[Federal Register Volume 76, Number 49 (Monday, March 14, 2011)]
[Rules and Regulations]
[Pages 13515-13524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5960]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 413

[CMS-1430-IFC]
RIN 0938-AQ92


Medicare Program; Revisions to the Reductions and Increases to 
Hospitals' FTE Resident Caps for Graduate Medical Education Payment 
Purposes

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements section 
203 of the Medicare and Medicaid Extenders Act of 2010 relating to the 
treatment of teaching hospitals that are members of the same Medicare 
graduate medical education affiliated groups for the purpose of 
determining possible full-time equivalent resident cap reductions.

DATES: Effective Date: These regulations are effective on March 14, 
2011.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on April 13, 2011.

ADDRESSES: In commenting, please refer to file code CMS-1430-IFC. 
Because of staff and resource limitations, we cannot

[[Page 13516]]

accept comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed)
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1430-IFC, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1430-IFC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD-- Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

A. Statutory Authority

    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and as currently implemented in the regulations at 42 CFR 
413.75 through 413.83, establishes a methodology for determining 
payments to hospitals for the direct costs of approved graduate medical 
education (GME) programs. Section 1886(h)(2) of the Act sets forth a 
methodology for the determination of a hospital-specific base-period 
per resident amount (PRA) that is calculated by dividing a hospital's 
allowable direct costs of GME in a base period by its number of 
residents in the base period. The base period is, for most hospitals, 
the hospital's cost reporting period beginning in FY 1984 (that is, 
October 1, 1983 through September 30, 1984). The base year PRA is 
updated annually for inflation. In general, Medicare direct GME 
payments are calculated by multiplying the hospital's updated PRA by 
the weighted number of full-time equivalent (FTE) residents working in 
all areas of the hospital complex (and at nonprovider sites, when 
applicable), and the hospital's Medicare share of total inpatient days.
    Section 1886(d)(5)(B) of the Act provides for an additional payment 
amount under the hospital inpatient prospective payment system (IPPS) 
for hospitals that have residents in an approved GME program in order 
to account for the higher indirect patient care costs of teaching 
hospitals relative to nonteaching hospitals. The regulations regarding 
the calculation of this additional payment, known as the indirect 
medical education (IME) adjustment, are located at 42 CFR 412.105. The 
hospital's IME adjustment applied to the DRG payments is calculated 
based on the ratio of the hospital's number of FTE residents training 
in either the inpatient or outpatient departments of the IPPS hospital 
to the number of inpatient hospital beds.
    The Balanced Budget Act of 1997 (Pub. L. 105-33) established a 
limit on the number of allopathic and osteopathic residents that a 
hospital may include in its FTE resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending on or before December 31, 1996. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count 
for IME purposes is effective for discharges occurring on or after 
October 1, 1997.
    The recently enacted Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended by the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) (collectively referred to 
in this document as the Affordable Care Act) made a number of statutory 
changes relating to the determination of a hospital's FTE resident 
count for direct GME and IME payment purposes and the manner in which 
FTE resident limits are calculated and applied to hospitals under 
certain circumstances. Section 5503 of the Affordable Care Act added a 
new section 1886(h)(8) to the Act to provide for the reduction in FTE 
resident caps for direct GME under Medicare for certain hospitals, and 
to authorize the ``redistribution'' of the estimated number of FTE 
resident slots to other qualified hospitals. In addition, section 5503 
amended section 1886(d)(5)(B)(v) of the Act to require the application 
of section 1886(h)(8) of the Act provisions ``in the same manner'' as 
the FTE resident caps for IME. The regulations implementing section 
5503 of the Affordable Care Act were included in the Outpatient 
Prospective Payment System (PPS) Final Rule, published on November 24, 
2010 in the Federal Register (75 FR 72147). The section below 
summarizes the provisions of section 5503 of the Affordable Care Act as 
implemented in

[[Page 13517]]

the November 24, 2010 Federal Register.

B. Reductions and Increases to Hospitals' FTE Resident Caps for GME 
Payment Purposes Under Section 5503 of the Affordable Care Act

    As previously discussed, the calculation of both direct GME and IME 
payments is affected by the number of FTE residents that a hospital is 
allowed to count; generally, the greater the number of FTE residents a 
hospital counts, the greater the amount of Medicare direct GME and IME 
payments the hospital will receive. In an attempt to end the implicit 
incentive for hospitals to increase the number of FTE residents, 
Congress instituted a cap on the number of allopathic and osteopathic 
residents a hospital is allowed to count for direct GME and IME 
purposes. Dental and podiatric residents are not included in this 
statutorily mandated cap. Some hospitals have trained a number of 
allopathic and osteopathic residents in excess of their FTE resident 
caps, while other hospitals have reduced their FTE resident counts to 
some level below their FTE resident caps. Section 5503 of the 
Affordable Care Act added a new section 1886(h)(8) to the Act to 
provide for reductions in the statutory FTE resident caps for direct 
GME under Medicare for certain hospitals, and authorizes a 
``redistribution'' to hospitals of the estimated number of FTE resident 
slots resulting from the reductions. Section 5503 of the Affordable 
Care Act also amended section 1886(d)(5)(B)(v) of the Act to require 
application of the provisions of 1886(h)(8) of the Act ``in the same 
manner'' to the FTE resident caps for IME.
    The new section 1886(h)(8)(A) of the Act provides that, effective 
for portions of cost reporting periods occurring on or after July 1, 
2011, a hospital's FTE resident cap will be reduced if its ``reference 
resident level'' is less than its ``otherwise applicable resident 
limit,'' as these terms are described below. Section 1886(h)(8)(A)(ii) 
of the Act and the November 24, 2010 Federal Register (75 FR 72147) 
describes which hospitals are exempt from a cap reduction under section 
5503 of the Affordable Care Act. Included in that group are rural 
hospitals with fewer than 250 acute care inpatient beds. For other 
hospitals, any such reduction will be equal to 65 percent of the 
difference between the hospital's ``otherwise applicable resident 
limit'' and its ``reference resident level.''
    Under section 1886(h)(8)(B) of the Act, the Secretary is authorized 
to increase the FTE resident caps for certain categories of hospitals 
for portions of cost reporting periods occurring on or after July 1, 
2011, by an aggregate number that does not exceed the estimated overall 
reduction in FTE resident caps for all hospitals under section 
1886(h)(8)(A) of the Act. A single hospital may receive an increase in 
its FTE resident cap of no more than 75 additional FTEs. That is, a 
hospital would be allowed to receive up to 75 additional slots for 
direct GME and up to 75 additional slots for IME. In determining which 
hospitals would receive an increase in their FTE resident caps, 
sections 1886(h)(8)(C) through 1886(h)(8)(E) of the Act directs us to 
do all of the following:
    <bullet> Take into account the demonstrated likelihood of the 
hospital filling the additional positions within the first three cost 
reporting periods beginning on or after July 1, 2011.
    <bullet> Take into account whether the hospital has an accredited 
rural training track program.
    <bullet> Distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile.
    <bullet> Distribute 30 percent of the resident slots to hospitals 
located in a State, a territory of the United States, or the District 
of Columbia that are among the top 10 States, territories, or Districts 
in terms of the ratio of the total population living in an area 
designated as a health professional shortage area (HSPA), as of March 
23, 2010, to the total population, and/or to hospitals located in rural 
areas.
    A comprehensive description of the rules implementing the cap slot 
redistribution under section 1886(h)(8) of the Act can be found in the 
November 24, 2010 Federal Register (75 FR 72168).

C. Treatment of Affiliated Groups Under Section 5503 of the Affordable 
Care Act

    A previous redistribution of ``unused'' FTE resident slots was 
performed in 2005 under section 422 of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173). 
Section 422 of the MMA provided for the redistribution of unused 
residency positions effective for portions of cost reporting periods 
beginning on or after July 1, 2005. While the redistribution under 
section 5503 of the Affordable Care Act as initially enacted is similar 
to the previous redistribution under section 422 of MMA, there are 
substantive differences between the two provisions. One of those 
differences involves the treatment of hospitals that were members of 
the same Medicare GME affiliated groups for purposes of determining 
whether a hospital should receive a cap reduction. The regulations 
governing Medicare GME affiliated groups and Medicare GME affiliation 
agreements are at 42 CFR 413.75(b) and 413.79(f), respectively. 
Medicare GME affiliation agreements allow teaching hospitals to 
temporarily transfer cap slots to other hospitals in order to 
facilitate the cross training of residents. The duration of the 
temporary cap slots transfer is a minimum of 1 year beginning on July 1 
of a year, per the Medicare GME affiliation agreement.
    Under section 422 of MMA, the statute explicitly directed the 
Secretary to apply the provisions to hospitals that were members of the 
same Medicare GME affiliated group as of July 1, 2003. Specifically, 
section 1886(h)(7)(A)(iii) of the Act states ``The provisions of clause 
(i) shall be applied to hospitals which are members of the same 
Medicare GME affiliated group (as defined by the Secretary under 
paragraph (4)(H)(ii)) as of July 1, 2003.'' Therefore, in implementing 
section 422 of MMA, we based the FTE resident cap reductions for 
hospitals that were participating in a Medicare GME affiliated group on 
the aggregate cap and count data from all hospitals participating in 
the same Medicare GME affiliated group(s). If a hospital was training a 
number of residents below its FTE resident cap for the reference cost 
reporting period but the hospital was part of a Medicare GME affiliated 
group for some or all of that reference cost reporting period, the 
Medicare contractor determined if the aggregate affiliated count for 
all hospitals in the Medicare GME affiliated group was greater than the 
aggregate affiliated cap. If the aggregate affiliated count was greater 
than the aggregate cap, then there was no reduction made to the FTE 
caps of any hospital in the Medicare GME affiliated group (even for the 
hospital that was part of the Medicare GME affiliated group, but was 
training below its cap).
    However, as we noted in the November 24, 2010 Federal Register (75 
FR 72161), in contrast to section 422 of MMA, section 5503 of the 
Affordable Care Act as initially enacted did not include language 
specific to Medicare GME affiliated groups as was included in section 
422 of MMA under section 1886(h)(7)(A)(iii) of the Act. Thus, section 
5503 of the Affordable Care Act as initially enacted did not provide 
for determinations based on the aggregate experience of a Medicare GME 
affiliated group. Therefore, we stated in the November 24, 2010 Federal 
Register (75 FR 72161), that the determination of whether a hospital 
would receive a cap reduction based on that individual

[[Page 13518]]

hospital's experience and not the aggregate experience of the Medicare 
GME affiliated group.

D. Section 203 of the Medicare and Medicaid Extenders Act of 2010 (P.L. 
111-309)

    Section 203 of the Medicare and Medicaid Extenders Act of 2010 
(MMEA) further amended section 1886(h)(8) of the Act by adding the 
following new subparagraph:

    (I) Affiliation.--The provisions of this paragraph shall be 
applied to hospitals which are members of the same affiliated group 
(as defined by the Secretary under paragraph (4)(H)(ii)) and the 
reference resident level for each such hospital shall be the 
reference resident level with respect to the cost reporting period 
that results in the smallest difference between the reference 
resident level and the otherwise applicable resident limit.

    This paragraph refers to the treatment of hospitals that are 
members of the same Medicare GME affiliated groups, as described in 
section C of this interim final rule for purposes of determining a 
hospital's possible cap reductions under section 1886(h)(8)(A) of the 
Act. Similar to section 422 of MMA, this amendment to the language at 
section 1886(h)(8) of the Act allows us to consider hospitals that are 
members of the same Medicare GME affiliated group in the aggregate, 
rather than only on an individual basis, for the purposes of 
determining a GME FTE cap reduction.
    Although this amendment allows us to implement section 5503 of the 
Affordable Care Act in a manner similar to section 422 of MMA, a key 
difference in implementation remains. One point of note is that section 
422 of MMA, (section 1886(h)(7)(A)(ii)(I) of the Act) refers to the 
most recent cost reporting period ending on or before September 30, 
2002 as the reference cost reporting period. However, as stated in the 
August 11, 2004 Federal Register (69 FR 49125), if a hospital was a 
member of a Medicare GME affiliated group for the academic year 
beginning July 1, 2003, then its reference cost reporting period was 
the cost reporting period that included July 1, 2003. This differs from 
section 5503 of the Affordable Care Act which instructs the Secretary 
to choose the reference cost reporting period out of the hospital's 
three most recent cost reporting periods ending before March 23, 2010 
for which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010, that has the highest FTE 
resident count section 1886(h)(8)(H)(i)) of the Act.
    For hospitals that were members of the same Medicare GME affiliated 
groups, the MMEA now allows us to determine the reference cost 
reporting period as the cost reporting period out of the hospitals 
three most recent cost reporting periods ending before March 23, 2010 
for which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010 with the smallest difference 
between the reference resident level and the otherwise applicable 
resident limit (section 1886)(h)(8)(I) of the Act). Therefore based on 
the amendment made to section 1886(h)(8) of the Act by section 203 of 
the MMEA adding subparagraph (I), we are establishing in this interim 
final rule with comment period, a methodology to determine whether a 
hospital is subject to a cap reduction under section 5503 of the 
Affordable Care Act based on that hospital's participation in a 
Medicare GME affiliated group(s) or an emergency Medicare GME 
affiliated group under 42 CFR 413.79(f). Although the MMEA provision 
applies to both regular Medicare GME affiliation agreements and 
emergency Medicare GME affiliation agreements, for ease of reference, 
we will refer in this discussion to both with the term Medicare GME 
affiliation agreements. We believe the purpose of section 203 of MMEA 
is to amend section 1886(h)(8) of the Act in order to implement section 
5503 of the Affordable Care Act in a manner that is similar to section 
422 of MMA with regard to treatment of hospitals that are members of 
the same Medicare GME affiliated group. Accordingly, we are 
implementing section 203 of the MMEA in a manner similar to the way in 
which section 422 of MMA was implemented. The methodology used to 
determine a cap reduction for hospitals which are members of the same 
affiliated group is as follows:

Part 1: Determine the ``Reference Cost Reporting Period''

    The Medicare contractor will assess each hospital on an individual 
basis. First, the Medicare contractor will determine whether a hospital 
was a member of a Medicare GME affiliated group at any point during any 
of the hospital's three most recent cost reporting periods ending 
before March 23, 2010 for which a cost report has been settled or has 
been submitted to the Medicare contractor by March 23, 2010. That is, 
the Medicare contractor will determine whether the caps during any of 
those three cost reporting periods were revised because the hospital 
was a member of a Medicare affiliation agreement. If a hospital was not 
a member of a Medicare GME affiliated group during any of those three 
cost reporting periods, then the Medicare contractor will determine if 
and by how much that hospital's FTE resident caps should be reduced in 
accordance with the policy established in the November 24, 2010 final 
rule (75 FR 72155 through 72168).
    If the Medicare contractor determines that a hospital was a member 
of a Medicare GME affiliated group at any point during any of the three 
most recent cost reporting periods ending before March 23, 2010 for 
which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010, then subparagraph (I) applies, 
and the Medicare contractor will determine a hospital's reference cost 
reporting period by determining the cost reporting period from the 
three most recent cost reporting periods ending before March 23, 2010 
for which a cost report has been settled or has been submitted to the 
Medicare contractor by March 23, 2010, that results in the smallest 
difference between the reference resident level and the otherwise 
applicable resident limit. For example, a hospital with a FYE of 
December 31 may not be a member of a Medicare GME affiliated group for 
the academic years beginning July 1, 2006, 2007, or 2008, but it may be 
a member of a Medicare GME affiliated group for the academic year 
beginning July 1, 2005. In the cost reporting period ending December 
31, 2006, the months of January through June 2006 would be affected by 
the July 1, 2005 Medicare GME affiliation agreement. Therefore, in this 
example, the hospital is indeed a member of a Medicare GME affiliated 
group at some point, albeit for only a portion of a cost reporting 
period, during its three most recent cost reporting periods ending 
before March 23, 2010 for which a cost report has been settled or has 
been submitted to the Medicare contractor by March 23, 2010 (in this 
case, these cost reporting periods would include FYE 12/31/08, FYE 12/
31/07, and FYE 12/31/06), and as such its reference cost reporting 
period would be determined as the cost reporting period that results in 
the smallest difference between the reference resident level and the 
otherwise applicable resident limit. As previously discussed, section 
422 of the MMA specified a single time period that would be used for 
all hospitals that were members of a Medicare GME affiliated group; 
that is as of July 1, 2003. However, section 5503 of the Affordable 
Care Act does not specify one cost reporting period, but rather it 
specifies that the reference cost

[[Page 13519]]

reporting period is one out of three possible cost reporting periods. 
For a hospital that was a member of a Medicare GME affiliated group at 
any point during any of the three applicable cost reporting periods, 
after determining the cost report that is a hospital's reference cost 
reporting period based on the cost report that results in the smallest 
difference between the reference resident level and the otherwise 
applicable resident limit, to determine whether there are any excess 
slots we believe it is appropriate to consider whether a hospital was a 
member of a Medicare GME affiliated group as of July 1 of that 
reference cost reporting period. The hospital may or may not have been 
a member of a Medicare GME affiliated group during that reference cost 
reporting period. We do not believe that section 1886(h)(8)(I) of the 
Act, as added by section 203 of the MMEA, requires that a hospital must 
be a member of a Medicare GME affiliated group during all 3 cost 
reporting periods, nor during the year determined to be the reference 
cost reporting period. Rather, being a member of a Medicare GME 
affiliated group at some point in just one of the three cost reporting 
periods warrants that a hospital's reference cost reporting period be 
determined based on which cost report has the smallest difference 
between the reference resident level and the otherwise applicable 
resident limit. To determine if an FTE resident cap reduction is 
appropriate, if the hospital was a member of a Medicare GME affiliated 
group as of July 1 in the reference cost reporting period, we will look 
at the Medicare GME affiliated group in the aggregate, when we 
determine if the subject hospital has excess capacity for purposes of a 
reduction under sections 5503 and 203. If the hospital was not a member 
of a Medicare GME affiliated group as of July 1 in the reference cost 
reporting period, excess FTEs training at other members of the 
affiliated group will not be considered for the purposes of a reduction 
under sections 5503 and 203 and that hospital's FTE resident caps 
should be reduced in accordance with the policy established for 
hospitals that are not members of Medicare GME affiliated groups in the 
November 24, 2010 final rule (75 FR 72155 through 72168). The nature of 
this determination underscores the fact that reductions to the FTE 
resident caps of hospitals that are members of Medicare GME affiliated 
groups must still be made on an individual hospital basis. The 
following is an example of a reference cost reporting period 
determination. (For ease of illustration, this example focuses on 
reductions to the IME FTE resident caps only, but the methodology is 
the same for reductions to the direct GME FTE resident caps):
    Hospital A has a FTE resident cap of 10 FTE residents. Hospital A's 
three most recent cost reports that have been settled or submitted to 
the Medicare contractor by March 23, 2010 include cost reporting 
periods with FYE 12/31/2006, 12/31/2007, and 12/31/2008. During these 
three cost reporting periods, Hospital A trained 8, 9, and 9 FTE 
residents, respectively. For the academic years beginning July 1, 2006 
and July 1, 2007, Hospital A was not a member of a Medicare GME 
affiliated group. However, for the academic year beginning July 1, 
2008, Hospital A is affiliated with Hospital B and Hospital C. As a 
result of its Medicare GME affiliation agreement with Hospitals B and 
C, Hospital A's adjusted cap or otherwise applicable resident limit is 
12 for the academic year beginning July 1, 2008. Thus, when determining 
the reference cost reporting period for Hospital A, the Medicare 
contractor would compare the resident level for Hospital A with its 
otherwise applicable resident limit for each of the cost reporting 
period as indicated below:
    <bullet> Cost Reporting Period 1 (01/01/2006-12/31/2006): 10 (FTE 
Resident Cap)-8 (FTE Resident Count) = 2.
    <bullet> Cost Reporting Period 2 (01/01/2007-12/31/2007): 10 (FTE 
Resident Cap)-9 (FTE Resident Count) = 1.
    <bullet> Cost Reporting Period 3 (01/01/2008-12/31/2008): 11 
(Adjusted FTE Resident Cap)-9 (FTE Resident Count) = 2.

(Note that although Hospital A received an increase of 2 FTEs, from 10 
to 12, under the Medicare GME affiliation agreement for the academic 
year beginning July 1, 2008, since Hospital A has a 12/31 fiscal year 
end, the actual cap adjustment is prorated to half of 2, for an 
increase to its FTE resident cap of 1, equaling 11). In this example, 
the smallest difference between the reference resident level and the 
otherwise applicable resident limit for Hospital A is 1, which occurs 
in the cost reporting period with FYE 12/31/2007. Thus, Hospital A's 
reference cost reporting period is 01/01/2007-12/31/2007. Note that 
Hospital A is not a member of a Medicare GME affiliated group during 
FYE 12/31/07. The implications of this are discussed below.

Part 2: Determine the Applicable Reductions

    For a hospital that was a member of a Medicare GME affiliated group 
at any point during any of its three most recent cost reporting periods 
ending before March 23, 2010 for which a cost report has been settled 
or has been submitted to the Medicare contractor by March 23, 2010, 
once the Medicare contractor determines that hospital's reference cost 
reporting period (that is, the cost report with the smallest difference 
between the hospital's FTE resident cap and FTE resident count), the 
Medicare contractor must then determine if the hospital was a member of 
a Medicare GME affiliated group as of the July 1 that occurs during 
that reference cost reporting period. If not, and the hospital's FTE 
resident count was equal to or exceeded its FTE resident cap in that 
reference cost report, then no reduction to its FTE resident cap is 
made and no further steps are necessary. If that hospital's FTE 
resident count was less than its FTE resident cap during that reference 
cost report, then the Medicare contractor would reduce the FTE resident 
cap by 65 percent of the difference between the FTE resident cap and 
the FTE resident count.
    If the hospital was a member of a Medicare GME affiliated group as 
of the July 1 that occurs during that reference cost reporting period, 
the Medicare contractor will look at the members of the Medicare GME 
affiliated group for that period in the aggregate, for the purpose of 
determining a reduction to the particular hospital's FTE resident cap. 
In other words, assuming the Medicare contractor is assessing Hospital 
X, once it is determined that Hospital X was training residents below 
its adjusted FTE resident cap as part of a Medicare GME affiliation 
agreement occurring during Hospital X's reference cost reporting 
period, the Medicare contractor will treat the hospitals in the 
Medicare GME affiliated group in the aggregate, but only for the 
purpose of determining the reduction to Hospital X's FTE resident cap. 
The Medicare contractor would not actually reduce the FTE resident caps 
of the other hospitals that were affiliated with Hospital X in that 
year, since each hospital is evaluated separately, and it may be that 
the reference cost reporting periods for the other hospitals may not be 
the same as Hospital X's reference cost reporting period. (It may be 
that the reference cost reporting period for another hospital is one in 
which that hospital was not part of a Medicare GME affiliated group, in 
which case, treatment as a group is not warranted when determining that 
hospital's FTE cap reduction).
    For the hospital that was a member of a Medicare GME affiliated 
group as of the July 1 that occurs during that

[[Page 13520]]

reference cost report, the Medicare contractor will determine for each 
hospital in the Medicare GME affiliated group respectively its FTE 
resident cap and FTE resident count (IME and direct GME separately). 
The Medicare contractor will add each hospital's FTE resident caps (IME 
and direct GME separately) to determine the aggregate affiliated FTE 
resident cap. The contractor will then add each hospital's FTE resident 
count (IME and direct GME separately) to determine the aggregate 
affiliated FTE resident count. If the aggregate FTE resident counts are 
equal to or exceed the aggregate FTE resident caps, then no reductions 
would be made to that particular hospital's FTE resident cap under 
section 5503 of Affordable Care Act, and no further steps are necessary 
for that hospital. We emphasize that at this point, it has only been 
determined that the particular hospital will not be subject to an FTE 
resident cap reduction--as the FTE resident cap reduction determination 
is ultimately one that is done on an individual hospital basis, at this 
point the contractor has not made any determinations regarding the 
status of the other hospitals that are in the same Medicare GME 
affiliated group as the particular hospital under review.
    However, where the aggregate FTE resident count is below the 
aggregate FTE resident cap (IME and direct GME separately), a reduction 
to the particular hospital's FTE resident cap would be necessary. In 
these cases, for each hospital that is a member of the same Medicare 
GME affiliated group, the Medicare contractor will determine the 
following FTE information from the cost report that includes July 1 of 
the particular hospital's reference cost reporting period:
    (1) The ``1996'' FTE resident cap (as adjusted by new programs, if 
applicable) for the hospital under review-- For IME from Worksheet E, 
Part A of the Medicare cost report, the sum of lines 3.04 and 3.05. If 
the hospital's IME FTE resident cap was reduced under section 422 of 
the MMA, subtract from this sum the amount reported on Worksheet E-3, 
Part VI, line 13. For direct GME from Worksheet E-3, Part IV of the 
Medicare cost report, the sum of lines 3.01 and 3.02. If the hospital's 
direct GME FTE resident cap was reduced under section 422 of the MMA, 
subtract from this sum the amount reported on Worksheet E-3, Part VI, 
line 2.
    (2) The ``affiliated'' FTE resident cap for the hospital being 
assessed--For IME, line 3.07. For direct GME, line 3.04.
    (3) The total number of allopathic and osteopathic FTE residents 
for the hospital being assessed--For IME, line 3.08. For direct GME, 
line 3.05.
    (4) The difference between the aggregate ``affiliated'' FTE 
resident cap and the total FTE resident counts for all of the 
affiliated hospitals--For IME, [Sigma] line 3.08 minus [Sigma] (lines 
3.04 + 3.05-applicable section 422 reduction amount). For direct GME, 
[Sigma] line 3.05 minus [Sigma] (lines 3.01 + 3.02-applicable section 
422 reduction amount).
    (5) For IME, for those hospitals whose FTE resident count from line 
3.08 is greater than the ``affiliated'' FTE resident cap on line 3.07, 
indicate ``zero.'' For direct GME, for those hospitals whose FTE 
resident count from line 3.05 is greater than the ``affiliated'' FTE 
resident cap on line 3.04, indicate ``zero.'' For IME, for those 
hospitals whose FTE resident count from line 3.08 is less than the 
``affiliated'' FTE resident cap on line 3.07, determine the difference 
between the hospital's ``affiliated'' FTE resident cap and the 
hospital's FTE resident count, line 3.08 minus line 3.07. For direct 
GME, for those hospitals whose FTE resident count from line 3.05 is 
less than the ``affiliated'' FTE resident cap on line 3.04, determine 
the difference between the hospital's ``affiliated'' FTE resident cap 
and the hospital's FTE resident count, line 3.05 minus line 3.04.
    (6) For IME and direct GME separately, to determine the total 
amount by which the FTE resident counts are below the ``affiliated'' 
FTE resident caps and add the amounts determined under step 5 for each 
hospital that trained fewer residents than its ``affiliated'' FTE 
resident caps.
    (7) For IME and direct GME separately, determine a pro rata cap 
reduction for the hospital being assessed by dividing the hospital-
specific amount in step 5 by the total amount for all of those 
hospitals in step 6, and multiply by the amount in step 4. (that is, 
(step5/step6) x step 4).
    (8) For IME and direct GME separately, determine the actual cap 
reduction for the hospital being assessed by multiplying the pro rata 
cap reduction from step 7 by 0.65.
    (9) For IME and direct GME separately, determine the reduced FTE 
resident cap for the hospital being assessed by subtracting the actual 
cap reduction from step 8 from the ``1996'' FTE resident cap from step 
1. This is the hospital's FTE resident cap effective July 1, 2011.
    The following is an example of how the reductions to the FTE 
resident caps will be determined where the FTE resident counts in the 
aggregate for hospitals that were affiliated as of July 1 of the 
reference cost reporting period for a particular hospital are below the 
hospitals' FTE resident caps in the aggregate. For ease of 
illustration, this example focuses on reductions to the IME caps only, 
but the methodology is the same for reductions to the direct GME caps.
    In this example, the Medicare contractor has determined, using the 
methodology from Step 1, that the reference cost reporting period (the 
period with smallest difference between the reference resident level 
and the otherwise applicable resident limit) for Hospital D is January 
1, 2007 to December 31, 2007. The academic year that occurs in this 
reference cost reporting period begins July 1, 2007. Hospitals D, E, 
and F are members of a Medicare GME affiliated group for the academic 
year that begins July 1, 2007. Hospital D is also separately affiliated 
with Hospitals G and H for the academic year that begins July 1, 2007. 
Thus, the affiliated group for GME payment purposes, and for purposes 
of determining possible FTE cap reductions for Hospital D under 
subparagraph (I) consists of Hospitals D, E, F, G, and H. Hospital E's 
cost report that includes July 1, 2007 is FYE June 30, 2008. Hospital 
D's, F's, and G's cost report that includes July 1, 2007 is their FYE 
December 31, 2007, and Hospital H's cost report that includes July 1, 
2007 is its FYE September 30, 2007. Using steps 1 through 9 above, the 
reduction to the FTE resident caps for Hospital D is determined in the 
table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Number of FTEs
                                           1996 FTE Caps  ``Affiliated''     FTE Count       below the       Pro rate       Actual Cap    Final FTE  Cap
                Hospital                     (Step 1)     FTE cap  (Step     (Step 3)     ``Affiliated''     reduction       Reduction        (Step 9)
                                                                2)                         Cap  (Step 5)     (Step 7)        (Step 8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
D.......................................             115              90              75             -15              -8            -5.2           109.8
E.......................................              80             100             125               0             N/A             N/A             N/A
F.......................................             120              10              10               0             N/A             N/A             N/A

[[Page 13521]]

 
G.......................................              95             115             125               0             N/A             N/A             N/A
H.......................................              30             125              65             -60             N/A             N/A             N/A
                                         ---------------------------------------------------------------------------------------------------------------
    Totals..............................             440             440             400             -75             N/A             N/A             N/A
                                                            Step 4[rarr]             -40    Step 6[uarr]
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this example, Hospital D's FTE resident count of 75 was 15 less 
than its ''affiliated'' FTE resident cap of 90, and Hospital H's FTE 
resident count of 65 was 60 less than its ''affiliated'' FTE resident 
cap of 125 (as determined under step 5). Hospital F's ''affiliated'' 
FTE resident cap equaled its FTE resident count. Under this 
methodology, the fact that Hospitals E and G exceeded their respective 
''affiliated'' FTE resident caps minimizes the reductions to Hospital 
D's ''1996'' FTE resident caps through the calculation of a pro rata 
reduction under step 7.
    We note that although Hospital H is also under its cap; its cap is 
not reduced in this exercise. Under section 5503, the cap reduction 
determination is calculated individually for each hospital based on its 
individual reference cost reporting period, so each hospital would be 
evaluated for a possible reduction separately. Hospital H will be 
evaluated separately, and it may be that Hospital's H reference cost 
report may not be its FYE September 30, 2007 cost report, and 
ultimately, Hospital H may or may not be subject to an FTE resident cap 
reduction. Thus, under step 8, the actual cap reduction of 5.2 FTEs for 
Hospital D is determined by taking 65 percent of 8 (rather than 65 
percent of 15). As a result, under step 9, Hospital D's final FTE 
resident cap effective on July 1, 2011 is determined to be 109.8 FTEs.
    We also note that the reduction to Hospital D's ''1996'' FTE 
resident caps was minimized only because Hospitals E and G exceeded 
their ''affiliated'' FTE resident caps. If all hospitals in the 
Medicare GME affiliated group had trained residents below their 
''affiliated'' FTE resident caps, then a pro rata reduction would not 
benefit Hospital D. In that case, the ''1996'' FTE resident caps of 
Hospital D in the Medicare GME affiliated group would be reduced by 65 
percent of the difference between its ''affiliated'' FTE resident cap 
and FTE resident count.
    We believe this final policy is similar to the method used to 
implement section 422 of the MMA with regard to hospitals that were 
members of the same Medicare GME affiliated group in that, as under 
section 422 of the MMA, we are only treating a hospital as part of a 
group if the hospital was a member of a Medicare GME affiliation 
agreement during its reference cost reporting period under section 
1886(h)(8) of the Act. In implementing section 203 of the MMEA in this 
manner, we believe we have addressed the concerns raised by commenters 
in response to the CY 2011 Outpatient PPS proposed rule (75 FR 46395 
August 3, 2010) in that this policy could protect hospitals from a loss 
of slots if the aggregate counts equal to or exceed the ``affiliated'' 
FTE resident caps, and could limit the loss of slots in the instance 
where a hospital is a member of a Medicare GME affiliated group and the 
aggregate counts are below the ``affiliated'' FTE resident caps.

II. Provisions of the Interim Final Rule

    As part of the CY 2011 Hospital Outpatient PPS final rule published 
in the November 24, 2010 Federal Register (75 FR 71800), we implemented 
section 5503 of the Affordable Care Act, which added a new section 
1886(h)(8) to the Act. Section 5503 of the Affordable Care Act provides 
for reductions in the statutory FTE resident caps for direct GME under 
Medicare for certain hospitals, and authorizes a ``redistribution'' to 
hospitals of the estimated number of FTE resident slots resulting from 
the reductions. Section 5503 of the Affordable Care Act also amended 
section 1886(d)(5)(B)(v) of the Act to require application of the 
provisions of 1886(h)(8) of the Act ``in the same manner'' to the FTE 
resident caps for IME. Section 1886(h)(8) of the Act requires that any 
such reduction to the FTE resident caps will be equal to 65 percent of 
the difference between the hospital's ``otherwise applicable resident 
limit'' and its ``reference resident level.'' Section 5503 of the 
Affordable Care Act as initially enacted did not include language 
specific to Medicare GME affiliated groups and did not provide for FTE 
resident cap reduction determinations based on the aggregate experience 
of a Medicare GME affiliated group. Accordingly, section 203 of the 
MMEA further amended section 1886(h)(8) of the Act to specify that the 
provisions of section 1886(h)(8) of the Act shall be applied to 
hospitals which are members of the same Medicare GME affiliated group, 
and the ``reference resident level'' for each such hospital is the FTE 
resident count from the cost reporting period that results in the 
smallest difference between the FTE resident count and the FTE resident 
cap. We are revising Sec.  413.79(m)(7) to reflect the changes made by 
section 203 of the MMEA.

III. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

IV. Waiver of Proposed Rulemaking, 60-Day Comment Period, and Delay of 
Effective Date

    Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), we 
are required to publish a notice of proposed rulemaking (NPRM) in the 
Federal Register. Section 1871(b)(1) of the Act imposes a similar 
requirement: that the Secretary publish a Federal Register notice with 
not less than 60 days for public comment. In addition, both authorities 
mandate a 30-day delay in effective date.
    Section 553(b)(B) of the APA provides for an exception from these 
APA requirements; in cases in which this exception applies, section 
1871(b)(2)(C) of the Act provides an exception from the notice and 
delayed effective date requirements of the Act as well. Section 
553(b)(B) of the APA authorizes an agency to dispense with normal 
rulemaking requirements for good cause if the agency makes a finding 
that notice and comment procedures are impracticable, unnecessary, or 
contrary to the public interest. In addition, both section 553(d)(3) of 
APA and section 1871(e)(1)(B)(ii) of the Act allow the agency to avoid 
the 30-day delay in

[[Page 13522]]

effective date where such delay is contrary to the public interest and 
an agency includes a statement of support.
    Here, section 203 of the MMEA amends section 1886(h)(8) of the Act. 
Regulations implementing section 5503(a) of the ACA were published in 
the November 24, 2010 Federal Register. The amendment made by section 
203 of the MMEA is effective as if included in the enactment of section 
5503(a) of the Affordable Care Act. Specifically the amendments apply 
to portions of cost reporting periods occurring on or after July 1, 
2011. As a result, given the December 15, 2010 enactment of the MMEA, 
there was and there is a finite and, under the circumstances, highly 
compressed window of opportunity to complete implementation before the 
statutory deadline. Time pressure is acute because the agency must 
commence implementation substantially in advance of its July 1, 2011 
deadline or risk a cascade of missed deadlines and failed intermediate 
steps, jeopardizing the program. Binding instructions must be given to 
Medicare contractors and hospitals as soon as possible to enable them 
to undertake critical first steps in a tight chain of business 
decisions that must precede implementation of the new provision.
    As we indicate in section VI.C., the effect of section 203 of the 
MMEA is that it benefits member hospitals of Medicare GME affiliated 
groups by protecting them from or mitigating their loss of residency 
slots. Prior implementation of section 422 of the MMA, which similarly 
redistributed unused FTE resident cap slots to other qualifying 
hospitals, suggests that significant time is required to implement this 
type of provision. The MMA was passed in December 2003, and was 
effective on July 1, 2005. Unlike section 5503 of the ACA, section 422 
of the MMA, as originally enacted, already included language giving 
special consideration to the treatment of members of Medicare GME 
affiliated groups. We published final regulations implementing the 
process for reducing the FTE resident caps of certain teaching 
hospitals, both members of Medicare GME affiliated groups and those 
that were not affiliated, by August 1, 2004 (69 FR 49111). Since 
section 422 of the MMA was effective on July 1, 2005, the agency had 11 
months between August 2004 and July 1, 2005 to implement section 422 of 
the MMA.
    In this case, the statutory deadline provides the agency with 
significantly less time to implement section 5503 of the ACA and 
section 203 of the MMEA than it had to implement section 422 of the 
MMA. The ACA was passed on March 23, 2010, and we included the proposal 
for section 5503 of the ACA in the CY 2011 OPPS proposed rule; the 
final rule was not issued until November 1, 2010 (75 FR 72133). Since 
section 5503 of the ACA must be implemented to be effective on July 1, 
2011, this means that we have only 8 months (as compared to the 11 
months under section 422 of the MMA) to implement section 5503. 
Moreover, because the language regarding special treatment of hospitals 
that are members of Medicare GME affiliated groups was not passed as 
part of the MMEA until December 15, 2010, yet it has the same effective 
date of July 1, 2011 as section 5503 of ACA, the amount of time 
available to implement the provision by July 1, 2011 has been further 
reduced to approximately 4 months. Facing this comparatively brief 
window, and based on historical experience, we find that it would be 
impracticable for us and our contractors to perform enough GME audits 
to assure the validity of as-submitted cost report data that are 
necessary for implementation--especially while simultaneously reviewing 
for regulatory compliance many hundreds of applications requesting 
additional slots.
    The implementation of section 5503 of ACA and section 203 of the 
MMEA, as we learned when implementing section 422 of the MMA, requires 
significant planning, coordination, and investment of time and audit 
resources. There are approximately 1,100 teaching hospitals and more 
than 300 of them are members of Medicare GME affiliated groups. Many of 
these teaching hospitals have hundreds of residents, and it can take a 
Medicare contractor many weeks or months to audit the data on each as-
submitted cost report. On January 7, 2011, we issued instructions to 
the contractors instructing them to begin audits for the purpose of 
implementing section 5503 of ACA. In those instructions, and in the CY 
2011 OPPS final rule (75 FR 72153), we stated that the contractors are 
required to submit their estimates of each teaching hospital's FTE 
resident cap reduction, if any, to CMS by May 16, 2011. This would 
allow us to create the ``pool'' of slots available for redistribution, 
and to start assigning those slots to qualifying hospitals based on 
applications we reviewed between January 21, 2011 and May 2011. Even 
prior to May 16, 2011, the Medicare contractors will need time to 
notify hospitals of their tentative findings and allow hospitals to 
react to the potential FTE resident cap reductions. Unfortunately, many 
audits have yet to begin, as the Medicare contractors have been waiting 
for instructions regarding treatment of hospitals that are members of 
Medicare GME affiliated groups.
    For these reasons, that is, because we face an extremely compressed 
timeframe; because Medicare contractors and hospitals need to make 
critical business decisions and systems changes far in advance, each 
constituting a material change of position that would be costly and 
impracticable to reverse; because historical evidences suggests that 
even a slight delay could prevent timely implementation of this 
Congressionally mandated policy change; and because it is therefore 
probable that failing to act early would have adverse financial impacts 
for teaching hospitals and the Federal government--we have concluded 
that there is good cause to waive ordinary rulemaking provisions as 
they are impracticable and contrary to the public interest in this 
case, and issue interim final regulations as soon as possible, that 
being necessary to implementing section 203 of the MMEA in an accurate, 
comprehensive, and timely manner. We are providing a 30-day public 
comment period.

V. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995. (44 U.S.C. Chapter 35)

VI. Regulatory Impact Statement

A. Statement of Need

    Section 5503 of the Affordable Care Act provides for reductions in 
the statutory FTE resident caps under Medicare for certain hospitals 
and authorizes a ``redistribution'' of the FTE resident slots resulting 
from the reduction in the FTE resident caps to other hospitals. The 
purpose of section 5503 is to allow hospitals in certain states that 
wish to start new or expand existing programs in primary care or 
general surgery but are already training residents at or above their 
FTE resident caps to use slots from other hospitals that have not been 
using all of their slots. Section 203 of the Medicare and Medicaid 
Extenders Act of 2010 amended section 1886(h)(8) of the Act (as added 
by section 5503 of the Affordable Care Act) to specify that the 
provisions of section 1886(h)(8)(A) of the Act shall be applied to 
hospitals

[[Page 13523]]

which are members of the same Medicare GME affiliated group, and the 
``reference resident level'' for each hospital is the FTE resident 
count from the cost reporting period that has the smallest difference 
between the FTE resident count and the FTE resident cap. The purpose of 
section 203 is to take into account the unique situation of hospitals 
that are members of the same Medicare GME affiliated group in that they 
share FTE resident cap slots, and that FTE resident cap reduction 
determinations of hospitals should consider the shared nature of those 
slots.

B. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(February 2, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule.
    In the November 24, 2010 final rule which implemented section 5503 
of the Affordable Care Act (75 FR 72239), we mentioned that we were 
unable to project how many FTE resident slots will be available for 
redistribution under section 5503 of the Affordable Care Act. Unlike 
section 422 of the MMA, which also provided for a redistribution of FTE 
resident slots but provided that the redistributed slots will be paid 
using the national average per resident amount (PRA) for direct GME 
payment purposes, section 5503 of the Affordable Care Act requires that 
hospitals be paid for their additional FTE resident slots using the 
hospitals' specific PRAs. Because we were unable to determine the 
number of FTE resident slots that will be redistributed under section 
5503 of the Affordable Care Act or which hospitals will be receiving 
additional FTE resident slots, we could not calculate a direct GME 
impact for section 5503 of the Affordable Care Act. Similarly, we 
cannot calculate a direct GME dollar impact for section 203 of the 
MMEA.
    Although the general effect of section 203 of the MMEA is to 
protect from loss or mitigate the loss of slots of hospitals that are 
members of a Medicare GME affiliated group, there could be fewer direct 
GME and IME slots available for redistribution to other hospitals. For 
several reasons, we are unable to compute a dollar impact on the 
redistribution of those slots to other hospitals. First, although there 
are currently 307 hospitals that are members of a Medicare GME 
affiliated group, these hospitals were not necessarily members of 
Medicare GME affiliated groups during the reference cost reporting 
periods specified by section 5503 of the Affordable Care Act. Second, 
we do not know which hospitals, that are members of a Medicare GME 
affiliated group, will be at risk for losing direct GME and/or IME FTE 
resident cap slots under section 5503 of the Affordable Care Act, as 
revised by section 203 of the MMEA. Third, we do not know the PRAs and 
Medicare utilization rates of hospitals that will be receiving 
additional FTE resident slots. With respect to determining an impact 
for IME payment purposes, section 5503 of the Affordable Care Act 
requires us to use an IME multiplier of 1.35; however, we do not know 
the intern-to-bed ratio and resident-to-bed ratio for the hospitals 
that will receive additional FTE resident slots or the volume or case 
mix of Medicare discharges at those hospitals. Therefore, we cannot 
determine a financial impact for purposes of direct GME and IME for 
this provision. We solicit comment on our analysis.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most physician practices, hospitals and 
other providers are small entities, either by nonprofit status or by 
qualifying as small businesses under the Small Business 
Administration's size standards (revenues of less than $7.0 to $34.5 
million in any 1 year). States and individuals are not included in the 
definition of a small entity. For details, see the Small Business 
Administration's Web site at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=2465b064ba6965cc1fbd2eae60854b11&rgn=div8&view=text&node=13:1.0.1.1.16.1.266.9&idno=13)
    Individuals and States are not included in the definition of a 
small entity. The Regulatory Flexibility Act requires an agency to 
prepare an initial regulatory flexibility analysis when they issue a 
general notice of proposed rule-making. However, HHS has maintained a 
long-standing policy of voluntarily preparing initial regulatory 
flexibility analyses for all rule-making. The Secretary has determined 
that this interim final rule will not have a significant economic 
impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because the Secretary has determined that this interim final rule 
will not have a significant impact on the operations of a substantial 
number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold is approximately $136 million. This rule will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.

C. Anticipated Effects

    We believe the general effect of section 203 of the MMEA is that it 
could protect from loss or mitigate the loss of slots for hospitals 
that are members of a Medicare GME affiliated group, and therefore, 
there could be fewer direct

[[Page 13524]]

GME and IME slots available for redistribution to other hospitals.

D. Alternatives Considered

    Although there may be alternatives, the method we are finalizing in 
this interim final rule is the most consistent with that of a similar 
provision for hospitals that are members of Medicare GME affiliated 
groups implemented as part of section 422 of the MMA.

E. Conclusion

    The analysis above, together with the remainder of this preamble, 
provides a Regulatory Flexibility Analysis as well as a Regulatory 
Impact Analysis. For the reasons outlined in the RIA, we are not 
preparing an analysis for either the RFA or section 1102(b) of the Act 
because we have determined that this interim final rule with comment 
would not have a direct significant economic impact on a substantial 
number of small entities or a direct significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
1. The authority citation for part 413 continues to read as follows:

    Authority:  Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), 
and (n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security 
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Pub. L. 106-133 (113 Stat. 1501A-332).


0
2. Section 413.79 is amended by revising paragraph (m)(7) to read as 
follows:


Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

    (m) * * *
    (7) Consideration for members of Medicare GME affiliated groups. 
For a hospital that is a member of a Medicare GME affiliated group at 
any point during any of the hospital's three most recent cost reporting 
periods ending before March 23, 2010 for which a cost report has been 
settled or has been submitted to Medicare contractor by March 23, 2010, 
in determining whether a hospital's otherwise applicable resident FTE 
resident cap is reduced under paragraph (m) of this section, the 
Medicare contractor determines a hospital's reference cost reporting 
period by finding the cost reporting period that results in the 
smallest difference between the reference resident level and the 
otherwise applicable resident limit.
    (i) If the reference resident level is less than the otherwise 
applicable resident limit in that reference cost reporting period, the 
Medicare contractor must then determine if the hospital was a member of 
a Medicare GME affiliated group as of the July 1 that occurs during 
that reference cost reporting period.
    (ii) If the hospital was a member of a Medicare GME affiliated 
group as of the July 1 that occurs during that reference cost report, 
the Medicare contractor does all of the following:
    (A) Treat the members of the Medicare GME affiliated group as a 
group for that reference cost reporting period, for the purpose of 
determining a reduction to the particular hospital's FTE resident cap.
    (B) Determine for each hospital in the Medicare GME affiliated 
group respectively the FTE resident cap and FTE resident count (IME and 
direct GME separately).
    (C) Add each hospital's FTE resident caps (IME and direct GME 
separately) to determine the aggregate FTE resident cap.
    (D) Add each hospital's FTE resident count (IME and direct GME 
separately) to determine the aggregate FTE resident count.
    (iii) If the aggregate FTE resident count is equal to or exceeds 
the aggregate FTE resident cap, then the Medicare contractor would make 
no reduction to the particular hospital's otherwise applicable FTE 
resident cap under paragraph (m) of this section, and no further steps 
are necessary for that hospital.
    (iv) If the hospitals' aggregate FTE resident count is less than 
the aggregate FTE resident cap, then the Medicare contractor would 
determine on a hospital-specific basis whether the particular 
hospital's FTE resident count is less than its otherwise applicable FTE 
resident cap (as adjusted by affiliation agreement(s)) in the 
hospital's reference cost report.
    (v) If the hospital's FTE resident count exceeds its otherwise 
applicable FTE resident cap, the hospital will not have its otherwise 
applicable FTE resident cap reduced under paragraph (m) of this 
section.
    (vi) If the particular hospital's FTE resident count is less than 
its otherwise applicable FTE resident cap, the Medicare contractor 
determines a pro rata cap reduction amount that is equal, in total, to 
65 percent of the difference between the aggregate FTE resident cap and 
the aggregate FTE resident count for the Medicare GME affiliated group.
    (A) The pro rata cap reduction to the particular hospital's 
otherwise applicable FTE resident cap is calculated by dividing the 
difference between the hospital's otherwise applicable FTE resident cap 
and the hospital's FTE resident count, by the total amount by which all 
of the hospitals' individual FTE resident counts are below their 
affiliated FTE resident caps, multiplying the quotient by the 
difference between the aggregate FTE resident cap and the aggregate FTE 
resident counts for the Medicare GME affiliated group, and multiplying 
that result by 65 percent.
    (B) The final reduction takes into account the hospital's FTE 
resident cap as reduced under the provisions of paragraph (c)(3) of 
this section.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: February 10, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: March 1, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-5960 Filed 3-11-11; 8:45 am]
BILLING CODE 4120-01-P