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The Hospital Finance Podcast

In this episode, we welcome back Jeff Wolf, Director of Reimbursement Software, to discuss Medicare reimbursement for Direct Graduate Medical Education (GME) and Indirect Medical Education (IME).

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Highlights of this episode include:

  • What is IME/GME reimbursement
  • How Medicare pays for IME and GME programs
  • The FTE concept
  • Adjustments to the FTE counts
  • Issues that providers need to be aware of

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance podcast. As we explore the complex area of government hospital reimbursement, we’re proud to bring you another installment of our 101 series, this time looking at IME/GME reimbursement. And to talk through that topic, I’m joined by Jeff Wolf, our director of reimbursement software. Jeff, welcome back to the show.

Jeff Wolf: Thanks very much, Mike.

Mike: So, Jeff, why don’t you just start out by telling us what is IME/GME reimbursement?

Jeff: Let’s define this for a second. IME stands for indirect medical education, whereas GME stands for graduate medical education. So what IME is, is Medicare is providing additional reimbursement to hospitals that have these medical education programs for interns and residents – in other words, people who are going to become physicians – and those programs have increased costs as a result of the teaching activities. And what this means is that the teaching hospitals experience higher costs of operations than non-teaching hospitals due to the interns and residents ordering more tests, taking more time to treat patients and a myriad of other incremental costs that are related to the fact that these hospitals are also teaching instead of just treating patients. And so that IME reimbursement is an extra piece to cover that cost that the DRGs don’t cover, whereas GME – or some people call it DGME, which would stand for direct graduate medical education costs – is additional reimbursement that they get for the direct costs. In other words, the salaries, the benefits, those kinds of things for teaching those interns and residents to become physicians. So the indirect is all related to the excess or extra costs that are incurred as you’re treating patients because you have interns and residents on staff versus the GME is the direct reimbursement to compensate for the expenditures on those salaries and the [inaudible] and things like that for those interns and residents.

Mike: Got it. Thanks for that high-level explanation. So, Jeff, how does Medicare pay the hospitals for these IME and GME programs?

Jeff: Okay, so as I said, the IME costs are related to the increase of costs in treating patients for their ailments. This means that those extra costs of additional tests, the second opinions, review of services by the medical staff, all of these additional costs that the interns and residents create, those are not covered by the DRG payment. DRG is the diagnostic-related group payment which is the prospective payment system for hospitals. When CMS sets those DRG rates, they’re looking at all 6,000 hospitals in the US. That means all the hospitals, not just the teaching hospitals. And they’re looking at those hospitals to determine the average cost of treating a patient and that’s how they get what the DRG base rates are and then budget neutrality and other things they adjusted. But they’re basically using what the cost is on average to treat these patients, not what does it cost at teaching hospitals versus non-teaching hospitals. So as a result, the DRG payment is lower than the actual cost of treating patients at teaching hospitals, and therefore, CMS determines that teaching hospitals will get this– what we call a bump to their DRG. It’s a percentage increase to their DRG payments as a result of [them?]. The mathematical formula is kind of convoluted, but the basics are that the ratio of your interns’ and residents’ FTEs to the number of hospital beds creates a percentage and that is applied to your DRG payments. And that’s very basic. Like I said, it’s more complicated than that but that’s a basic analysis. The number of interns and residents versus the number of beds that you have creates a ratio. How many of your patients are being treated by the interns versus regular staff gives you an idea of what the additional indirect costs are going to be and there– that creates the percentage that you get paid.

The GME, on the other hand, is a little more straightforward. They’re direct costs. Like I said, they are the teaching programs for the– sorry, they’re the cost related to the interns and residents for salaries, for benefits, for the teaching staff, things like that. And it basically comes down to the number of FTEs times a per resident amount – so number of people times a per resident amount – and then you get adjusted for Medicare utilization. And again, it’s a little more complicated than that, but it’s fairly straightforward. It’s number of people times a– per resident or a– per annual amount times your Medicare utilization.

Mike: Okay, got it. So, Jeff, in both formulas, you mentioned FTEs. Can you talk about the FTE concept a little bit more?

Jeff: Sure. FTEs for teaching hospitals are different than what we think of as human beings as FTEs for wage index or things like that. Basically, Medicare allows for a single FTE for each intern and resident no matter how many hours they work in the year so that’s a big difference. As most of you know, interns and residents that do work at hospitals they don’t work the normal 2,080 hours. They work 3,000-plus hours in a year. They’re worked pretty hard during their residency period. And rather than having that identified as total hours divided by 2,080, which is what we do for wage index, Medicare basically says every intern and resident is one FTE. If they work 3,000 hours or if they work 30,000 hours or if they work 200 hours that– in a whole year that would be one FTE. So it’s a little bit different concept and you have to understand that issue. But the FTEs themselves are counted based on a number of issues, the first one being obviously, how many hours they worked total, where they worked so they can be at other locations versus your current location. And then the last thing is whether or not they are in their initial residency period. So when we’re doing training, we identify the specialty that those physicians are or those interns and residents are training in. And each specialty has a number of years that are considered the initial residency period and Medicare holds you to that. After those interns go beyond those years, those initial residency years, they’re actually discounted to 50% of whatever their FTE is. So an intern that is in their initial residency is a one FTE no matter how many hours and an intern who– or resident that is no longer in their initial residency but they’re– they are getting a second specialty or something like that they’re only weighted at 50% of an FTE no matter how many hours they work.

So there’s some complication there with the FTEs but the two big– or the two big things to take away from this is that the number of hours is not how we determine the FTE. It’s one FTE per intern/resident and that you can have a discounting factor of a 50% discount if they are no longer in their initial residency period.

Mike: Jeff, is there any way for an intern to get additional years for FTE counts or other adjustments to the FTE counts?

Jeff: There are. There are a list of specialties that CMS grants bonus years to the initial residency. So if someone comes in as a general practitioner, preventative maintenance, whatever, and they shift over to a specialty such as geriatrics, that would grant them– I believe the specialty of preventative medicine is a three-year initial residency, but when they switch over to being a geriatric specialty they would get an extra year so they’d actually have four years of initial residency period. Outside of that, you also have an FTE cap. So in 1996, Medicare established an FTE cap for all teaching hospitals. And basically, that FTE cap meant that you were limited. And no matter how many interns you had in 2000, 2001, you’re limited to your 1996 number. You can get adjustments to that cap. There have been four instances since 1996 where Medicare has allowed for an adjustment to the cap. You can also have affiliation agreements with other hospitals where they are sharing their cap with you. So some of the FTEs can be pulled into your facility and you can also get reassignment of a closed teaching hospital FTEs to one or more facilities basically working with CMS.

Mike: Are there any other issues that providers need to be aware of with interns and residence programs?

Jeff: Yeah, there’s a number of them. I mean, obviously, we talked about the 1996 caps on the FTEs for teaching programs. There’s another issue of you have to track your three years– your prior three years of FTEs because you actually create a rolling average for your graduate medical education. So you’ll have to have your current year, your prior year, and your penultimate year FTEs and that’ll create a rolling average. Making sure you have the correct documentation is going to be critical. So things like your foreign medical students have what’s called an ECFMG – which is a certification that their education was at the level we expect here in the US – other demographic information because these interns are going to be with the organization for multiple years. There’s some demographics that needs to be maintained and it needs to be consistent from year to year. One of the big audit findings that we see a lot are when providers submit a listing and the demographics have changed on an individual, the program will kick those back and say these are not the same people or you need to resolve these differences and figure out what’s going on with that person. So a lot of them are pretty easy to resolve – someone got married and their last name changed – but other times it’s you’ve gotten some– you either had bad data to begin with and it needs to be updated. And remember, the government has these lists going all the way back in a database so as you’re submitting these, they’re checking it against that. So the demographics is really, really important. And then the other thing that I would say is really critical is the location of the actual rotation. So each of these interns and residents has a rotation schedule. And all that means is they’re going to work in the surgery department for two, three days and then they’re going to work in clinic for a day, and then they’re going to work in the ER for a couple of days. And it’s just a schedule and those schedules are different based on specialty and they’re all different based on the needs of the core competencies of that intern or that resident.

So sometimes the location of those rotations is going to be a problem because in the hospital– at your teaching hospital not an issue because it’s part of your organization. But if they go to an offsite clinic you need to make sure you have what’s called affiliation agreements so that you get to capture that time as part of your FTEs. Sometimes you will send interns and residents to other hospitals. If they are at teaching hospitals, those hospitals are going to want to split that time. So children’s hospitals do this a lot. All the pediatric specialties, these– the interns and residents come from other hospitals to get their specialized training at the children’s hospitals and you’ll have to split the time that these interns and residents have. And remember, you can’t use 2,080 as the– how many hours out of the year that person spent there. It’s basically going to be the number of days, the number of rotations that they did there that’s going to tell you your facility versus the other. And the auditors will check that. They will compare and make sure that nobody claimed– when you add all of the rotations together for student X, they’re going to verify that it doesn’t equal more than one FTE. So you can’t have one hospital– the main hospital claiming 90% of the FTE and two other hospitals that they rotated to claiming 10% each because that’d be more than 100%. So those are the– where they’re rotating to and making sure you understand how that impact is going to be also really critical to your accounts.

Mike: So just about 15 minutes here. We’ve covered a lot around IME and GME. If you’re interested in a deeper dive, Jeff has delivered a webinar on this topic. You can watch that webinar on-demand at our website, that’s Look for the insights section and click on the reimbursement tab. You’ll find that along with a host of other resources available to you. Jeff, thanks so much for stopping by the podcast again today.

Jeff: Thanks for having me. I appreciate it.

[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit The Hospital Finance Podcast is a production of BESLER, SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.


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