number of
residents specified in the voluntary residency reduction plan.
As contained in Sec. 413.88(l)(1), the end-of-plan
residency cap will equal the unweighted FTE count used for direct
medical education payments for the last residency training program year
in which a qualifying entity participates in a plan. For each
subsequent cost reporting year that ends after the end of the reduction
plan, the unweighted direct FTE resident count will be compared to the
unweighted direct GME FTE resident count for the last residency
training program year. If the unweighted direct GME FTE resident count
for a cost reporting period post plan exceeds the resident count
specified in the voluntary residency reduction plan, the qualifying
entity is subject to the total repayment provision.
The repayment provision applies until such time when a
full credit has been made against the total amount of incentive
payments made to the qualifying entity. For individual hospitals, the
total incentive payment amount equals all of the incentive payments
made to the hospital. For joint participants, the total payment amount
equals the sum of all incentive payments made to the individual
hospitals that make up the membership of the joint participant.
For the purpose of calculating the credit amount in each
postplan year to which the total repayment provision applies, an
individual hospital's direct and indirect GME payments will be
calculated based on the hospital's actual FTE resident counts in that
year. Payments are made to the hospital up to the amount that applies
to the end-of-plan FTE resident count. The remainder is credited
against the total repayment amount. The total repayment amount is equal
to the actual annual incentive payments made during the voluntary
reduction plan years. An example would be a hospital that had a base
number of 200 FTE residents and by the end of the plan reduces its FTE
count to its cumulative target of 160 FTE residents. If, at a later
date after the completion of the plan, the entity increases its FTE
count from 160 FTEs to 161 FTEs, the repayment penalty provision would
be in effect. The entity would be required to repay the entire amount
it received as incentive payments during the plan years. However, the
method of repayment is limited to the direct and indirect payments the
entity would have received for the 161st resident. These direct and
indirect GME payments are credited against the total repayment amount
the entity is required to repay.
Once the total penalty is repaid, the qualifying entity's
adjusted FTE cap reverts back to its original 1996 FTE cap, since
effectively all benefits of participating in the plan will have been
eliminated (Sec. 413.88(l)(2)(ii)).
H. Related BBA Provisions and Their Effect on Voluntary Plan Reduction
Provisions
Several other provisions of the BBA that were implemented in the
Federal Register on August 29, 1997 (62 FR 46003 through 46007), and on
May 12, 1998 (63 FR 26318) have an effect on incentive payments under
the voluntary residency reduction plan.
1. Reduction in the Indirect Medical Education Adjustment
Section 4621 of the BBA revised section 1886(d)(5)(B) of the Act to
reduce the level of the IME adjustment in effect prior to the enactment
of the BBA (approximately 7.7 percent for every 10-percent increase in
the resident-to-bed ratio) over several years. The schedule for the IME
adjustment is as follows: 7.0 percent for discharges during FY 1998;
6.5 percent during FY 1999; 6.0 percent during FY 2000; and 5.5 percent
during FY 2001 and thereafter. In determining the voluntary residency
reduction incentive payment calculation, the respective IME adjustment
factors will apply for the number of FTE residents in each of the 5
plan years and to the number of FTE residents as of June 30, 1997.
2. Caps on the Number of FTEs
Sections 4621 and 4623 of the BBA amended section 1886 of the Act
to limit the number of residents that a hospital can count for purposes
of determining payment for indirect and direct GME costs. For cost
reporting periods beginning on or after October 1, 1997, the total
number of allopathic and osteopathic medical residents that a hospital
may include in its FTE count in either a hospital or nonhospital
setting for IME payments is limited to the total number of such
resident FTEs included in the hospital's most recent cost reporting
period ending on or before December 31, 1996. Similarly, for direct GME
payments, the number of
[[Page 44848]]
allopathic and osteopathic medical residents that a hospital may
include in its unweighted direct medical education FTE count for cost
reporting periods beginning on or after October 1, 1997, is limited to
the number included in the hospital's most recent cost reporting period
ending on or before December 31, 1996. The August 29, 1997 final rule
with comment period and the May 12, 1998 final rule amended
Secs. 412.105 and 413.86 of the regulations to implement these
provisions for indirect and direct GME, respectively.
Since the counting rules for indirect and direct GME in hospital
cost reports ending on or before December 31, 1996 were different, the
FTE caps may also be different. Prior to enactment of the BBA, a
hospital's IME FTE count could only include residents working in
inpatient areas of the hospital subject to the prospective payment
system and hospital outpatient departments. Residents in nonhospital
settings and areas of the hospital not subject to the prospective
payment system could not be counted. For direct GME, a hospital could
include residents in all areas of the hospital complex (including areas
not subject to the prospective payment system) and nonhospital settings
(if the criteria of Sec. 413.86(f)(1)(iii) are met). However, residents
in subspecialty training and residents otherwise beyond the initial
residency period included in a hospital's direct GME FTE count are
weighted at 0.5 FTE under Sec. 413.86(g).
The BBA limits the FTE caps to allopathic and osteopathic medical
residents and does not apply FTE caps to podiatry and dentistry
residents. For purposes of the voluntary residency reduction plans, the
base number of residents under section 1886(h)(6)(D)(vi) of the Act
includes all of a hospital's residents (including residents in
dentistry and podiatry). Therefore, we will determine whether a
hospital is eligible for incentive payments under the voluntary
residency reduction plan by counting all residents participating in
approved medical residency training programs. Accordingly, a hospital
that receives incentive payments under the voluntary residency
reduction plan remains subject to the indirect and direct GME FTE caps
mandated under sections 1886(d)(5)(B) and 1886(h)(4)(H) of the Act and
Secs. 412.105 and 413.86 of the regulations.
3. Counting Residents Based on a 3-Year Average in the Plan Year
Section 1886(d)(5)(B)(vi)(II) of the Act, as amended by section
4621 of the BBA, provides that a hospital's IME FTE resident count for
a cost reporting period beginning during FY 1998 will be based on the
average of the number of residents for the cost reporting period and
the prior cost reporting period. The hospital's IME FTE count for cost
reporting periods beginning in FY 1999 and subsequent years will be
based on an average of the FTE count for the cost reporting period and
the prior two cost reporting periods. Similarly, section 1886(h)(4)(G)
of the Act, as amended by section 4623 of the BBA, provides that a
hospital's direct GME FTE resident count for a cost reporting period
beginning during FY 1998 will be based on the average of number of
residents for the cost reporting period and the prior cost reporting
period. The hospital's direct GME FTE count for cost reporting periods
beginning in FY 1999 and subsequent years will be based on an average
of the FTE count for the cost reporting period and the prior two cost
reporting periods.
We determine the level of payments for the cost reporting period
using the number of residents as of June 30, 1997 without regard to
averaging rules. However, the averaging rules described above are
applicable when determining incentive payments for the hospital's
actual residents in a voluntary plan year.
4. Capital IME Payment
Section 1886(h)(6)(A) of the Act limits the incentive payments to
direct GME payments and operating IME payments. However, under section
1886(g) of the Act and Sec. 412.322 of the existing regulations, we
also make capital IME payments on the basis of the hospital's ratio of
residents to average daily census. Since capital IME payments are also
a function of the number of residents in approved programs, we believe
we have discretion to provide incentive payments for capital IME using
a methodology similar to the one used for determining operating IME
payments under this interim final rule. We are including language in
Sec. 413.88(h)(1)(iii) that will allow hospitals participating in
voluntary residency reduction plans to receive incentive payments for
capital IME.
5. Counting FTEs in Nonhospital Settings
Under Sec. 413.86(f)(1)(iii), on or after July 1, 1987 and before
January 1, 1999, a resident may be included in a hospital's direct GME
FTE count if the resident spends time in patient care activities
outside of the hospital and there is a written agreement between the
hospital and the nonhospital entity that the resident's compensation
for training time spent outside of the hospital setting is to be paid
by the hospital. Section 4621(b)(2) of the BBA amended section
1886(d)(5)(B)(v) of the Act to allow all the time spent by residents in
patient care activities under an approved medical residency training
program in a nonhospital setting to be counted towards the
determination of FTEs for IME, if the hospital incurs all, or
substantially all, of the costs for the training program in the
nonhospital setting. In accordance with section 1886(h)(4)(E) of the
Act, we are currently using the same criteria for determining whether a
hospital may include a resident in its FTE count for direct GME.
However, in the July 31, 1998 Federal Register (63 FR 41005), we
revised the definition of ``all or substantially all of the costs'' in
order to implement section 4625 of the BBA, which permits payment to
certain nonhospital providers. The revised rule requires the written
agreement to indicate that the hospital will incur the costs of the
resident's compensation in the nonhospital site and provide reasonable
compensation to the nonhospital site for supervisory teaching
activities. If a hospital includes residents in nonhospital settings in
its IME FTE count, consistent with section 1886(d)(5)(B)(v) of the Act,
the hospital must include those residents in determining whether it has
exceeded its IME FTE cap. In addition, if a hospital included residents
in nonhospital settings in its direct GME FTE count, the hospital must
include these residents in determining whether it has exceeded its
direct GME FTE cap.
A hospital that incurs ``all or substantially all of the costs''
and is counting the FTE for the time a resident spends in a nonhospital
site for purposes of direct and indirect GME payments must also include
the FTE in the nonhospital site for purposes of counting the FTE in
making the target reductions under the plan. In other words, qualifying
entities that include the FTE in nonhospital sites for GME payment must
also include it when making the target reductions.
6. New Medical Residency Training Programs
Section 1886(h)(5)(H) of the Act permits special rules in the case
of medical residency training programs established on or after January
1, 1995. Under a final rule published in the Federal Register on May
12, 1998 (63 FR 26333) such new medical residency training programs are
permitted to have an adjustment to the FTE cap. (We have proposed to
further clarify the requirements for receiving an adjustment to the FTE
cap for new medical residency training programs in
[[Page 44849]]
a notice of proposed rulemaking published in the Federal Register on
May 7, 1999 (64 FR 24735)).
For purposes of this interim final rule with comment period,
however, since section 1886(h)(6) of the Act does not provide for
adjustments to the FTE counts, we will not adjust a hospital's base
number of residents for adjustments that may be otherwise made to
hospital FTE caps for new medical residency training programs. For
example, a hospital that had a 100 FTE cap that qualifies for a new
medical residency training program adjustment to raise its FTE cap to
120 FTE residents would not be able to count the 20 FTE adjustment for
purposes of calculating the base number of residents for the voluntary
residency reduction plan.
7. Hospitals That Meet the Definition of Affiliated Groups
Section 1886(h)(5)(H)(ii) of the Act allows the Secretary to
prescribe rules that allow institutions that are members of the same
affiliated group to elect to apply the FTE caps on an aggregate basis.
In the May 12, 1998 final rule (63 FR 26358), an affiliated group is
defined as follows:
Two or more hospitals located in the same urban or rural
area (as those terms are defined in Sec. 412.62(f)) or in contiguous
areas if individual residents work at each of the hospitals during the
course of the program; or
If the hospitals are not located in the same or contiguous
rural and urban areas, hospitals that are jointly listed--
++ As sponsor, primary clinical site, or major participating
institution for one or more of the programs as those terms are used in
the Graduate Medical Education Directory, 1997-1998; or
++ As the sponsor or under affiliations and outside rotations for
one or more programs in operation in Opportunities, Directory of
Osteopathic Postdoctoral Education Programs; or
Hospitals that are under common ownership.
For purposes of this interim final rule with comment period, we
will permit applications from one or more hospitals that qualify as an
affiliated group under Sec. 413.86. A qualification that must be met
for affiliated groups that involve one or more member hospitals
participating in the voluntary residency reduction plan is that all
members of the affiliated group agree to an aggregate FTE cap that
reflects the resident count during each plan year of the hospital that
is in the voluntary reduction plan.
As stated earlier, section 1886(h)(6)(F)(ii) of the Act requires a
qualifying entity to refund all incentive payments if it has more
residents after the end of the plan than it was permitted under the
plan. Affiliated groups that include hospitals in the voluntary
residency reduction plan that have successfully completed the plan must
also agree to an aggregate cap based on the 1996 FTE count of each
hospital in the affiliated group, adjusted for the participating
hospital's final FTE count under the voluntary residency reduction
plan. However, in the event that a qualifying entity increases its FTE
count above its target reduction and has refunded all incentive
payments received under the plan (since effectively all benefits of
participation in the plan will have been eliminated), the aggregate FTE
cap would include that entity's FY 1996 FTE cap.
In accordance with the requirement established under
Sec. 413.88(g)(4), a hospital participating in the voluntary residency
reduction plan and is a member of an affiliated group, may not achieve
its residency reduction goals by rotating residents to other members of
the affiliated group that are not participating in the voluntary
residency reduction plan.
8. Payments to Hospitals for Indirect and Direct GME Costs Associated
with Medicare+Choice Enrollees
Section 4622 of the BBA added section 1886(d)(11) to the Act to
provide for IME payments to teaching hospitals for discharges
associated with Medicare+Choice enrollees for portions of cost
reporting periods occurring on or after January 1, 1998. The additional
payment is equal to an applicable percentage of the estimated average
per discharge amount that would have been made for the discharge for
IME if the beneficiary were not enrolled in managed care. The
applicable percentage set forth in section 1886(h)(3)(D)(ii) of the Act
is equal to 20 percent in 1998, 40 percent in 1999, 60 percent in 2000,
80 percent in 2001, and 100 percent in 2002 and subsequent years.
Section 4624 of the BBA amended section 1886(h)(3) of the Act to
provide a 5-year phase-in of the payments to teaching hospitals for
direct GME costs associated with services to Medicare+Choice discharges
for portions of cost reporting periods occurring on or after January 1,
1998. The amount of payment is equal to the product of the per resident
amount, the total weighted number of FTE residents working in all areas
of the hospital (and nonhospital settings in certain circumstances)
subject to the limit on the number of FTE residents under section
1886(h)(4)(F) of the Act and the averaging rules under section
1886(h)(4)(G) of the Act, the ratio of the total number of inpatient
bed days that are attributable to Medicare+Choice enrollees to total
inpatient days and an applicable percentage. The applicable percentages
are 20 percent in 1998, 40 percent in 1999, 60 percent in 2000, 80
percent in 2001, and 100 percent in 2002 and subsequent years.
The effect of this provision for qualifying entities participating
in voluntary residency reduction plans is that the level of payments
for the cost reporting period will be determined using the actual
number of residents reflective of the additional indirect and direct
GME payments associated with Medicare+Choice discharges. The difference
between the hospital's payments using the number of residents as of
June 30, 1997, and the actual number of residents in a voluntary
residency reduction plan year, including the effect of adjustments for
payments associated with Medicare+Choice discharges, will be the basis
for the incentive payment calculation.
I. Other Issues
1. Mergers, Acquisitions, and Related Changes
We recognize that hospitals participating in an approved voluntary
residency reduction plan may undergo hospital mergers, acquisitions, or
related changes (for example, system dissolution) that may affect the
qualifying entity. We invite comments on how we can most appropriately
address such situations.
2. Evaluation
We do not have specific plans to evaluate the impact of the
voluntary residency reduction plans at this time. However, we may
request information from entities approved for participation in a
voluntary residency reduction plan. If a full evaluation is conducted,
cooperation will be voluntary.
III. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
(PRA) of 1995 requires that we solicit comment on the following issues:
[[Page 44850]]
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Section 413.88(d) of this document contains information collection
requirements. However, given that we anticipate the submission of less
than 10 applications on an annual basis, these collection requirements
are not subject to the PRA. Therefore, at this time we are not
submitting a copy of this document to OMB for its review of these
information collection requirements. If we determine, at a later date,
that we will receive more than 10 applications prior to the November 1,
1999 application submission deadline, we will submit these information
collection requirements to the OMB, as required by section 3504(h) of
the PRA.
Although we believe that these information collection requirements
are not subject to the PRA, we still welcome public comment on each of
the following issues for the section of this document that contains
information collection requirements:
Section 413.88(d) requires that a qualified entity must submit a
voluntary residency reduction plan application that contains the
following information or documents:
(1) A description of the operation of a plan for reducing the FTE
residents in its approved medical residency training programs,
consistent with the percentage reduction requirements described under
section II.E. of this preamble.
(2) An election of the period of residency training years during
which the reductions will occur;
(3) FTE counts for the base number of residents, with a breakdown
of the number of primary care residents compared to the total number of
residents; and the direct and indirect GME FTE counts for the entity on
June 30, 1997. For joint applicants, these counts must be provided
individually and collectively;
(4) Data on the annual and cumulative targets for reducing the
number of FTE residents and the ratios of the number of primary care
residents to the total number of residents for the base year and for
each year in the 5-year reduction period. For joint applicants, these
data must be provided individually and collectively;
(5) An agreement to not reduce the proportion of its primary care
residents to its total number of residents below the proportion that
exists in the base year;
(6) An agreement to comply with data submission requirements deemed
necessary by HCFA to make annual incentive payments during the 5-year
residency reduction plan, and to fully cooperate with additional audit
and monitoring activities deemed necessary by HCFA; and
(7) For a qualifying entity that is also member of an affiliated
group as defined in Sec. 413.86(b), a statement that all members of the
affiliated group--that are not part of the qualifying entity-- agree to
an aggregate FTE cap that reflects the resident count during each year
of the qualifying entity's plan and the 1996 FTE count of the other
hospital(s) in the affiliated group; and
(8) A statement indicating voluntary participation in the plan
under the terms of this section, signed by each hospital that is part
of the applying entity.
Each applicant will determine its own annual and cumulative targets
for the number of FTE reductions. Annual and collective targets must be
included in the application. In the case of a joint applicant, the
group of participating hospitals will be held to a collective target.
None of the participating hospitals will receive incentive payments
unless the collective target is met.
Qualifying entities with approved voluntary resident reduction
plans will be required to submit data on annual and cumulative targets
deemed necessary by HCFA. Qualifying entities will also be required to
submit update plan if annual targets are not met and if the qualifying
entities wish to request that future annual targets be adjusted to
comply with their cumulative targets.
We anticipate that on average it will require 15 hours for an
applicant to complete and submit the required information.
Organizations and individuals that wish to submit comments on the
information collection and recordkeeping requirements set forth in this
interim final rule should direct them to HCFA and OMB officials whose
names appear in the ADDRESSEES section of this preamble.
IV. Waiver of Proposed Rulemaking
We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment on the proposed rule. Under
the Administrative Procedure Act (APA), however, this procedure can be
waived if an agency finds good cause that prior notice-and-comment
procedures are impracticable, unnecessary, or contrary to the public
interest, and incorporates a statement of the finding and its reasons
in the rule. As explained below, we find for good cause that it would
be impracticable to undertake prior notice-and-comment procedures with
respect to this rule before the provisions of the rule take effect.
The BBA was enacted on August 5, 1997. In section 4626(c), the
Congress specifically authorized (but did not require) the Secretary to
promulgate interim final rules ``by not later than 6 months after the
date of the enactment of [the BBA].'' Thus, if the Secretary had
published this document by February 5, 1998, the Secretary could have
issued this rule on an interim final basis by exercising the specific
authority in section 4626(c) of the BBA, rather than waiving notice-
and-comment procedures in accordance with the APA.
Because of the numerous obligations imposed by the BBA, we were not
able to promulgate this rule by February 5, 1998. The BBA required
development of complex regulations establishing, among other things:
hospital specific FTE caps; aggregate FTE caps in affiliated group
arrangements; GME payments to nonhospital providers; and adjustment to
FTE caps for new residency programs. Each of these represented a
significant and complex change affecting Medicare payment for indirect
and direct GME.
Nevertheless, we believe that the Congress' grant of specific
authority to issue interim final rules evinces an intent to allow
hospitals to begin participating in the voluntary residency reduction
plans at the earliest practicable date; if we undertook prior notice-
and-comment procedures now, we would have to allow for a 60 day comment
period before publishing final regulations, and this would further
delay the effective date of this rule.
We also find good cause to waive the prior notice of proposed
rulemaking with respect to the provisions of this document concerning
capital IME. Capital IME payments--like operating IME and direct GME
payment--are a function of the number of residents in approved
programs. Consistent with our broad authority to implement the capital
prospective payment system, this interim final rule with comment period
provides that the amount of incentive payments reflects the effect of
the residency reduction on capital IME. Given that we find good cause
to waive prior notice and comment procedures with respect to the other
provisions of this rule, and given our interest in
[[Page 44851]]
promoting uniformity and consistency, we believe it would be
impracticable to conduct prior notice and comment procedures for the
provisions of this document concerning capital IME payments.
For all these reasons, as well as the statutory requirement that
applications for incentive payments must be received no later than
November 1, 1999, we find good cause to waive the prior notice of
proposed rulemaking and to issue this final rule on an interim basis.
We invite written comments on this interim final rule and will consider
comments we receive by the date and time specified in the DATES section
of this preamble.
V. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the DATES
section of this preamble, and, if we proceed with a subsequent
document, we will respond to the comments in the preamble to that
document.
VI. Impact Analysis
A. Background
We have examined the impacts of this interim final rule with
comment period as required by Executive Order 12866 and the Regulatory
Flexibility Act (RFA) (Public Law 96-354). Executive Order 12866
directs agencies to assess all costs and benefits of available
regulatory alternatives and, when regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects; distributive
impacts; and equity). The RFA requires agencies to analyze options for
regulatory relief for small businesses. For purposes of the RFA, most
hospitals, and most other providers, physicians, and health care
suppliers are small entities, either by nonprofit status or by having
revenues of $5 million or less annually.
B. Executive Order 12866 and RFA Analysis
Without knowing the number of applications that we will receive and
the characteristics of the hospitals that will apply, we believe it is
difficult to assess the impact of this interim final rule with comment
period. However, we do believe that few hospitals will apply for the
voluntary residency reduction plan. As stated earlier, section 4623 of
the BBA requires the Secretary to determine incentive payment based on
an average of the hospital's FTE count for the cost reporting period
and the prior two cost reporting periods (the prior one cost reporting
period for the hospital's first cost reporting period beginning on or
after October 1, 1997). Using the 3-year averaging rule, Medicare makes
a partial payment for each resident eliminated and no longer included
in a hospital's resident FTE counts by phasing in the reduction over 3
years. Therefore, the 3-year averaging rule provides similar incentives
to those available under the voluntary residency reduction plan without
requiring a permanent minimum reduction of either at least 25 percent
or, with an increase in primary care residents of at least 20 percent,
at least 20 percent. Further, under the 3-year averaging rules, the
regulations do not mandate the hospital to maintain the proportion or
increase the number of residents in primary care. Finally, hospitals
participating in the voluntary plan will be subject to repayment of all
incentive funds if they subsequently increase the number of residents.
Hospitals that receive additional payments by downsizing residents
under the 3-year averaging rules are not subject to a similar refund
provision. We are providing the following hypothetical examples that
illustrate how hospitals could potentially be affected under the
voluntary residency reduction plan.
BILLING CODE 4120-01-P
[[Page 44852]]
[GRAPHIC] [TIFF OMITTED] TR18AU99.002
[[Page 44853]]
[GRAPHIC] [TIFF OMITTED] TR18AU99.003
BILLING CODE 4120-01-C
[[Page 44854]]
These examples are simplified but do illustrate the impact on
hospital revenues from various reduction options assuming fixed
Medicare per resident payment amounts under several reduction options.
The examples do not take into account any changes in IME payments,
updates to the per resident amounts, changes in Medicare utilization or
other factors that affect Medicare payment for direct and indirect GME.
However, generally IME payments are twice the amount of direct GME
payments for the average hospital. In each of these examples, the
hospital's payments under current law are based on a 3-year average of
the FTEs. The hospital's Medicare direct GME payments are equal to the
product of the average FTEs and the Medicare per resident payment
amount. The difference between the payments based on the number of
residents on June 30, 1997 and plan year payments are multiplied by the
hold-harmless percentage to determine incentive payments. The incentive
payments are added to the hospital's Medicare direct GME payments to
determine total payments.
In example 1, the hospital participates in the voluntary residency
reduction plan under the 20-percent option (this option would also
require an increase in the number of primary care residents by 20
percent which is not illustrated). The hospital achieves its residency
reduction under the plan by reducing 4 percent per year from the base
number of residents. The incentive payments are based on the difference
in payments using 95 percent of the count of residents as of June 30,
1997, and rate year payments using the 3-year average count of
residents. In example 1, the hospital does not receive an incentive
payment during the first 2 years of the plan because its average count
of FTEs is more than 95 percent of its number of residents as of June
30, 1997. The hospital receives incentive payments for the remaining 3
years of the voluntary plan and its total incentive payments are
$850,000. Its total direct GME payments over the 5 plan years are
$46.72 million. If the hospital increases residents above the level it
has at the end of the plan, the hospital will be required to refund
$850,000. Although the hospital could receive higher incentive payments
by making larger reductions in year 1 and year 2 of the plan, our
experience indicates that hospitals are actually planning smaller
reductions in the first 2 years of the plan because of prior
commitments made to residents. In fact, we believe this example may
actually present a larger resident reduction in the first 2 years of
the plan than hospitals are likely to make.
In example 2, all of the variables are the same as example 1 except
the hospital does not participate in the voluntary plan. Since the
hospital does not participate in the voluntary plan, it does not
receive incentive payments and its total payments are $850,000 less
over 5 years than the hospital in example 1. This hospital can
subsequently increase its residents to its FTE caps and will not be
liable for any refunds.
In example 3, all of the variables are the same as example 2 except
the hospital reduces its number of residents from the count as of June
30, 1997 by 19 percent. In this example, the hospital receives slightly
higher payments than the hospital in example 2 because it has more
residents over 5 years. Its payments are $816,500 lower than the
hospital that participated in the voluntary plan. Again, this hospital
can increase its residents to its FTE cap level without being liable
for refunds of incentive payments to Medicare.
In example 4, the hospital does not participate in the voluntary
plan and reduces its number of residents from the count on June 30,
1997 by 15 percent. In this example, the hospital actually receives
higher total payments than the hospital in any of the previous
examples, including the hospital participating in the voluntary
residency reduction plan because of Medicare revenues associated with a
higher count of residents.
We recognize that there are many factors that may induce a hospital
to participate in the voluntary residency reduction plan. Medicare
direct and indirect medical education revenues are only one factor in
deciding whether to participate. We urge hospitals to carefully
consider all factors before deciding whether to participate in the
voluntary plans. However, we believe Medicare incentive payments for
resident reductions made under this provision may not provide a strong
incentive to participate in the voluntary plan unless a hospital is
already planning permanent residency reductions of 20 to 25 percent
even in the absence of the voluntary residency reduction plan. Even if
the hospital is planning residency reductions of 20 to 25 percent, it
may be reluctant to participate in the plan because of the requirement
that the hospital refund all incentive funds if the hospital increases
its residents higher than the level permitted under its voluntary
residency reduction plan.
In summary, we do not believe many hospitals are likely to
participate in the voluntary residency reduction plans because the 3-
year average count provides similar incentives without mandating
reductions of 20 to 25 percent, non-receipt of incentive payments for
the first 5 percent of resident reduction, and full refund of all
incentive payments if a hospital ever increases its number of residents
in training. We believe that only hospitals that anticipate making
reductions of 20 to 25 percent over the next 5 years are likely to
consider participating.
C. Rural Hospital Impact
Section 1102(b) of the Social Security Act requires us to prepare a
regulatory impact analysis for any interim final rule with comment
period that may have a significant impact on the operations of a
substantial number of small rural hospitals. Such an analysis must
conform to the provisions of section 603 of the R.F.A. For purposes of
section 1102(b) of the Act, we define a small rural hospital as a
hospital that is located outside a Metropolitan Statistical Area and
has fewer than 50 beds.
We are not preparing a rural hospital impact statement since we
have determined, and certify, that this interim final rule with comment
period will not have a significant economic impact on a substantial
number of small entities or a significant impact on the operations of a
substantial number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
interim final rule with comment period was reviewed by the Office of
Management and Budget.
We have reviewed this interim final rule with comment period under
the threshold criteria of Executive Order 12612. We have determined
that it does not significantly affect States' rights, roles, and
responsibilities.
List of Subjects in 42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
42 CFR Part 413 is amended as set forth below:
[[Page 44855]]
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES
1. The authority citation for part 413 continues to read as
follows:
Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).
2. A new Sec. 413.88 is added to subpart F to read as follows:
Sec. 413.88 Incentive payments under plans for voluntary reduction in
number of medical residents.
(a) Statutory basis. This section implements section 1886(h)(6) of
the Act, which establishes a program under which incentive payments may
be made to qualifying entities that develop and implement approved
plans to voluntarily reduce the number of residents in medical
residency training.
(b) Qualifying entity defined. ``Qualifying entity'' means:
(1) An individual hospital that is operating one or more approved
medical residency training programs as defined in Sec. 413.86(b) of
this chapter; or
(2) Two or more hospitals that are operating approved medical
residency training programs as defined in Sec. 413.86(b) of this
chapter and that submit a residency reduction application as a single
entity.
(c) Conditions for payments. (1) A qualifying entity must submit an
application for a voluntary residency reduction plan that meets the
requirements and conditions of this section in order to receive
incentive payments for reducing the number of residents in its medical
residency training programs.
(2) The incentive payments will be determined as specified under
paragraph (g) of this section.
(d) Requirements for voluntary plans. In order for a qualifying
entity to receive incentive payments under a voluntary residency
reduction plan, the qualifying entity must submit an application that
contains the following information, documents, and agreements--
(1) A description of the operation of a plan for reducing the full-
time equivalent (FTE) residents in its approved medical residency
training programs, consistent with the percentage reduction
requirements specified in paragraphs (g)(2) and (g)(3) of this section;
(2) An election of the period of residency training years during
which the reductions will occur. The reductions must be fully
implemented by not later than the fifth residency training year in
which the plan is effective;
(3) FTE counts for the base number of residents, as defined in
paragraph (g)(1) of this section, with a breakdown of the number of
primary care residents compared to the total number of residents; and
the direct and indirect FTE counts of the entity on June 30, 1997. For
joint applicants, these counts must be provided individually and
collectively;
(4) Data on the annual and cumulative targets for reducing the
number of FTE residents and the ratios of the number of primary care
residents to the total number of residents for the base year and for
each year in the 5-year reduction period. For joint applicants, these
data must be provided individually and collectively;
(5) An agreement to not reduce the proportion of its primary care
residents to its total number of residents below the proportion that
exists in the base year, as specified in paragraph (g)(1) of this
section;
(6) An agreement to comply with data submission requirements deemed
necessary by HCFA to make annual incentive payments during the 5-year
residency reduction plan, and to fully cooperate with additional audit
and monitoring activities deemed necessary by HCFA;
(7) For a qualifying entity that is a member of an affiliated group
as defined in Sec. 413.86(b), a statement that all members of the group
agree to an aggregate FTE cap that reflects--
(i) The reduction in the qualifying entity's FTE count as specified
in the plan during each year of the plan; and
(ii) The 1996 FTE count of the other hospital(s) in the affiliated
group.
(8) A statement indicating voluntary participation in the plan
under the terms of this section, signed by each hospital that is part
of the applying entity.
(e) Deadline for applications. A qualifying entity must submit an
application that meets the requirements of paragraph (d) of this
section at least one day prior to the first day of the period to which
the plan would be effective but no later than November 1, 1999. The
application must be submitted to the fiscal intermediary, with a copy
to HCFA.
(f) Effective dates of plans. Residency reduction plans that are
submitted to the fiscal intermediary on or after September 17, 1999 but
on or before November 1, 1999, may be effective for portions of cost
reporting periods beginning no earlier than the day after the date of
the application.
(g) Residency reduction requirements--(1) Base number of residents
defined. (i) ``Base number of residents'' means the lesser of--
(A) The number of FTE residents in all approved medical residency
training programs of the qualifying entity (before application of
weighting factors under Sec. 413.86(g)) for the most recent residency
training year ending June 30, 1996; or
(B) The number of FTE residents in all approved medical residency
training programs of the qualifying entity (before application of
weighting factors under Sec. 413.86(g)) for any subsequent residency
training year that ends before the date the entity submits its plan to
the fiscal intermediary and HCFA.
(ii) The residency training year used to determine the base number
of residents is the ``base year'' for determining reduction
requirements.
(iii) The qualifying entity's base number of residents may not be
adjusted to reflect adjustments that may otherwise be made to the
entity's FTE caps for new medical residency training programs.
(2) Qualifying entity consisting of individual hospital. The base
number of FTE residents in all the approved medical residency training
programs operated by or through a qualifying entity consisting of an
individual hospital must be reduced as follows:
(i) If the base number of residents exceeds 750, residents, by at
least 20 percent of the base number.
(ii) If the base number of residents exceeds 600 but is less than
or equal to 750 residents--
(A) By 150 residents; or
(B) By 20 percent, if the qualifying entity increases the number of
primary care residents included in the base number by at least 20
percent.
(iii) If the base number of residents is 600 or less residents--
(A) By 25 percent; or
(B) By 20 percent, if the qualifying entity increases the number of
primary care residents included in the base number of residents by at
least 20 percent.
(3) Qualifying entity consisting of two or more hospitals. The base
number of FTE residents in the aggregate for all the approved medical
residency training programs operated by or through a qualifying entity
consisting of two or more hospitals must be reduced--
(i) By 25 percent; or
(ii) By 20 percent, if the qualifying entity increases the number
of primary care residents included in the base number of residents by
at least 20 percent.
[[Page 44856]]
(4) Treatment of rotating residents. A qualifying entity will not
be eligible for incentive payments for a reduction in the base number
of residents if the reduction is a result of the entity rotating
residents to another hospital that is not a part of its voluntary
residency reduction plan.
(5) Updates to annual and cumulative targets.--(i) Except as
provided in paragraph (g)(5)(ii) of this section an entity with an
approved voluntary residency reduction plan may not change the annual
and cumulative reduction targets that are specified in its plan in
accordance with paragraphs (g)(2) and (g)(3) of this section.
(ii) An entity may update annual reduction targets specified in its
plan only if--
(A) It has failed to meet a specified annual target for a plan year
in the 5-year period; and
(B) It wishes to adjust future annual targets for the remaining
years of the plan in order to comply with its cumulative target.
(iii) An updated plan allowed under paragraph (g)(5)(ii) of this
section must be submitted prior to the beginning of each July 1 medical
residency training year during the plan years.
(h) Computation of incentive payment amount. (1) Incentive payments
to qualifying entities that meets the requirements and conditions of
paragraphs (d) and (g) of this section will be computed as follows:
(i) Step 1. Determine the amount (if any) by which the payment
amount that would have been made under Sec. 413.86(d) if there had been
a 5-percent reduction in the number of FTE residents in the approved
medical education training programs of the hospital as of June 30,
1997, exceeds the amount of payment that would have been made under
Sec. 413.86(d) in each year under the voluntary residency reduction
plan, taking into account the reduction in the number of FTE residents
under the plan.
(ii) Step 2. Determine the amount (if any) by which the payment
amount that would have been made under Sec. 412.105 of this chapter if
there had been a 5-percent reduction in the number of FTE residents in
the approved medical education training programs of the hospital as of
June 30, 1997, exceeds the payment amount made under Sec. 412.105 of
this chapter in each year under the voluntary residency reduction plan,
taking into account the actual reduction in the number of FTE
residents.
(iii) Step 3. Determine the amount (if any) by which the payment
amount that would have been made under Sec. 412.322 of this chapter if
there had been a 5-percent reduction in the number of FTE residents in
the approved medical education training programs of the hospital as of
June 30, 1997, exceeds the payment amount made under Sec. 412.322 of
this chapter in each year under the voluntary residency reduction plan,
taking into account the actual reduction in the number of FTE
residents.
(iv) Step 4. Multiply the sum of the amounts determined under
paragraph (h)(i), (ii), and (iii) of this section by the applicable
hold harmless percentages specified in paragraph (i) of this section.
(2) The determination of the amounts under paragraph (h)(1) of this
section for any year is based on the applicable Medicare statutory
provisions in effect on the application deadline date for the voluntary
reduction plan specified under paragraph (e) of this section.
(i) Applicable hold-harmless percentage. The applicable hold-
harmless percentages for each year in which the residency reduction
plan is in effect are as follows:
(1) 100 percent for the first and second residency training years;
(2) 75 percent for the third year;
(3) 50 percent for the fourth year; and
(4) 25 percent for the fifth year.
(j) Payments to qualifying entities. Annual incentive payments
through cost reports will be made to each hospital that is or is part
of a qualifying entity over the 5-year reduction period if the
qualifying entity meets the annual and cumulative reduction targets
specified in its voluntary reduction plan.
(k) Penalty for noncompliance--(1) Nonpayment. No incentive payment
may be made to a qualifying entity for a residency training year if the
qualifying entity has failed to reduce the number of FTE residents
according to its voluntary residency reduction plan.
(2) Repayment of incentive amounts. The qualifying entity is liable
for repayment of the total amount of incentive payments it has received
if the qualifying entity--
(i) Fails to reduce the base number of residents by the percentages
specified in paragraphs (g)(2) and (g)(3) of this section by the end of
the fifth residency training year; or
(ii) Increases the number of FTE residents above the number of
residents permitted under the voluntary residency reduction plan as of
the completion date of the plan.
(l) Postplan determination of FTE caps for qualifying entities--(1)
No penalty imposed. Upon completion of a voluntary residency reduction
plan, if no penalty is imposed, the qualifying entity's 1996 FTE count
is permanently adjusted to equal the unweighted FTE count used for
direct GME payments for the last residency training year in which a
qualifying entity participates.
(2) Penalty imposed. Upon completion of the voluntary residency
reduction plan--
(i) During repayment period. If a penalty is imposed under
paragraph (k)(2) of this section, during the period of repayment, the
qualifying entity's FTE count is as specified in paragraph (l)(1) of
this section.
(ii) After repayment period. Once the penalty repayment is
completed, the qualifying entity's FTE reverts back to its original
1996 FTE cap.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance)
Dated: July 7, 1999.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Dated: July 27, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-21322 Filed 8-17-99; 8:45 am]
BILLING CODE 4120-01-P
