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Pitfalls related to IME/GME FTE counts [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Jimmy Mendez, Senior Reimbursement Manager at BESLER, to discuss the pitfalls related to IME/GME FTE counts.      

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Highlights of this episode include:

  • Background on IME and GME and how payments to teaching hospitals are determined.
  • The vital common factors that impact both IME and GME.
  • Common pitfalls associated with resident FTE caps.
  • What pitfalls should hospitals be concerned with when creating new teaching programs?
  • Why IRIS files play an important role in reporting intern and resident information.
  • And more…

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. Teaching hospitals bear a unique set of costs related to preparing future clinicians. The Medicare program accounts for these costs and provides additional reimbursement to these institutions. However, careful reporting around residents and interns is key to receiving the appropriate reimbursement. To talk with us about the pitfalls associated with this, I’m joined by Jimmy Mendez, Senior Reimbursement Manager here at BESLER. Jimmy, welcome back to the show.

Jimmy Mendez: Thanks, Mike.

Mike: So Jimmy, why don’t you start us off by telling us what is IME, and GME, and what type of hospitals do these items pertain to?

Jimmy: Well, Mike, this pertains to a group of hospitals considered teaching hospitals. Teaching hospitals train our future healthcare professionals and are typically at the forefront of medical research. And serve a vital role in delivering patient care. Regarding Medicare reimbursement, DGME, or Direct Graduate Medical Education, pertains to the direct cost of accredited teaching programs. The direct cost includes the salaries, and fringe benefits of the residence. And teaching physicians and other direct costs. Indirect Medical Education, or IME, relates to the higher-pace and cost for hospitals due to the presence of these teaching programs.

Mike: And Jimmy, how are payments to hospitals determined?

Jimmy: Well, payments to the hospital from the Medicare program are, for DGME is determined by multiplying resident FTEs, derived from allowable resident quotations subject to the cap. Times a per-resident amount, or PRA. Ultimately applied to the Medicare Part A and Medicare Part C Utilization Percentages. Which, of course, is representative of their patient load. The PRA is a cost-per-resident in a base year updated for an inflation annually. For IME, the reimbursement factors involved are the MS-DRG payments received by the hospital, the resident FPE counts, the hospital’s bed count, and a multiplier that is the– provided by CMS.

Mike: Is there a vital common factor that impacts both IME and DGME? And what pitfalls may a hospital encounter?

Jimmy: Well, the factor that impacts both are the resident FTE counts. Therefore, not counting the resident locations correctly, that comprise the FTEs can be a major pitfall. There are some differences in the regulations of what rotations can be counted between the two. In general, rotations that take place at the hospital related to patient care or directives can be counted for both DGME and IME. However, rotations related to research that take place at the hospital can be counted for DGME but not for IME. In addition, when a hospital incurs a salary and benefits cost of the residents, locations that occur at a non-hospital site, such as a private physician office, for example, are allowable for both DGME and IME if the non-hospital site’s primary function is that of delivering patient care. However, off-site time spent in didactics could counter for DGME but not IME. Offsite rotations that take place in another hospital cannot be counted for either DGME or IME. Incidentally, I mentioned the word didactics. The didactics are time spent by residents in journal clubs, seminars, classroom lectures, and other scholarly pursuits.

Mike: Are there any other issues that result in treating resident rotations differently for DGME and IME?

Jimmy: Well, yes, there is. There are certain FTE counts that must be weighted at 50% for DGME that do not require weighting for IME. The initial residency program that a resident trained in and the affiliated years for that initial residence program dictates the maximum number of training years that Medicare will reimburse at a full FTE for that resident. If the resident exceeds the number of training years affiliated with the years for their initial residency program, the FTE is weighted at 50% for DGME. There is no weighting implemented for IME reimbursement.

Mike: And Jimmy, I understand that CMS places a cap on the resident FTE caps. What can you tell me about those and common pitfalls associated with them?

Jimmy: Well, Mike, in general, the cap is determined by the number of allopathic and osteopathic FTE residents that the hospital trained in its most recent cost reporting period ending on or before December 31st, 1996. The cap does not apply to dental and podiatry FTEs. Over the years, CMS has redistributed FTE caps between providers under the Medicare Modernization Act and later, under the Affordable Care Act. Knowing the history of your caps and historical adjustments to them is imperative for accurate cost reporting.

Mike: What are ways to modify the cap subsequent to the initial base year cap being established?

Jimmy: Well, first of all, if the 1996 base year cap has not been established, the hospital can establish a new program and create a cap established in the fifth year of the new teaching program. There are ways to modify the cap on a temporary basis as well. These include the implementation of an affiliation agreement in which hospitals implement a sharing arrangement between them for the caps. The aggregate number of cap FTEs must remain unchanged. If facilities can also take in displaced residents from a closed program under certain circumstances and have their caps increased as a result, depending on the method employed, this could be temporary or permanent adjustments to the cap. Another method to receive GME payments for additional slots is for urban and rural hospitals or rural non-hospital sites to enter into partnerships to form Rural Training Track programs or RTTs. If an urban hospital rotates its residents in an accredited RTT with a rural hospital and if those residents spend more than half of their time training at a rural hospital, the urban hospital may be reimbursed for these residents above its traditional FTE cap.

Mike: Are there any other caps that one should be concerned with, and are there any related common errors that hospitals make regarding the caps?

Jimmy: Oh, yes. For IME, the prior year’s resident-to-bed ratio serves as a cap to the current year’s resident-to-bed ratio. The resident-to-bed ratio is simply a calculation of resident FTEs to the number of beds in use during the year. The prior-year resident’s a bit racial is an input field on the current-year cost report. A common error is that the cost report preparer when calculating the prior-year resident-to-bed ratio from the prior-year cost report divides line 14 by the bed count rather than line 12 by the bed count. Line 14 is the rolling average FTE, and line 12 is the current-year FTE.

Mike: And, Jimmy, you just mentioned the rolling average FTEs in your previous response. What can you tell me about those and errors that you’ve seen regarding the rolling average?

Jimmy: Well, the rolling average is the average of the resident FTEs for the current year, the prior year, and the penultimate year. This applies to both DGME and IME, For DGME, the resident FTEs are weighted and are divided into two categories: primary care residents and other than primary care residents. A common error is that the cost report preparer fails to consider the dental and podiatry FTEs when determining the prior-year and penultimate-year FTEs for other than primary care residents.

Mike: Earlier, you mentioned that per-resident amounts play a role in DGME reimbursement. What can you tell us about those?

Jimmy: As I stated previously, the amount is a cost-per-resident established in a base year updated for inflation annually. However, there is a second per-resident amount called the locality-adjusted per-resident amount. This locality-adjusted PRA only applies to hospitals that received a redistribution of caps from the Medicare Modernization Act. And only if the DGME-weighted resident FTEs exceed the adjusted 1996 base-year cap. Both of these PRAs are provided to hospitals by their MAC. Hospitals should assure that when they populate the cost report, there are using the official PRA and not one obtained from a MAC interim rate review that may not have had the final PRA in the rate letter, as the inflation factor may not have been official at the time of the interim rate review.

Mike: Are there any pitfalls to be concerned about when establishing new teaching programs?

Jimmy: Yes, and it is very important to set up new programs in adherence to the regulations. If CMS deems the new teaching program to not be a new program for CMS purposes, the hospital will not be eligible for Medicare reimbursement. A new program for accreditation purposes is not necessarily a new program for CMS purposes. CMS will want to assure that the program is not nearly the relocation of a previously existing program that has already been considered in another provider’s FTE cap. As a result, CMS will address such questions as, “Has the program been relocated from a hospital that closed? Are there new program directors, new teaching staff, new residence?” and so forth. Cost report prepares should also assure they are populating the correct new residency program lines on worksheet E-4 and worksheet E, part A, for resident FTEs when still in their initial cap-setting years so as not to trigger a three-year rolling-average calculation. New programs are exempt from the three-year rolling average during this time when they’re establishing their caps, which is the first five years.

Mike: Jimmy, you previously mentioned affiliation agreements when discussing the FTE caps. Can you share any concerns there?

Jimmy: With affiliation agreements, hospitals operating under their caps can share cap FTEs with hospitals operating above their caps. Hospitals that participate in an affiliation agreement must be in the same geographic region, have common ownership, or be jointly listed as the sponsor primary clinic, or major participating institution for one or more programs. When entering into an affiliation agreement, the participating hospital should be confident with their projected resident FTEs for the impact that cost supporting years, particularly the hospitals under– operating under their cap that are sharing the caps. In addition, academic years run from one– July 1st to June 30th. If the participating hospitals do not have fiscal year-ends that are concurrent with the academic years, the drafters of the affiliation agreements need to be very clear how they intend for every cost report year of the participating hospitals that overlap the academic year are to be impacted. The affiliation agreement must be executed prior to July 1st of each year and be submitted to the MAC. It must be for at least one year, although they can be longer. Now remember, you’re turning in this affiliation agreement and completing it before the rotations have started– before the academic year. So that’s why projecting as accurately as possible of what you anticipate to be occurring for your facility in that upcoming year is very important.

Mike: I understand a file called an IRIS file plays an important role in the reporting of interns’ and residents’ information. What can you tell me about IRIS?

Jimmy: Well, IRIS stands for Interns and Resident Information System. And is a CMS created electronic file the hospitals populate with information about every resident with resident FTEs in the hospital’s FTE count. It is the requirement that the IRIS file accompanies a filed cost report. The average file is populated with not only demographic-rated information about the residents, but also the rotation information that allows IRIS to calculate an FTE count for both DGME and IME. One of the items required is the number of residency training years that resident has completed. A common error is for hospitals to enter in IRIS the year the resident is currently training in rather than the year the resident has completed. Doing so may result in a DGME FTE getting weighted when it should not be. Incidentally, IRIS has this system comprised of two files, an N file for the demographic information and an A file for the rotation information. CMS is switching to an XML format requiring only one file. There will be new fields for the residency program, tracking for rotations and provide a base rehab in sites, and in an added field for non-provider side assignments. The new IRIS will improve the ability to identify overlaps with other hospitals.

Mike: And for hospitals filing a cost report that is shorter than 365 days, are there any special treatments to be aware of?

Jimmy: Yes. And because they’re treated differently– IME and DGME. When preparing a cost report, this cost report end period is less than a full year, worksheet E-4 for DGME and IME have different treatments. For DGME purposes, in the formulation of the DGME FTEs, the rotation should be divided by 365 days which while leaving the PRA at a full year. For IME, the rotation should be divided by the number of days in the cost reporting period and not 365 days.

Mike: For everyone in our audience, Jimmy is delivering a webinar today, which is March 17th about pitfalls associated with IME and GME FTE counts. If you’d like to watch a recording of that webinar or download the slides associated with them, just head up to, visit the Insights page. And click on Reimbursement. I’d also like to mention that BESLER offers a web-based software solution called iRotations that can help your hospital manage and track interns and residences. They rotate through all of your facilities and contracted offices. If you’re interested in learning more about that, you can go to, head up to our Reimbursement services page. And you’ll find more information there. Jimmy Mendez, thanks so much for coming back to the Hospital Finance podcast today.

Jimmy: You’re welcome.

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