HHS has been underpaying teaching hospitals that train physician residents for years because its method for divvying up funds is flawed, a group of hospitals assert in a new lawsuit against the federal government.
The plaintiffs want the court to nullify HHS regulations that govern how federal authorities determine how much Medicare direct graduate medical education (GME) funding to allocate to academic medical centers. Fourteen teaching hospitals, including Arizona-based Banner Health, Memorial Hermann Medical Center in Houston, Barnes-Jewish Hospital in St. Louis, and Yale New Haven Hospital in New Haven, Connecticut, filed a complaint to the U.S. District Court for the District of Columbia on Monday.
Medicare is the largest funding source for physician training. HHS provides money to cover direct medical education costs, such resident salaries, and indirect costs from teaching hospitals’ disproportionately sicker patient populations. Medicare spent $15 billion on GME in 2018, according to a report the Government Accountability Office published in May.
HHS calculates direct GME patients based on the number of full-time-equivalent residents a hospital trains. Hospitals have a limited number of residency slots for which Medicare will reimburse. Among institutions that had residency programs prior to 1997, HHS bases GME reimbursements on the number of residents in their programs in 1996.
Once a new doctor exceeds five years in residency—such as when interns enter specialty training fellowship programs—Medicare GME payments are cut in half.
The hospitals contend HHS modified reimbursements for full-time-equivalent residents and fellows in such a way that academic medical centers don’t even get that half payment for residencies that last more than five years.
“The formula in this regulation depresses the cap beyond what could be attributed either to the cap or the weighting factors,” said Ronald Connelly, an attorney with Washington-based law firm Powers Pyles Sutter and Verville, which represents the teaching hospitals.
Other hospitals have taken HHS to court over GME payments. In a summary judgment in May, U.S. District Judge Timothy Kelly ruled in favor Penn State Health’s Milton S. Hershey Medical Center, which argued the formula for determining direct GME payments violated the weighting factors Congress established.
If the plaintiffs in the new lawsuit prevail, HHS could be ordered the develop a new formula, and to repay the teaching hospitals—with interest—for payments they would have gotten under a new system.
“It’s all highly technical but it’s important because depending on a hospital’s situation it can deprive them of a lot of money,” Connelly said.
A looming physician shortage gives this dispute added importance. The U.S. is estimated to have a physician shortfall between 37,800 and 124,000 by 2034, according to the Association of American Medical Colleges. Last year, Congress added 1,000 new Medicare-funded GME slots, the first increase in a quarter century.
Hospitals are bearing an increased share of the cost to train new physicians. Among hospitals surveyed, about seven in 10 trained more residents than Medicare paid for in 2018, the Government Accountability Office reported.
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