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. 

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 [OFR: insert the date of

publication in the Federal Register].

 Comment Date: To be assured consideration, comments must be received at one 

of the addresses provided below, no later than 5 p.m. on [OFR--insert date 30 days after 

the date of publication at the Federal Register]. 

ADDRESSES: In commenting, please refer to file code CMS-1430-IFC. Because of 

staff and resource limitations, we cannot accept comments by facsimile (FAX) 

transmission. 

 You may submit comments in one of four ways (please choose only one of the 

ways listed) 
CMS-1430-IFC 2 

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-- 
CMS-1430-IFC 3 

 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: 
CMS-1430-IFC 4 

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 
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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 
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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 

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 
CMS-1430-IFC 7 

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 
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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: 

● 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. 

● Take into account whether the hospital has an accredited rural training track 

program. 

● Distribute 70 percent of the resident slots to hospitals located in States with 

resident-to-population ratios in the lowest quartile. 

● 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 
CMS-1430-IFC 9 

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 
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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 
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individual 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 
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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 
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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 
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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 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 (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 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 
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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 
CMS-1430-IFC 16 

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: 

• Cost Reporting Period 1 (01/01/2006-12/31/2006): 10 (FTE Resident Cap) – 8 

(FTE Resident Count) = 2 
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• Cost Reporting Period 2 (01/01/2007-12/31/2007): 10 (FTE Resident Cap) – 9 

(FTE Resident Count) = 1 

• 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 
CMS-1430-IFC 18 

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). 
CMS-1430-IFC 19 

For the hospital that was a member of a Medicare GME affiliated group as of the 

July 1 that occurs during that 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: 
CMS-1430-IFC 20 

(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, ∑ line 3.08 minus ∑

(lines 3.04 + 3.05 – applicable section 422 reduction amount). For direct GME, ∑ line 

3.05 minus ∑ (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 
CMS-1430-IFC 21 

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) × 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. 
CMS-1430-IFC 22 

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. 

Hospital 1996 

FTE 

Caps 

(Step 1) 

"Affiliated

" FTE 

Cap (Step 

2) 

FTE 

Count 

(Step 3) 

Number of 

FTEs Below 

the 

"Affiliated" 

Cap (Step 5) 

Pro rate 

reduction 

(Step 7) 

Actual 

Cap 

Reductio

n (Step 8)

Final 

FTE Cap 

(Step 9) 

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 

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 -40 Step 6 

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 
CMS-1430-IFC 23 

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. 
CMS-1430-IFC 24 

 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 
CMS-1430-IFC 25 

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 §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 
CMS-1430-IFC 26 

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 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 
CMS-1430-IFC 27 

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 
CMS-1430-IFC 28 

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 
CMS-1430-IFC 29 

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. 
CMS-1430-IFC 30 

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 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. 
CMS-1430-IFC 31 

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 
CMS-1430-IFC 32 

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 
CMS-1430-IFC 33 

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/textidx?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 
CMS-1430-IFC 34 

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 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 
CMS-1430-IFC 35 

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. 
CMS-1430-IFC 36 

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 

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). 

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

§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 
CMS-1430-IFC 37 

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. 
CMS-1430-IFC 38 

(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. 

* * * * * 
CMS-1430-IFC 

(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. 

BILLING CODE 4120-01-P 
CMS-1430-IFC 40 

[FR Doc. 2011-5960 Filed 03/11/2011 at 8:45 am; Publication Date: 03/14/2011]