00–010 

Calendar No. 774 

108TH CONGRESS REPORT " ! SENATE 2nd Session 108–388 

CHILDREN’S HOSPITALS EDUCATIONAL EQUITY AND 

RESEARCH ACT OR THE CHEER ACT 

OCTOBER 7, 2004.—Ordered to be printed 

Mr. GREGG, from the Committee on Health, Education, Labor, and 

Pensions, submitted the following 

R E P O R T 

[To accompany S. 2526] 

The Committee on Health, Education, Labor, and Pensions, to 

which was referred the bill (S. 2526) to reauthorize the Children’s 

Hospitals Graduate Medical Education Program, having considered 

the same, reports favorably thereon with an amendment in the nature of a substitute and recommends that the bill (as amended) do 

pass. 

CONTENTS 

Page 

I. Purpose and need for legislation .................................................................. 1 

II. Summary ........................................................................................................ 2 

III. History of legislation and votes in committee ............................................. 2 

IV. Explanation of bill and committee views ..................................................... 2 

V. Cost estimate .................................................................................................. 2 

VI. Regulatory impact statement ........................................................................ 5 

VII. Impact of law to the legislative branch ........................................................ 5 

VIII. Section-by-section analysis ............................................................................ 5 

IX. Changes in existing law ................................................................................ 6 

PURPOSE AND NEED FOR LEGISLATION

First enacted as part of The Healthcare Research and Quality 

Act of 1999 (P.L. 106–129), the Children’s Hospitals Education and 

Research Act of 1999 authorized the Children’s Hospitals Graduate 

Medical Education (CHGME) program for 2 years. The program 

was reauthorized for an additional 5 years as part of the Children’s 

Health Act of 2000 (P.L. 106–310). 

2 

Graduate medical education is funded through Medicare payments to full service teaching hospitals. Prior to the enactment of 

this program, the independent children’s teaching hospitals did not 

have a similar program to fund resident training programs for physicians. Congress recognized this inequity and the financial disadvantage it was placing on children’s hospitals. 

The Children’s Hospitals Education Equity and Research Act of 

2004 extends the authorization of the Children’s Hospitals Graduate Medical Education Program to FY 2010 and provides independent children’s hospitals with Federal assistance similar to that 

provided to other teaching hospitals through Medicare. 

II. SUMMARY

S. 2526 reauthorizes the Children’s Hospitals Graduate Medical 

Education Program from 2006 to 2010 and increases the authorization level in FY 2006 to $330 million. In years FY 2007 to FY 2010 

the legislation authorizes such sums as are necessary. The bill also 

makes technical changes to the underlying statue including reversing an oversight in the Medicare Prescription Drug, Improvement, 

and Modernization Act of 2003 with regard to resident physician 

allotments. 

III. HISTORY OF LEGISLATION AND VOTES IN COMMITTEE

On June 16, 2004, Senator Bond, for himself and Senators Kennedy, DeWine, and Murray, introduced S. 2526 to reauthorize the 

Children’s Hospitals Graduate Medical Education Program. 

On September 22, 2004, the committee held an executive session 

and considered an amendment in the nature of a substitute to S. 

2526 offered by Senators Bond and DeWine. The committee approved S. 2526, as amended, by unanimous voice vote. 

IV. EXPLANATION OF BILL AND COMMITTEE VIEWS

S. 2526 as amended reauthorizes the Children’s Hospitals Graduate Medical Education Program for 5 years through 2010 and authorizes $330 million to fund residency programs in children’s hospitals in FY 2006 and such sums as are necessary in FY 2007 

through FY 2010. 

The committee made a few small technical changes to the program and includes one provision necessary to reflect Congressional 

intent by clarifying that the provision for redistribution of unused 

residency positions included in the Medicare Modernization Act 

(P.L. 108–173) does not apply to the CHGME program. The committee does not believe the original provision was appropriately applied to the CHGME program. The CHGME program is separate 

and distinct from the Medicare-financed GME programs. In addition, pediatrics is experiencing significant shortages in many pediatric subspecialties. 

The committee believes that children’s hospitals should have 

more time to grow their programs, as well as to have the opportunity to redistribute any unused resident slots within the CHGME 

program. 

The committee also clarifies that beds or bassinets assigned to 

healthy newborn infants should not be counted when determining 

the number of beds for the purposes of Indirect Medical Education 

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Payments. The committee is concerned that including beds and 

bassinets of healthy newborns has the effect of depressing their pediatric patient case mix intensity, relative to their actual patient 

care and teaching programs. 

The committee corrects an unintended error in the underlying 

statute to allow direct medical education payments under CHGME 

to be adjusted by the current area wage index adjustment, for discharges in the preceding year. The statute now provides for no area 

wage index adjustment beyond fiscal year 2000. The committee 

also corrects other small technical errors in the statute. 

V. COST ESTIMATE

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, October 7, 2004. 

Hon. JUDD GREGG, Chairman, Committee on Health, Education, Labor, and Pensions, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 2526, the Children’s Hospital Education Equity and Research Act. 

If you wish further detains on this estimate, we will be pleased 

to provide them. The CBO staff contact is Margaret Nowak. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, Director. 

Enclosure. 

S. 2526.—Children’s Hospitals Educational Equity and Research 

Act 

Summary: S. 2526 would amend the Public Health Service Act 

to authorize payments through 2010 to children’s hospitals that operate graduate medical education programs. Separate payments 

would be made to the hospitals for both direct expenses and indirect expenses related to graduate medical education. The bill also 

would alter the factors used in determining the amount of payment 

for indirect expenses. CBO estimates that implementing S. 2526 would cost $248 mil- lion in 2006 and $1.3 billion over the 2006–2009 period, assuming 

the appropriation of the necessary amounts. Enacting the legislation would not affect direct spending or receipts. 

S. 2526 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) 

and would impose no costs on state, local, or tribal governments. 

Estimated cost to the Federal Government: The estimated budgetary impact of S. 2526 is shown in the following table. The costs 

of this legislation fall within budget function 550 (health). 

By fiscal year, in millions of dollars— 

2004 2005 2006 2007 2008 2009 

SPENDING SUBJECT TO APPROPRIATION 

Spending Under Current Law: 

Budget Authority/Authorization Level 1 ............................................ 303 309 0 0 0 0 

Estimated Outlays ........................................................................... 303 308 77 0 0 0 

Proposed Changes: 

Estimated Authorization Level ......................................................... 0 0 330 326 342 348 

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By fiscal year, in millions of dollars— 

2004 2005 2006 2007 2008 2009 

Estimated Outlays ........................................................................... 0 0 248 334 340 346 

Spending Under S. 2526: 

Estimated Authorization Level ......................................................... 303 309 330 336 342 348 

Estimated Outlays ........................................................................... 303 308 325 334 340 346 

1 The 2004 level is the amount appropriated for that year for the program of payments to children’s hospitals that operate graduate medical education programs. The amount shown for 2005 is a baseline projection that assumes an increase for anticipated inflation.

Basis of estimate: The program of payments to children’s hospitals that operate graduate medical education programs is authorized through 2005. That program provides two sets of payments to 

children’s hospitals that operate graduate medical education programs. Payments for the ‘‘direct’’ costs of such programs are related 

to the cost to the hospital of operating the graduate medical education program. Payments for ‘‘indirect’’ costs associated with operating a graduate medical education program are intended to compensate for patient-care costs that are expected to be higher in 

teaching hospitals than in nonteaching hospitals. 

S. 2526 would authorize funding through 2010 for those payments to children’s hospitals that operate graduate medical education programs. The bill would authorize the appropriation of specific amounts for 2006. For subsequent years, CBO estimated authorization levels by adjusting 2006 levels for anticipated inflation. 

For this estimate, CBO assumes that S. 2526 will be enacted this 

fall and that the authorized and estimated amounts will be appropriated for each year. 

The bill would authorize appropriation of $110 million in 2006, 

and such sums as necessary in 2007 through 2010, for payments 

toward the direct costs of operating graduate medical education 

programs in children’s hospitals. Those funds would be allocated 

across eligible hospitals based on a formula that would take into 

account the number of medical residents and the average cost per 

resident in 1997 of the hospital’s graduate medical education program. 

The bill also would authorize appropriation of $220 million in 

2006, and such sums as necessary in 2007 through 2010, for payments toward the indirect costs of operating graduate medical education programs in children’s hospitals. Those funds would be allocated across eligible hospitals based on a formula that would take 

into account the number of discharges, the relative costliness of 

those cases as measured by a case-mix index, and the ratio of the 

number of medical residents to the number of beds (excluding beds 

for healthy newborns) in each hospital. Under current law, the allocation formula used the number of residents rather than the ratio 

of residents to beds. 

Based on historical spending patterns for the graduate medical 

education programs, CBO estimates the bill would cost $248 million in 2006 and $1.3 billion over the 2006–2009 period, assuming 

appropriation of the authorized amounts. 

Intergovernmental and private-sector impact: S. 2526 contains no 

intergovernmental or private-sector mandates as defined in UMRA 

and would not affect the budgets of state, local, or tribal governments. 

5 

Estimate prepared by: Federal Costs: Margaret Nowak; Impact 

on State, Local, and Tribal Governments: Leo Lex; Impact on the 

Private Sector: Peter Richmond. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

VI. REGULATORY IMPACT STATEMENT

The committee has determined that there will be de minimus 

changes in the regulatory burden imposed by the bill. 

VII. IMPACT OF LAW TO THE LEGISLATIVE BRANCH

Section 102(b)(3) of Public Law 104–1, the Congressional Accountability Act (CAA) requires a description of the application of 

this bill to the legislative branch. This bill does not amend any act 

that applies to the legislative branch. 

VIII. SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

Section 1 provides the short title of the bill, the ‘‘Children’s Hospitals Educational Equity and Research Act’’ or the ‘‘CHEER Act.’’ 

Section 2. Reauthorization of Children’s Hospitals Graduate Medical Education Program 

a. Amends Section 340E of the Public Health Service Act to extend the authorization of the CHGME program from fiscal year 

2006 through fiscal year 2010. 

b. Provides that the redistribution of unused residency positions 

provision in the Medicare Modernization Act (P.L. 108–173) shall 

not apply to the CHGME program. It also provides that the direct 

medical education payments under CHGME be adjusted by the 

hospitals current area wage adjustment, as applied under Medicare 

for discharges occurring in the preceding fiscal year. 

c. Clarifies that indirect medical education payments under 

CHGME reflect the ratio of the number of full-time equivalent residents to beds rather than simply the number of full-time equivalent residents. It defines beds to exclude beds or bassinets assigned 

to healthy newborn infants. 

d. Corrects a technical error in the underlying statute. 

e. Provides authorization of appropriations for direct medical 

education (DME) payments and indirect medical education (IME) 

payments under CHGME through fiscal year 2010, providing 

$110,000,000 for DME and $220,000,000 for IME for fiscal year 

2006 and such sums as may be necessary for remaining fiscal 

years. 

f. Deletes a repeated sentence in the underlying statute. 

Section 3. Sense of the Senate 

Section 3 recognizes the importance of perinatal hospitals in both 

treating seriously ill newborns and training the providers who are 

essential to their care, as well as to the care of healthy mothers 

and babies. 

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IX. CHANGES IN EXISTING LAW

In compliance with rule XXVI paragraph 12 of the Standing 

Rules of the Senate, the following provides a print of the statute 

or the part or section thereof to be amended or replaced (existing 

law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed 

is shown in roman): 

PUBLIC HEALTH SERVICE ACT 

* * * * * * * 

Subpart IX—Support of Graduate Medical Education Programs in 

Children’s Hospitals 

SEC. 340E. [256e] PROGRAM OF PAYMENTS TO CHILDREN’S HOSPITALS 

THAT OPERATE GRADUATE MEDICAL EDUCATION PROGRAMS. 

(a) PAYMENTS.—The Secretary shall make two payments under 

this section to each children’s hospital for each of fiscal years 2000 

through ø2005¿ 2010, one for the direct expenses and the other for 

indirect expenses associated with operating approved graduate 

medical residency training programs. The Secretary shall promulgate regulations pursuant to the rulemaking requirements of title 

5, United States Code, which shall govern payments made under 

this subpart. 

* * * * * * * 

(c) AMOUNT OF PAYMENT FOR DIRECT GRADUATE MEDICAL EDUCATION.— 

(1) IN GENERAL.— * * * 

* * * * * * * 

(B) the average number of full-time equivalent residents 

in the hospital’s graduate approved medical residency 

training programs (as determined under section 1886(h)(4) 

of the Social Security Act but without giving effect to section 1886(h)(7) of such Act) during the fiscal year. 

* * * * * * * 

(E) APPLICATION TO INDIVIDUAL HOSPITALS.—The Secretary shall compute for each such hospital that is a children’s hospital a per resident amount— 

(i) * * * 

* * * * * * * 

(ii) by multiplying the wage-related portion by the 

factor ødescribed in subparagraph (C)(ii)¿ applied 

under section 1886(d)(3)(E) of the Social Security Act 

for discharges occurring during the preceding fiscal 

year for the hospitals area; and 

* * * * * * * 

(d) AMOUNT OF PAYMENT FOR INDIRECT MEDICAL EDUCATION.— 

(1) IN GENERAL.— * * * 

* * * * * * * 

(A) take into account variations in case mix among children’s hospitals and the ratio of the number of full-time 

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equivalent residents in the hospitals’ approved graduate 

medical residency training programs to beds (excluding 

beds or bassinets assigned to healthy newborn infants); and 

* * * * * * * 

(e) MAKING OF PAYMENTS.— (1) INTERIM PAYMENTS.— * * * 

* * * * * * * 

(2) WITHHOLDING.—øThe Secretary shall withhold up to 25 

percent from each interim installment for direct and indirect 

graduate medical education paid under paragraph (1).¿ The 

Secretary shall withhold up to 25 percent from each interim installment for direct and indirect graduate medical education 

paid under paragraph (1) as necessary to ensure a hospital will 

not be overpaid on an interim basis. 

(3) RECONCILIATION.—Prior to the end of each fiscal year, the 

Secretary shall determine any changes to the number of residents reported by a hospital in the application of the hospital 

for the current fiscal year to determine the final amount payable to the hospital for the current fiscal year for both direct 

expense and indirect expense amounts. Based on such determination, the Secretary shall recoup any overpayments ømade 

to pay¿ made and pay any balance due to the extent possible. 

The final amount so determined shall be considered a final 

intermediary determination for the purposes of section 1878 of 

the Social Security Act and shall be subject to administrative 

and judicial review under that section in the same manner as 

the amount of payment under section 1186(d) of such Act is 

subject to review under such section. 

(f) AUTHORIZATION OF APPROPRIATIONS.— (1) DIRECT GRADUATE MEDICAL EDUCATION.— (A) IN GENERAL.—There are hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, for payments under subsection 

(b)(1)(A)— 

(i)* * * 

* * * * * * * 

(ii) for fiscal year 2001, $95,000,000; øand¿ 

(iii) for each of the fiscal years 2002 through 2005, 

such sums as may be necessaryø.¿; 

(iv) for fiscal year 2006, $110,000,000; and 

(v) for each of fiscal years 2007 through 2010, such 

sums as may be necessary 

* * * * * * * 

(2) INDIRECT MEDICAL EDUCATION.—øThere are hereby authorized¿ There are authorized to be appropriated, out of any 

money in the Treasury not otherwise appropriated, for payments under subsection ø(b)(1)(A)¿ (b)(1)(B)— 

(A) for fiscal year 2000, $190,000,000; 

(B) for fiscal year 2001, $190,000,000; øand¿ 

(C) for each of the fiscal years 2002 through 2005, such 

sums as may be necessaryø.¿; 

(D) for fiscal year 2006, $220,000,000; and 

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(E) for each of fiscal years 2007 through 2010, such sums 

as may be necessary. 

Æ