The United States Court of Appeals for the First Circuit dealt a blow to

graduate medical education programs on November 17, 2008, when it issued

an opinion upholding the Secretary of the Department of Health and Human

Services' ("Secretary") interpretation of the IME regulation excluding time spent

by residents engaged in research activities. In Rhode Island Hospital v. Leavitt,

No. 07-2673 (1st Cir. Nov. 17, 2008), Rhode Island Hospital (RIH) appealed

the Centers for Medicare and Medicaid Services' (CMS) reduction of its fulltime

equivalent (FTE) resident count used to calculate its IME adjustment by

12.06 FTE residents in fiscal year (FY) 1996. CMS claimed that the governing

Medicare regulations precluded including research time in the FTE count. The

United States District Court for the District of Rhode Island had previously

ruled that the Secretary's denial of research time was contrary to the plain

language of the governing FTE regulation, 42 C.F.R. § 412.105(g)(1), but the

First Circuit disagreed.

The IME regulation includes two basic requirements for a resident's time to be

included in the FTE count. First, the resident must be enrolled in an approved

teaching program. Second, the resident must be assigned to an area of the

hospital subject to the inpatient prospective payment system (IPPS) or an

outpatient department, or assigned to an entity under the ownership or control

of the hospital if certain requirements are met. The District Court had

concluded that CMS could not exclude time spent by residents in research if

they were enrolled in an approved teaching program and assigned to a

qualifying area of the hospital. Thomas W. Coons and Kristin C. Cilento examine this case and how it affects providers.