On August 21, 2020, CMS issued a transmittal (Change Request 11642) instructing Medicare Administrative Contractors (MACs) to recalculate the Part C components of nursing and allied health (NAH) and direct graduate medical education (DGME) payments to hospitals for calendar years 2002 through 2018. The instruction applies to all unsettled cost reports as well as cost reports settled within the past three years. The adjustments required by this instruction are expected to produce increased DGME payments and reduced NAH payments.

Both DGME payments and NAH payments include separate components for Part A patients and Part C patients. Specifically, Congress instructed CMS to create a pool of up to $60 million annually to compensate a hospital for the NAH costs associated with its Part C patients and to fund that payment pool through corresponding reductions in DGME Part C payments. For 2001, CMS calculated a NAH Part C payment pool of $43 million and applied a 14.13 percent reduction to DGME Part C payments to fund that pool. In the transmittal, CMS explained that it had not updated those numbers since 2001 and that it was now “provid[ing] MACs with instructions on how to compute and/or reconcile these payments for CYs 2002 through 2018.”

CMS further explained that NAH programs should receive—and DGME programs should fund—no more than $60 million annually in NAH Part C payments. The updated numbers in Change Request 11642 suggest that, as a result of the adjustments required by the transmittal, DGME payments to hospitals will increase and NAH payments will decrease. In particular, the transmittal indicates that the 14.13 percent reduction to DGME Part C payments that has applied since 2001 will be substituted for substantially smaller percentages. Since the DGME reductions were used to fund the Part C NAH payments, NAH payments are likely to see a corresponding decrease in payments.

Hospitals that receive NAH payments, DGME payments, or both, should, therefore, carefully review their open cost years and any cost year settled within the past three years to estimate how Change Request 11642 will affect their reimbursement.

A copy of the change request is available here.