Teaching hospitals are cheering a federal judge’s ruling directing CMS to recalculate payments they say unfairly penalized them for educating fellows.
The nearly 50 teaching hospitals listed as plaintiffs in the lawsuit argued that the formula CMS used to calculate the payments was “arbitrary and capricious” because it resulted in hospitals being paid less if they hosted fellows above a specific cap. The judge agreed that the formula ran contrary to the Medicare statute and directed CMS to recalculate the direct graduate medical education payments it owes the plaintiff hospitals.
The case is the result of five consolidated lawsuits that challenged payments dating back to 2005.
Hospitals’ DGME payments, calculated annually, depend on the number of residents—trainees fresh out of medical school who work under the supervision of attending physicians—and fellows the hospital trained during the year, measured in full-time equivalents. Not all doctors undertake fellowships after their residencies, but they typically add one to three years of study in a particular subspecialty area, according to the Association of American Medical Colleges.
The hospitals took issue with a set of Medicare regulations designed to implement a pair of statutes. The first statute gave fellows one-half the weight of residents when it comes to calculating payments. The second is Medicare’s limit on the number of resident FTEs that can be used to calculate DGME payments and lowers payments if hospitals go over that cap. For most hospitals, the FTE cap is equal to the number of resident FTEs claimed on their 1996 Medicare cost reports, according to King & Spalding, which represented plaintiff hospitals in the lawsuit.
In response to those statutes, CMS implemented a formula for calculating DGME payments that adjusts a hospital’s FTE count downward if it is in excess of the cap.
“For every fellow you train after you’ve reached your cap, you will receive less reimbursement than a hospital that trains right up to its cap,” said Mark Polston, a partner with King & Spalding. “That’s the phenomenon that Congress never envisioned. It’s putting a penalty on hospitals that teach fellows.”
Polston couldn’t say whether CMS’ formula has caused medical schools to train fewer fellows, but he said the ruling will be helpful in crafting those programs going forward.
“This will be a great decision for teaching hospitals and academic medical centers because it does give them a little bit more flexibility in terms of how they train fellows,” he said. “More to the point, it adequately compensates them for training those fellows in a way the Medicare program had not in the past.”
U.S. District Court Judge Timothy Kelly’s ruling means that CMS must recalculate payments for the plaintiff hospitals. The ruling does not require the agency to change its existing formula for calculating DGME payments, although the plaintiff hospitals hope it does anyway, Polston said. The ruling certainly paves the way for other teaching hospitals to challenge their own DGME reimbursements under the current formula, he added.
CMS can appeal the May 17 ruling, although it has not done so yet. CMS spokesperson Tony Rosa wrote in an email that CMS does not comment on pending lawsuits or litigation.
Each of the plaintiffs in the case are teaching hospitals that train residents in excess of their FTE caps and also train fellows, according to King & Spalding. The list includes a number of prominent teaching hospitals: Yale-New Haven Hospital, Montefiore Medical Center, Mount Sinai Medical Center, Maimonides Medical Center, Banner University Medical Center Phoenix, Memorial Hermann-Texas Medical Center and others.
Kelly was not convinced by the government’s argument that the hospitals had waived their right to challenge CMS’ regulation because they did not raise objections during its notice-and-comment period when the regulation was adopted in 1997.
The ruling grants the plaintiffs’ motion for summary judgment and denies the same motion filed by the defendant, the U.S. Department of Health and Human Services.