In addition to creating a voluntary outpatient prescription drug benefit, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (DIMA), which was recently signed into law by President George W. Bush, includes a provision that reduces a teaching hospital's resident full-time equivalent (FTE) cap number, as determined under the Balanced Budget Act (BBA), if the hospital reported "unused" positions on its last settled, or submitted, cost report ending on or before September 30, 2002. The Secretary of the U.S. Department of Health and Human Services (HHS) would be authorized to redistribute a portion of these reduced resident positions to qualifying hospitals and thereby increase the receiving hospitals' BBA resident FTE cap number by that amount effective for portions of cost-reporting periods occurring on or after July 1, 2005.

Determination of the Reduction Amount
The bill directs the HHS Secretary to compare each hospital's BBA resident FTE cap number with the resident FTE number as determined under the DIMA (called the "reference resident level"). This DIMA reference resident level is the number of resident FTEs reported in the most recent cost-reporting period of the hospital ending on or before September 30, 2002, for which a cost report has been settled, or submitted and subject to audit, as determined by the HHS Secretary.

If the hospital's DIMA reference resident FTE level is lower than the BBA resident FTE cap number, then, effective for portions of cost-report periods occurring on or after July 1, 2005, a hospital's resident FTE cap number will be reduced by 75% of the difference between the two figures. So, for example, if a hospital's BBA resident FTE cap number is 100, and the hospital's DIMA reference resident FTE level is determined to be 80, then the hospital's new resident FTE cap would become 85, as follows:

100 - [ 0.75 x (100 - 80) ] = 100 - (0.75 x 20) = 100 - 15 = 85

The provision would not apply to a hospital with fewer than 250 beds and located in a rural area. The DIMA states that the provision will be applied to hospitals that are members of the same Medicare GME affiliated group as of July 1, 2003. So, presumably, if two or more hospitals had elected to form a Medicare GME affiliated group, and had an agreement in place on July 1, 2003, then the comparison of the BBA resident FTE cap number and the DIMA reference resident FTE level would be performed on an aggregate basis, and the reduction in the resident FTE cap would be made in the aggregate.

Potential Exceptions to the Reduction Determination The DIMA specifies that the reduction provision does not apply "to residency positions attributable to" a demonstration project approved as of October 31, 2003. While that statement would presumably apply to the seven hospitals that completed the New York Medicare GME Demonstration Project, it is not clear how it might apply to hospitals that made resident FTE reductions in the context of the demonstration but withdrew prior to the completion of the demonstration. Greater New York Hospital Association will be seeking clarification regarding the exact applicability of this statement in the DIMA.

A hospital may invoke two potential exceptions in order to make "a timely request" to the HHS Secretary in order to adjust its DIMA reference resident FTE level prior to a reduction. The first allows the Secretary to use the cost-reporting period that includes July 1, 2003, in order to adjust for the expansion of an existing residency program. The second allows the Secretary to adjust the DIMA reference resident FTE level to include the number of residents who were approved by an accrediting organization as of January 1, 2002, but not reflected in the number determined using the standard methodology.

Terms of the Redistribution
The HHS Secretary is authorized to provide aggregate increases to qualifying hospitals' BBA resident FTE cap numbers as long as the total does not exceed the "estimate" of the aggregate reductions to hospitals that lose the unused positions. The increases to hospitals' BBA resident FTE cap numbers can be made for portions of cost-reporting periods on or after July 1, 2005. The DIMA states that a consideration for a hospital receiving the redistributed positions should be the likelihood of the hospital filling the positions within the first three costreporting periods beginning on or after July 1, 2005.

Priority for Redistribution
In making a determination regarding which hospitals will receive the redistributed resident positions, the DIMA directs the Secretary to distribute the positions to teaching hospitals in the following priority order:

• hospitals located in rural areas;
• hospitals located in urban areas that are not categorized as large urban areas; and
• hospitals that wish to use the position(s) for a specialty training program not otherwise found in the state in which the hospital is located.

The bill mandates that no more than 25 additional FTE positions will be made available "with respect to any hospital."

Medicare GME Reimbursement Associated with the Redistributed Positions Medicare direct GME and indirect medical education (IME) reimbursement associated with the redistributed positions will be calculated using a different methodology than that for other approved resident positions. For the direct GME reimbursement calculation, the bill specifies that the per resident amount (PRA) used for the redistributed positions will be the national average PRA, adjusted for the locality in which the hospital is located. For the IME reimbursement calculation, the bill specifies that the percentage adjustment to the diagnosis-related group payment will be 2.7%.