Last Friday Eastern Maine Medical Center sued Health & Human Services over the way CMS counted the number of residents in its graduate medical education program.  According to the complaint, CMS refuses to count some of the hospital’s family practice residents. Guess why. Because their training occurred in family practice settings rather than inside the hospital.

It may sound like a joke but it’s a serious matter. Graduate medical education is a very expensive proposition. Most of the funding for it comes from Medicare, and the funding formula depends heavily on the number of residents in the program. So a reduction in the resident count has a direct negative effect on funding.

Eastern Maine’s family practice residency program takes three years and involves inside rounds—those within the hospital—and outside rounds—those in family physicians’ offices. For the 2003 and 2004 fiscal years the Medicare contractor reduced the hospital’s resident count to exclude outside rotations if the teaching physician was a volunteer or if the volunteer hadn’t signed a teaching agreement before the rotation started.

Eastern Maine has a two-part argument. First, the exclusion is dumb policy. Second, the Affordable Care Act prevents the reduction. CMS says the ACA doesn’t apply because it was enacted after the fiscal years in question.

The case points out a fundamental problem with the traditional system of graduate medical education funding. The system is highly hospital-centric, tied closely to training within the hospital and to inpatient volume. At the same time, the American health care system is moving toward a much more ambulatory-oriented system.  That’s a major reason why this summer’s Institutes of Medicine study commission recommended sweeping changes in the graduate medical education funding system, including alteration of its strong hospital bias.

The case is Eastern Maine Medical Center v. Burwell, No. 1:14-cv-00382 (D.Me.).