On December 9, 2016, the United States Court of Appeals for the D.C. Circuit ruled against two Michigan hospitals, holding that that the written agreements detailing their off-site residency programs failed to comply with the Secretary’s requirements for graduate medical education (GME) reimbursement. See Borgess Med. Ctr. v. Burwell, No. 13-5330 (D.C. Cir. 2016). The court held that the agreements in question failed to provide enough specificity accounting for the costs of resident salary, fringe benefits or other required expenses.
By statute, a hospital is eligible to count time its residents spend performing patient care activities in approved residency programs in nonhospital settings, provided it incurs “all, or substantially all, of the costs for the training program in that setting.” 42 U.S.C. § 1395ww(d)(5)(B)(iv)(I). For the cost reporting periods in question – 2000 to 2004 – the Secretary’s regulations required that, for a hospital to count the full-time equivalent (FTEs) of residents training at a nonhospital site, there must be a written agreement between the hospital and nonhospital that “indicate[s] that the hospital will incur the cost of the resident’s salary and fringe benefits while the resident is training at the nonhospital site and the hospital is providing reasonable compensation to the nonhospital site for supervisory teaching activities.” 42 C.F.R. § 413.86(f)(4)(ii) (2000). The current regulation at 42 C.F.R. § 413.78(d) provides the same.
The court reviewed two written agreements put forth by the hospitals as meeting the Secretary’s requirements. First, the court examined a 1973 agreement between the two hospitals to establish a non-profit organization under which the hospitals managed their medical education programs and through which they agreed to provide annual financing. Because this agreement was not between a hospital and nonhospital, the court found that it failed to meet the Secretary’s written agreement policies. Furthermore, the agreement’s only description of financing (“the parties shall provide [the non-profit] with financing to carry out its purpose as negotiated on a yearly basis”) did not provide the required specificity because it failed to indicate that either hospital would incur the costs of resident salary or fringe benefits.
Second, the court examined affiliation agreements between the hospitals and the non-profit’s successor organization. Similar to the above agreement, the affiliation agreements required the hospitals to incur “joint and equal responsibility for providing [the non-profit] with sufficient financing to carry out its programs as negotiated on a yearly basis.” The non-profit, affiliated with Michigan State University, also received millions of dollars from other sources including patient care revenue, university funding and contracts/grants. Thus, the affiliation agreements required the hospitals to make up the difference of expenses after accounting for all other funds. The court also rejected these agreements as lacking specificity, stating that they “fail to specify which programs the [h]ospitals are financing or how the funds will be used.”
Lastly, the court rejected the hospitals attempt to demonstrate compliance with the written agreement regulation “through conduct.” Although the court found that the regulations provide no option to satisfy the written agreement through conduct, it nonetheless considered - and rejected - whether the financial records of the non-profit provided the required specificity. Because the count ultimately found that the hospitals failed to meet the Secretary’s written agreement requirement, it did not reach the question of whether the hospital’s cost sharing complied with the “all or substantially all” requirement.
A copy of the opinion is available on the D.C. Circuit’s website here.
