Do We Need to Raise the Cap on Residents for Medicare?

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Original story posted on: July 26, 2021

There is currently a bill in Congress to raise the caps by 17,000.

When I was just a young cub in healthcare, Medicare performed audits of all teaching hospitals. These audits were designed to create rates to remove the “passthrough” rates for the last big item still paid under cost reimbursement: the cost of training graduate medical education interns and residents. 

For those who don’t know it, Medicare is the largest funder of graduate medical education in the country. In what would become a boon for teaching hospitals and universities, starting in 1997, Medicare would pay two types of payments to teaching hospitals. 

First, Medicare would pay its share of direct costs. It would compute that by determining an average per-resident amount, or APRA, from a base year period. Then the total reimbursable cost would be computed by taking that figure and multiplying it by the number of full-time residents. Finally, Medicare would determine its portion based on the number of Medicare days divided by total patient days.

In addition, Medicare would pay an additional indirect medical education payment, because in theory, the residents made the rendering of care more expensive. This amount would be computed by taking the ratio of the number of residents to the number of available beds in the hospital. 

In both of the above computations, the number of residents would be limited to those counted on the hospitals’ 1997 cost reports. In completely insane Medicare fashion, those caps have not materially changed in 25 years. As programs grew and programs shrank or closed, the number of hospitals capped at the 1997 limit grew. Currently, on Medicare cost reports across the country, over 78,000 residents are counted for the above computations. The total “over the cap” amount across the country is over 16,000.

In January, Medicare announced that it was raising the cap on the number of residents used to compute payments to teaching hospitals. The cap would be raised by 1,000 residents, at a rate of 200 per year. There is currently a bill in Congress to raise the caps by 17,000.

It seems that the larger discussion to be had is whether or not the current payment mechanism is fair, and whether Medicare should pay teaching hospitals so much for training residents at the cost of cutting payments to non-teaching hospitals.

Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of both the RACmonitor and ICD10monitor editorial boards and a national correspondent for both Monitor Mondays and Talk Ten Tuesdays.

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