A Primer on CMS Requirements for Payment of Clinical Faculty Physicians
By Gary L. Knepp, DO
Abstract: Regulations and legislation governing compensation for volunteer faculty teaching in nonhospital Graduate Medical Education sites have been evolving since 1997. The uncertainties surrounding the regulations have presented significant administrative challenges to hospitals and Directors of Medical Education. On May 11, 2007, the Center for Medicare and Medicaid Services published new regulations in the Federal Register. If 90 percent of the program costs as outlined in the new regulations are already being paid, the program is not required to make additional payment to the preceptors. A methodology is described and a spreadsheet provided to help programs calculate their potential financial liability. If payment is required to meet the 90 percent threshold, the payment must be paid within 90 days of the rotation. Formal contracts are not required but specific details must still be documented. For programs that prefer a contract to document the mandatory details, a sample contract is provided.
Introduction
On May 11, 2007, the Centers for Medicare and Medicaid Services (CMS) published its final rule on revising the Medicare policies for training residents in nonhospital settings. The final rule was published in the Federal Register along with regulations establishing 2008 payment rates and policy changes for long term care hospitals.1 The new rules are well described in the regulations, but procedures and processes to implement the new regulations are left for hospitals to develop.
Many health systems who participate in Graduate Medical Education have historically been implementing only a portion of the new regulations and now find themselves in the position of quickly trying to implement the complete regulations. This is especially true in many osteopathic family medicine residency programs that have traditionally relied on volunteer nonhospital faculty. This document references the new CMS regulations to describe a method to implement the new CMS rules with sample contracts, timelines, worksheets and sample documentation tools. Background is also provided for Directors of Medical Education and Residency Program Directors who need background information to share with their administrative team and institutional Board of Directors who may need education on the clarified CMS regulations. The contents of this document have not been through a formal legal review. Therefore, any hospital who wishes to use the processes and documents herein described should review and modify the documents and processes based on their own internal financial and legal counsel. An excellent fact sheet and summary overview of the new regulations by Margaret J. Hardy, J.D. is also available from the AOA Bureau of Hospitals.2
Background
Graduate Medical Education (GME) in the United States receives a significant portion of it’s funding from CMS. The payments received from CMS are divided into two categories, Direct Graduate Medical Education (DGME) payments3 and Indirect Medical Education (IME) payments.4
DGME payments were established for hospitals that have approved graduate medical education programs. CMS will provide payments to the hospital to cover the direct costs of employing the interns and residents. These direct costs include intern and resident salaries, benefits, travel and lodging costs, supervising faculty salaries and fringe benefits, allocated overhead costs and other direct costs.5 The payments are subject to legislated limits.
IME payments were established to provide hospital compensation for the anticipated higher cost of patient care due to the perceived notion that teaching institutions care for a more complex case mix than non-teaching hospitals. The IME payments also provide compensation for higher costs incurred by interns and residents as they potentially order more diagnostic tests than experienced clinicians do and are less efficient in their patient management skills leading to longer hospital Length of Stays.6 The calculated IME payment is determined by a defined formula.4 The formula includes several factors including the number of interns and residents in training, the number of beds in the hospital and a legislatively defined multiplier. The magnitude of the multiplier has gradually decreased over the last several years. This gradual withdrawal of GME funding by decreasing the IME Multiplier has put significant financial pressure on many GME7 programs.
Most GME programs have at some point in time felt the need to include nonhospital training sites in their clinical education programs. These nonhospital rotations provide training in the skills necessary for competent outpatient management skills. The practice of medicine has shifted, often from third party payor pressure, from inpatient care to aggressive outpatient care. This transition has created a need for high quality outpatient experiences to train interns and residents. As residents and interns are placed in these nonhospital outpatient settings, the hospital often wonders if it can count these rotations for DGME and IME payment. While DGME costs are not difficult to justify, it is not as simple to justify IME costs. IME costs are related to increased utilization expenses within the hospital and therefore CMS initially excluded it for residents training in nonhospital settings. This loss of revenue to GME programs resulted in significant legislative pressure which produced legislation in 1997 as part of the Balanced Budget Act of 1997 (BBA). The BBA legislation provided that DGME and IME payments could be made to an approved medical residency program effective October 1, 1997 for rotations in nonhospital settings if “the hospital incurs all, or substantially all, of the costs for the training program in that setting.”8
From 1997 to 1999, CMS interpreted “all, or substantially all” to mean resident’s salary and benefits. After 1999, the interpretation became “residents’ salaries and fringe benefits (including travel and lodging where applicable) and the portion of the cost of teaching physicians’ salaries and fringe benefits attributable to direct medical graduate medical education.”5 Many GME programs assumed that if the supervising physician volunteered their time to teaching there was no cost, therefore the hospital was eligible for DGME and IME as long as they paid the residents salary, benefits and travel costs. CMS however ruled otherwise, essentially stating that except for limited situations someone always bears the cost of the faculty salary and unless the hospital incurs the cost, they cannot claim the resident for DGME and IME payment.
The debate over the payment of volunteer faculty became intense enough within the GME profession to cause Congress to include new legislation in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.9 The legislation gave an exception for 2004 to family practice programs to allow the use of volunteer faculty and directed an OIG study of the issue to be completed with a report due to Congress in one year.10 Details of the implementation of the family medicine moratorium were published in the Federal Register along with commentary on CMS’s interpretation of the issue for all other residency programs which essentially stated that all costs including faculty supervision cost must be paid by the hospital in order to qualify for DGME and IME reimbursement for nonhospital rotations.
On April 4, 2005, after completing its mandated report, CMS issued a policy clarification.11 It reaffirmed their original interpretation that unless a faculty physician is a “solo practitioner”, there is a cost associated with supervising residents and the cost must be borne by the hospital. Rather than giving the clear guidance needed for implementation, the report generated many additional questions such how do GME programs determine and document the time physicians spend in teaching? How do programs determine and document actual physician salaries? How should resident training time be documented? When should the physician be paid? How do you determine if a physician is a “solo practitioner”? In the face of the continued uncertainty many GME programs procrastinated on implementing payments for volunteer faculty.
Following the April 2005 CMS publication, many GME programs and GME affiliated organizations asked for either further legislative or regulatory clarification. CMS finally responded by posting a Proposed Rule in the February 1, 2007 Federal Register with comments due back by March 26, 2007. The Final Rule was published May 11, 2007 in the Federal Register.12
Final Rule
The commentary in the Federal Register has provided clarity to the requirements for GME programs training residents in nonhospital sites if they wish to receive DGME and IME reimbursement for those rotations. The requirement remains unchanged in that the hospital must pay “all or substantially all” of the cost of training the residents at the nonhospital site including all faculty supervising physician costs. However, to simplify the administrative overhead to document and comply with the regulations, CMS has introduced several proxies that can be used in place of actual cost data. These proxies are especially helpful in establishing supervising physician costs. A second major change in the regulations is the ability to meet the “all or substantially all” cost requirement by demonstrating that the hospital has paid at least 90 percent of the actual costs.
Implementation
Implementing the new regulations can initially appear to be a daunting task. The regulations and commentary provided in the Federal Register do not flow in a continuous line of logic or topics. The author has grouped together similar topics for consideration when implementing the new regulations. These topics will be given subheadings to help organize the major considerations that a GME program should consider as they develop and/or refine their current processes. The reference notations can be used to reference back to the Federal Register for those who wish to read the complete commentary provided by CMS.
Contracts
Hospitals now have the option of contracting with their supervising faculty physicians supervising at a nonhospital site using a written contract or proceeding without a written agreement.13
If a written contract is used, it must be in place prior to the start of the first resident rotation at the start of the academic year. The contract must clearly define all costs involved at the nonhospital site including the compensation for supervisory teaching activities. It should document the hours the clinic publicly posts as the clinic operating schedule. It should clearly define which physicians (if it is a group practice) are involved in teaching. It should provide a schedule of resident rotations for the year and using that schedule, calculate the supervisory teaching costs.
The specialty of each physic ian should be identified and if multispecialty certified, the specialty of the service for which the physician is being asked to teach should be clearly delineated. The schedule of rotations should also clearly identify for each resident or intern the following: salary and benefits, travel and lodging costs where applicable, and year of training. The contract should specify that the hospital pays all costs. With such a contract, the hospital has up to one year after the cost reporting year to pay the teaching site any required payment.14 If during the year the rotation schedule changes, the hospital must update the agreement by June 30 of the academic year to reflect any changes in costs based on actual rotations at the nonhospital site.15
The second option does not require a contract. The required information the hospital must collect and document remains unchanged, however the implementation is simpler in that estimated costs do not have to be calculated prior to the rotation start dates. The test for compliance when no contract is used is that the hospital pays the nonhospital site for the costs of the program concurrently. Concurrently is defined as “the end of the third month following the month in which the training occurs.”16 If a hospital elects to use a contract but pays concurrently, then the program is held to the simpler noncontract standards.17
Definition of “All or substantially all of the cost”
CMS has redefined the term “all or substantially all of the cost” to have been met “if the hospital incurs at least 90 percent of the costs of training at the site”. The total costs which must meet the 90 percent requirement include the sum of the” resident’s salaries and fringe benefits (including any travel and lodging where applicable) plus the portion of the teaching physicians costs attributable to direct GME at the nonhospital site”.18 Resident malpractice cost should not be included in the costs. Actual resident salaries and benefits must be used in calculating costs reflective of their actual year in training.19
Supervisory Physician Salary
Hospitals can use actual teaching salaries with supporting documentation or they can use the new proxy formula to calculate the supervising physician cost. The major proxy assumptions are that the physicians spends three hours a week teaching.20 The physician is assumed to earn the median salary reported yearly in the Medical Group Compensation and Financial Survey published by the American Medical Group Association and available at cms.hhs.gov/AcuteInpatientPPS/
06_dgme.asp#TopofPage.21 The supervising salary by proxy becomes the physician’ salary for their specialty as listed in the survey times three hours divided by the number of hours the physician’s clinic is open per week. The assumption further sets limits by assuming the office will be open a minimum of 40 hours so that the maximum supervising cost will never exceed 7.5 percent of the median salary. If the office is open more than 40 hours, the actual hours can be used instead of 40.22 If a physician is board certified in more than one specialty, the salary to be used is the specialty in which the physician is training the residents. If a physician subspecialty is not listed in the survey the next less specialized salary should be used.23 If a physician’s actual salary can be documented, it can be used in lieu of the salary survey data.24
Supervising Physician to Resident Ratio
Even if more than two physicians are supervising a resident at a site, a 1:1 physician to resident ratio is allowed. If one physician teaches two residents, then a 1:2 physician to resident ratio would be allowed. If multiple physicians of different specialties team up to teach a single resident, then an average salary of the physicians would be calculated to establish the cost of teaching at the site.25 It is also acceptable to prorate the teaching salary in situations where the resident is assigned to the nonhospital site on a part-time basis. The commentary acknowledges that half day assignments to a clinic are a common training model.26
Calculations
Each program now has the option of demonstrating actual physician costs or using the proxy formula. If the proxy is used, the hospital must document several data elements and then apply them to rules to calculate the supervising costs. The rules actually define an algebraic formula. The total costs (T) include Resident Salary (S) and Benefits (B) plus the Supervising Physician Salary (P). T = S + B + P. Benefits (B) are the sum of Insurance and vacation pay (I), Housing and Travel (H), possible signing bonus (A) and educational expenses (E), therefore B = I + H +A + E. Resident salaries must account for differences in pay based on year of training. Physician pay (P) is equal to 3 hours divided by the number of hours per week their office is open (O) times their AGMA median salary (R), therefore P = (3 / O) * R.
The CMS test of meeting “substantially all” is 90 percent of the total costs. If the resident salary (S) and benefits (B) (which the hospital will have paid the resident to meet contractual pay requirements with the resident) is greater than 90 percent of the total cost (T), then the hospital has meet the 90 percent requirement.27 Therefore
the minimal pay (Z) required to the physician can be defined by the equation:
Z = .9 (T) – (S + B)
By substitution since T = P + S + B
(see discussion above):
Z = .9(P + S + B) – (S + B)
Z = .9P + .9S + .9B – 1.0S – 1.0B
Z= .9P - .1S - .1B
If Z is negative, then no payment is required by CMS regulations for the physician.
The calculations lend themselves to an Excel Spreadsheet Model to collect the required data and process the necessary calculations. Since prorating is allowed, the process lends itself to a monthly or every four week calculation. Appendix B is a sample spreadsheet which collects the necessary data and calculates the pay for a half-day supervision session. This data then populates the fields in the spreadsheet in Appendix C which gathers the resident work hours and calculates the physicians pay for a given month and tracks the yearly payments to the physician.
Conclusion
The CMS regulations for resident training in nonhospital sites have removed a significant amount of uncertainty for the payment of volunteer supervising physicians. Essentially it clarifies that it is not allowed except in a couple of unique scenarios for solo physician or cost sharing group practices.28 Formal contracts (download an example for reference) are no longer required as long as required payments are made concurrently. Programs may still want to use a contract such as the example in Appendix A to define other parameters of the supervising program, clarify salary expectations with the supervising faculty and ensure compliance with accreditation standards but the written agreement is not mandatory for CMS.
Even physician payment may not be necessary as long as the 90 percent test is met. Programs however may want to consider using the methodology to calculate an equitable payment for their supervising physician in all their resident rotations whether hospital or nonhospital based as the methodology has a consistency that can apply to all specialties and a variety of clinical situations. It would appear that the only time no payment is required is if a physician has extended office hours that lowers the office multiplier, or if resident salary and benefits are higher than industry averages. As one analyzes the formula, three observations materialize. Required physician pay decreases as resident salary and benefits increase, therefore less pay is required for upper-class residents. This may fit an intuitive model in that typically upper-class residents require less supervision than interns. The second observation is that as physicians extend their office hours, their required pay decreases. Finally CMS allows the assumption of a 1:1 ratio of supervising physician to resident ratio. They will also allow a 1:2 or lower ratio if the physician is supervising more than one resident. The effect of this allowance is to lower the physician’s salary (Z) as (P) remains constant but (S) and (B) increase. (Remember Z = .9P - .1S -.1B). This seems counterintuitive and in fairness to the supervising physician, the spreadsheet model assumes a ratio of 1:1. GME programs who wish to use the spreadsheet in these situations and pay the minimum CMS required salary may wish to edit the spreadsheet.
All GME programs are encouraged to implement the above changes as quickly as possible to avoid risking DGME and IME funding for nonhospital training sites. For those of us who believe there is such a thing a as a true Volunteer, the only long-term relief appears to be continued legislative efforts to rewrite the definition of “volunteer”!
Dr. Knepp is a 1984 graduate of the Chicago College of Osteopathic Medicine. He is certified in Family Medicine with a CAQ in Geriatrics. He is a professor of Geriatrics at the West Virginia School of Osteopathic Medicine and Director of Medical Education for Greenbrier Valley Medical Center, Ronceverte, West Virginia.
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