Noteworthy GME Payment Policies and Opportunities for Residency Slots in CMS's FY 2025 IPPS Final Rule

Takeaways from the Final Rule

• Hospitals planning residency programs in psychiatry or psychiatric subspecialties should consider applying for the newest distribution of Medicare-funded GME residency positions (GME Cap Slots) authorized by Section 4122 of the Consolidated Appropriations Act (CAA), 2023. The application deadline for the distribution is March 31, 2025.
   
• Hospitals planning residency programs for which at least 50 percent of the training would occur in a training site physically located in a primary care or mental health geographic HPSA are better positioned to apply for the next rounds of Section 126 GME Cap Slot awards based on CMS's modifications to the distribution methodology. Applications for the next round of Section 126 Cap Slot awards are due March 31, 2025.
   
• Rural hospitals, hospitals that have been reclassified as rural, and new teaching hospitals should take note of the new request for information (RFI) related to the criteria residency programs must satisfy to be considered "new" for cap-building purposes.
   
• Hospitals in the same geographic region as teaching hospitals that closed in Eau Claire, Wisconsin, should consider applying for GME Cap Slots that will be redistributed through the process authorized by Section 5506 of the Affordable Care Act (ACA). Applications are due October 30, 2024.

Summary of Key GME Payment Provisions

1. Distribution of 200 Residency Slots Under Section 4122 of the Consolidated Appropriations Act, 2023 (CAA 2023) in FY 2026

Under Section 4122 of the CAA 2023, CMS must distribute 200 Medicare-funded physician residency slots in FY 2026, with at least half of these slots (100 positions) going to psychiatry or psychiatry subspecialty residencies. The phrase "psychiatry or psychiatry subspecialty residency" is defined at section 1886(h)(10)(F)(ii) of the Social Security Act to mean "a residency in psychiatry as accredited by the Accreditation Council for Graduate Medical Education (ACGME) for the purpose of preventing, diagnosing, and treating mental health disorders."

Eligibility to Apply. Under the Final Rule, for a hospital to be eligible to apply for the Section 4122 slots, it must fall within one of four categories of hospitals:

• located in rural areas or treated as being in a rural area;
• training residents over their Medicare GME cap;
• located in states with new medical schools or branch campuses on or after January 1, 2000; and
• training in geographic Health Professional Shortage Areas (HPSAs).

CMS also finalized its proposal that a hospital will need to show a "demonstrated likelihood" that any awarded slots will be used for a new residency program that the hospital will establish or for an expansion of an existing program that will occur on or after the date the increase will be effective. The new GME Cap Slots awarded must be filled within the first five training years after July 1, 2026. The Final Rule includes additional information on "Demonstrated Likelihood" Criteria that hospitals have to satisfy, which include but are not limited to, sending an application to the ACGME or ABMS for a new residency program and receiving an approval or acknowledgment of receipt before the application deadline. If the new program already has been approved, the hospital must have unfilled positions that it can attest will be filled using the Section 4122 GME Cap Slots.

Requirement for Rural Hospitals to Expand Programs. To prevent rural hospitals and hospitals reclassified as rural from being able to receive duplicative cap increases for new programs and Section 4122 awards, the Final Rule provides that rural hospitals and hospitals that have been reclassified as rural under 42 CFR 412.103 only will be permitted to apply for Section 4122 slots to expand existing programs (not to begin new programs).

Distribution to Eligible Hospitals. CMS finalized a distribution methodology that allows all qualifying hospitals that submit timely applications to receive an award of up to one FTE (which could be a fraction of an FTE). The maximum number of slots a hospital can receive under the Section 4122 distribution is 10 slots. That said, the pro rata share of the 200 FTEs that each hospital can be awarded will depend on the number of qualifying hospitals that apply. If there are over 200 qualifying applicants, each hospital only can be awarded a fraction of an FTE. For example, if there are 350 qualifying applicants (with programs that meet the eligibility and demonstrated likelihood criteria), each hospital's share of the 200 FTEs will be 0.57 FTEs.

CMS Applicant Preferences. If there are slots outstanding after CMS distributes up to 1.00 FTE to each qualifying hospital, CMS will prioritize distributing the outstanding slots to hospitals with the highest HPSA scores. The Health Resources & Services Administration (HRSA) assigns HPSA scores on a scale of 0 to 25 as a measure of the severity of a primary care or mental health provider shortage in a geographic area, with higher scores indicating a more severe health professional shortage. CMS will use the HPSA score of the HPSA served by the residency program to rank applications when making awards. This methodology is the same as the HPSA distribution methodology that CMS finalized for the Section 126 distribution.

Application Process. Under the Final Rule, interested hospitals must submit applications via the Medicare Electronic Application Request Information System (MEARIS) for slots by March 31, 2025. CMS will notify hospitals of the number of slots distributed to them by January 31, 2026, and the increase will be effective July 1, 2026.

2. Changes to the Prioritization Methodology That Will Be Used to Award GME Slots for Rounds 4 and 5 of Section 126 Of the CAA, 2021

The Final Rule modifies the methodology CMS will use to prioritize awards of GME Slots in the final two rounds (Rounds 4 and 5) of the distribution of 1,000 GME slots authorized under Section 126 of the CAA, 2022. Specifically, CMS will prioritize hospitals that qualify under Category Four, regardless of HPSA score.

As discussed in the Final Rule implementing Section 126 of the CAA, 2021, an applicant hospital qualifies under Category Four if it participates in training residents in a program in which the residents rotate for at least 50 percent of their training time to a training site(s) physically located in a primary care or mental-health-only geographic HPSA. Specific to mental-health-only geographic HPSAs, the program must be a psychiatric or a psychiatric subspecialty program (86 FR 73430).  

The remaining slots will be distributed using the distribution methodology that applied to the first three rounds (i.e., GME cap slots will be distributed to hospitals qualifying under Category One, Category Two, or Category Three, or hospitals that meet the definitions of more than one of these categories, and awards will be prioritized based on the HPSA score associated with the program for which each hospital is applying).

3. CMS Initiating Another RFI Related to Criteria for New Residency Programs

In regulations, CMS has defined a "new" medical residency program as "a medical residency that receives initial accreditation by the appropriate accrediting body or begins training residents on or after January 1, 1995." See 42 CFR 413.79(l). While the regulatory definition is fairly broad, CMS's long-standing policy has been to require residency programs to meet specific criteria to be categorized as "new" for the purpose of determining if a hospital can receive additional direct GME and/or IME cap slots for a new program. See 47 Fed. Reg. 43908-43917 (Aug. 27, 2009). In order for a residency program at a new teaching hospital to be considered "new" from CMS's perspective, the hospital could not simply be transferred from another hospital or be a rebranded version of an existing program. CMS used the following criteria to evaluate whether a residency program is "new" such that a previously non-teaching hospital could receive GME cap slots for training residents in the program:

• The residents are new;
• The program director is new; and
• The teaching staff are new.
  
  74 Fed. Reg. 43912.

CMS granted some leeway as long as the "overwhelming majority" of residents and teaching staff were new. The fact that CMS has evaluated the "newness" of residency programs based on criteria that have never been codified has been a source of confusion.

In the CY 2025 IPPS Proposed Rule, CMS acknowledged the increased importance of clarifying this policy in light of urban to rural classifications under 42 CFR §412.103. This is because hospitals that meet applicable criteria to reclassify as rural under § 412.103 are treated as rural for IME purposes. Therefore, they can build their IME caps by starting new programs. Accordingly, whether or not a program would be considered "new" by CMS could have a significant GME payment impact. For these reasons, CMS proposed establishing "newness" criteria through rulemaking. It also solicited comments and sought further information through Requests for Information (RFI) related to this criteria.

According to the Final Rule, CMS "received many wide-ranging comments and commenters did not arrive at a consensus on the best approach" regarding the newness of residency programs. As a result, CMS is not finalizing its proposed newness criteria. Instead, it is initiating another RFI related to this policy.

4. Notice of Closure of Teaching Hospital and Opportunity to Apply for Available Residency Slots

Notice of Closure. Under Section 5506 of the ACA, CMS must redistribute the residency slots of a hospital that closes. In the Final Rule, CMS provided public notice that the residency slots from the closure of Sacred Heart Hospital, located in Eau Claire, Wisconsin, are available for redistribution. The table below contains the identifying information and IME and direct GME FTE resident caps for the closed hospital.

Application Process for Available Resident Slots. Interested hospitals may access the application through MEARIS. The application period for this Round 23 of Section 5506 slot redistributions is October 30, 2024. Therefore, hospitals that wish to apply for and receive slots from the closed hospitals' FTE resident caps must submit applications via MEARIS no later than October 30, 2024.

Application Considerations. A hospital applicant must demonstrate a likelihood of filling requested slots within the three academic years immediately following the application deadline to receive slots after a particular hospital closes. Priority is given to hospitals located in the same geographic region as a closed hospital. Hospitals located in the same or a contiguous Core Based Statistical Area (CBSA) are given the highest priority, and those in the same state or region receive the next highest. Among other factors, CMS also gives preference to an applicant that:

• Assumed a program from the closed hospital;
   
• Received slots from the closed hospital under a GME affiliation agreement and would use the slots to continue to train at least the same number of residents the closed hospital had trained under the affiliation agreement;
   
• Took in the resident physicians displaced by the hospital closure and would continue to train residents in the same programs as the displaced residents, even after the displaced residents completed their training;
   
• Will use the slots to establish a new program or expand an existing geriatrics residency program; or
   
• Is located in an HPSA and will use all the additional slots to establish or expand a primary care or general surgery residency program.

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For more information about the Final Rule or further analysis regarding Medicare GME payment opportunities and other federal and state funding for graduate medical education programs, please contact Allison Cohen, Alex Lewis, or any other member of Baker Donelson's Reimbursement Group.