How Do CMS IME and DGME Payments Work?

 Author: Zana Hekmat, Analyst &
 Scott Masin, MBA, Manager

For a hospital to receive funding through Medicare Graduate Medicare Education (GME) payments, a teaching hospital must accept a resident rotating from an approved program, or have an approved residency program by one of the accrediting bodies, such as the Accreditation Council for Graduate Medical Education (ACGME). These Medicare GME payments are provided to teaching hospitals to cover Medicare’s direct and indirect costs due to teaching activity. Medicare payments for direct and indirect GME costs are supported by Direct Graduate Medical Education (DGME) payments and Indirect Medical Education (IME) payments.

The calculation of both DGME and IME payments is affected by the number of Full-Time Equivalent (FTE) residents/fellows that a hospital can count, up to the FTE cap. The Centers for Medicare & Medicaid Services (CMS) will reimburse a hospital for DGME and IME payments up to the set funding “Cap” established by the hospital(s) under one Medicare Provider Number to help subsidize residents in training. The FTE cap is the maximum number of full-time residents a hospital can receive in CMS funding. Depending on the hospital classification under Medicare as urban or rural, a hospital will establish this cap differently, and therefore be subject to varied cap development timelines and guidelines. Non-teaching hospitals classified as urban possess a 5-year FTE cap development period to develop all programs, whereas hospitals classified as rural have the ability to build FTE cap on a program-by-program basis during the 5-year FTE cap development period.

Generally, the greater the number of FTE residents/fellows a hospital counts, the greater the amount of Medicare DGME and IME payments the hospital will receive.

The patient volume and number of beds are also significant variables impacting the IME and DGME payments. DGME payments are based on a hospital-specific per resident payment (PRA) amount that accounts for the hospital’s direct graduate medical education program costs, e.g. resident/fellow salary and benefits, teaching physician costs, other programmatic costs, etc., incurred in the PRA base year. The formula to calculate DGME is driven by three variables: the PRA, Medicare Utilization, and weighted FTE Cap/Count. The PRA is the amount of allowable direct cost to train residents and is established in the first full MCR year of resident rotations. Establishing a PRA for a new teaching hospital is a very critical step to maximize GME reimbursement. In very unfortunate circumstances, hospitals may accidentally set their PRA at $0 in a prior cost report which may result in no future DGME funding, since the Hospital PRA is the lower of the Market Average PRA or Hospital PRA.

One way to assist in establishing a more accurate PRA amount and maximizing reimbursement is through MyTimeStudy, a service package offered by Germane Solutions that can ensure that organizations are accounting for teaching time appropriately. IME payment account for Medicare’s share of incremental costs incurred by teaching hospitals because of operating a GME program. The formula to calculate IME is driven by three variables: the Medicare DRG payments, the number of interns and residents, and the number of available beds.
Now for the REAL question- which one should my organization care about?

Unfortunately, the short answer is both. Both IME and DGME caps will count differently toward overall reimbursement. However, IME payments contribute mostly toward the overall reimbursement (usually about 2/3), trailing with the DGME, and then capital IME payments.

Germane Solutions' finance service line specializes in opportunities to understand, plan, and optimize the financial operations of hospitals and health systems all throughout the United States. While there are many other exceptions to the general rules, we try to ensure our clients have a strong understanding of the general rules and guidelines. For any additional in-depth questions, our SMEs can help assist your team. If you would like to investigate the current and/or future IME and DGME Payments of your organization, the Germane team is eager to provide consultative services to our clients. GME finance experts at Germane Solutions help our clients understand the complexities behind CMS reimbursement to achieve the maximum amount of DGME, IME, and other funding opportunities to which the hospital is entitled to receive.

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