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From Health Law Daily, December 9, 2016

Lack of written agreement sinks hospitals’ GME reimbursement claims

By Sarah E. Baumann, J.D.

Two hospitals that did comply with the HHS Secretary’s graduate medical education (GME) written agreement requirement were not entitled to reimbursement for GME expenses incurred from medical residents’ off-site training. Although Borgess Medical Center and Bronson Methodist Hospital argued that the collection of agreements they had entered into were sufficient to comply with the statute, the U.S. Court of Appeals for the District of Columbia Circuit determined that they failed to specify which programs they were funding and how the funds would be used. The appellate court thus affirmed the district court’s decision granting summary judgment to HHS (Borgess Medical Center v. Burwell, December 9, 2016, Brown, J.).

Nonhospital site training. During the time period at issue in this case—2001 through 2004—hospitals were permitted to count time their residents spent performing patient care activities in nonhospital settings toward their full-time equivalent (FTE) resident counts, which determined the amount of reimbursement the hospitals received for GME. However, to be eligible to count that time toward the FTE count, there must have existed a written agreement between the hospital and nonhospital site indicating that the hospital would incur residents’ salary and fringe benefits costs while they were training at the nonhospital site, that the hospital would provide reasonable compensation to the nonhospital site for supervisory teaching activities, and specifying the compensation the hospital would provide for those supervisory teaching activities (42 C.F.R. sec. 413.86(f)(4) (2000)). In addition, the hospital must incur "all, or substantially all" of the costs for the nonhospital setting training program.

Case facts. Borgess and Bronson entered into a written agreement in 1973 to form a consortium to manage their health care education programs and train their interns and residents, agreeing to provide financing "to carry out the consortium’s purpose." In the 1980s, the hospitals joined Michigan State University and restructured the agreement to form the Michigan State University Kalamazoo Center for Medical Studies (KCMS). KCMS administered various graduate medical and residency programs for the hospitals and the hospitals entered into various affiliation agreements with KCMS, agreeing to "joint and equal responsibility for providing [KCMS] with sufficient financing to carry out its programs as negotiated on a yearly basis." Borgess and Bronson equally divided lump sum payments to cover expenses beyond what other sources covered.

The Medicare contractor reviewing the hospitals’ GME reimbursement claims for 2000 through 2004 initially denied some of these claims, and approved but later denied others after reopening them. The CMS Administrator ultimately held that Borgess and Bronson failed to comply with the written agreement requirement and failed to demonstrate that they incurred all, or substantially all, of the costs of the residency programs and the district court affirmed. The hospitals appealed.

The appellate court rejected the hospitals’ argument that the collection of agreements they had entered into beginning in 1973 met the written agreement requirements. The 1973 agreement was between two hospitals, rather than a hospital and a nonhospital. Furthermore, it failed to indicate that the hospitals would incur the costs of residents’ salary and fringe benefits and the reasonable cost of supervisory teaching activities, but merely stated that it would provide the consortium with annual financing to carry out its purpose. The affiliation agreements entered into with KCMS failed to specify the programs Borgess and Bronson were financing and how the funds would be used, making it difficult to ascertain whether KCMS’ residency funding came from the hospitals or other sources. The hospitals’ conduct was not a substitute for a written agreement. The appellate court thus affirmed summary judgment for HHS without addressing whether the hospitals incurred all, or substantially all, of the costs of the residency programs.

The case is No. 13-5330.

Attorneys: Lori A. Rubin (Foley & Lardner LLP) for Borgess Medical Center and Bronson Methodist Hospital. Samantha L. Chaifetz, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services.

Companies: Borgess Medical Center; Bronson Methodist Hospital; U.S. Department of Health and Human Services

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