Court Orders HHS to Recalculate Medicare DGME Payments

May 24, 2021 - HHS unlawfully changed the weighting factors assigned to residents and fellows for Medicare Direct Graduate Medical Education (DGME) payments, according to a recent opinion from the US District Court for the District of Columbia. As a result, the court will require HHS to recalculate DGME reimbursements to align with the ruling.

The plaintiffs, a group of five hospitals, opposed an HHS regulation that dictates the number of each hospital’s full-time equivalent (FTE) residents used to determine DGME payments. The hospitals argued that their payments, dating back to 2005, were unlawfully reduced and did not align with the Medicare statute.

According to the Congressional Research Service, Medicare DGME payment amounts are determined by multiplying a hospital’s total approved DGME costs and its Medicare patient volume percentage. The total approved DGME costs consist of a three-year average of FTEs multiplied by the per-resident amount (PRA).

The Medicare statute declares a weighting factor of 1.00 for residents in their initial residency period (IRP), and 0.5 for fellows. Therefore, residents’ time is fully accounted for, and half of a fellows’ time is plugged into the FTE calculation.

In 1997, Congress capped the number of FTEs a hospital is permitted to factor in, prior to applying weighting factors. With the cap, hospitals are not allowed to claim any residents or fellows above their 1996 levels. At the crux of the debate is the amended regulation that aims to “reduce the weighted number of FTEs a hospital may claim for reimbursement when that hospital’s unweighted FTE count exceeds the 1996 cap,” the opinion stated.

“The hospitals alleged that the regulation unlawfully reduced the capped payment to which they were entitled, and that it reduced the weighting factor for fellows,” the court opinion explained. Each plaintiff exceeded the 1996 cap for each fiscal year in question. In the case of the Milton S. Hershey Medical Center, the opinion says, the plaintiff claims that their reimbursements were reduced by over $12.8 million altogether.

Although each hospital had appealed their DGME decisions, the Provider Reimbursement Review Board said that it lacked the authority to determine the validity of the regulation. In response, HHS argued that “the Medicare statute is ambiguous, and that the regulation is a reasonable exercise of his discretion,” the opinion stated.

“The Court finds that Plaintiffs’ claims are properly before the Court. Further, it holds that Defendant’s application of the regulation to calculate Plaintiffs’ reimbursement payments was unlawful because, in calculating the weighted number of FTE residents, the regulation effectively changed the weighting factors for residents and fellows that Congress established in the Medicare statute,” explained the court opinion.

Essentially, the rule that says that payments will be reduced based on how much a hospital exceeds the 1996 cap conflicts with and overrides the statute’s rule for the respective weights of residents and fellows, leading to the unlawful withholding of reimbursements.

“But to the extent Defendant argues that the regulation is justified because the statute is silent about how the Secretary may change the weighting factors in calculating a hospital’s FTEs when a hospital exceeds its cap and employs fellows, it is no argument at all,” asserts the court opinion.

In addition, the court dismissed the defendant’s argument that the Plaintiffs waived their right to challenge the regulation since they did not say anything during the regulation’s comment period, and the argument that the application of the regulation is in fact consistent with the Medicare statute.

“Simply put, the text of the statute does not give the Secretary the latitude to decide, under these conditions, to change the weights that Congress assigned to residents and fellows when he calculates the FTE residents for each hospital,” the opinion stated.