[Federal Register: March 1, 2001 (Volume 66, Number 41)]
[Notices]               
[Page 12940-12954]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr01-64]                         
          

Printable CHGME March 1, 2001 Federal Register notice(Adobe Acrobat™,
you must have the free Acrobat™ Reader)
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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration

 
Children's Hospitals Graduate Medical Education (CHGME) Payment 
Program: Final Eligibility and Funding Criteria and List of Eligible 
Hospitals and Proposed Methodology for Determining FTE Resident Count, 
Treatment of New Children's Teaching Hospitals, and Calculating 
Indirect Medical Education Payment

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final notice and additional provisions proposed for comment.

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SUMMARY: This notice sets forth final eligibility, funding criteria, 
payment methodology and performance measures for the Children's 
Hospitals Graduate Medical Education Payment (CHGME) program, 
authorized by section 340E of the Public Health Service Act (42 U.S.C. 
256e), amended by Pub. L. 106-310, The Children's Health Act, 2000. It 
includes a list of hospitals potentially eligible for the CHGME 
program. The notice also requests comments on proposed criteria for: 
determining FTE resident count, the treatment of new children's 
teaching hospitals, and the methodology for indirect medical education 
(IME) payments. In compliance with the Paperwork Reduction Act of 1995, 
the Department obtained Office of Management and Budget (OMB) approval 
on an emergency clearance to any data collections imposed on the public 
(OMB No. 0915-0247). The Department has requested approval for 
extension of OMB clearance to any data collections imposed on the 
public by this notice. Any changes to this collection will not become 
effective until approved by OMB.

DATES: Interested persons are invited to comment by April 2, 2001. All 
comments received on or before April 2, 2001 will be considered in the 
development of the final notice concerning the proposed methodology. 
The Department will address comments individually or by group and 
publish a final notice on these comments in the Federal Register.

ADDRESSES: Submit all written comments concerning this notice to 
Barbara Brookmyer, Division of Medicine and Dentistry, Bureau of Health 
Professions, Health Resources and Services Administration, Room 9A-27, 
Parklawn Building, 5600 Fishers Lane, Rockville, Maryland 20857; or by

[[Page 12941]]

e-mail to ChildrensHospitalGME@hrsa.gov.

FOR FURTHER INFORMATION CONTACT: Barbara Brookmyer, Division of 
Medicine and Dentistry; telephone (301) 443-1058.

SUPPLEMENTARY INFORMATION: The CHGME program, as authorized by section 
340E of the Public Health Service (PHS) Act (the Act) (42 U.S.C.. 
256e), provides funds to children's hospitals to address disparity in 
the level of Federal funding for children's hospitals that result from 
Medicare funding for graduate medical education (GME). Pub. L. 106-310 
amended the CHGME statute to extend the program through Federal fiscal 
year (FFY) 2005.
    On June 19, 2000, the Secretary published a notice in the Federal 
Register (65 FR 37985) setting forth proposed rules to implement the 
CHGME Program. During the comment period, the Department received 21 
comments from hospitals, hospital and professional associations, 
Medicare counseling companies, other Federal agencies, and individuals.
    The Secretary thanks the respondents for the quality and the 
thoroughness of their comments. As a result of these comments, the 
Department has made numerous revisions and clarifications in this final 
notice. The comments and the Department's responses to the comments are 
discussed below. This Notice also reflects amendments to the CHGME 
statute made by Pub. L. 106-310, the Children's Health Act, 2000, 
enacted on October 17, 2000. As required by these amendments, 
subsequent to the publication of this notice, the Department will 
promulgate them as codified regulations through additional rulemaking 
procedures in accordance with Title 5 of the United States Code.

Provisions Proposed for Comment

    The Department is soliciting comments on the following proposed 
provisions within these rules: (1) The criteria for FTE resident count; 
(2) the treatment of new children's teaching hospitals with respect to 
resident count; and (3) the methodology for IME payments. The first and 
second issues result from amendments made to the CHGME statute. The 
third proposal relating to IME payments were not addressed in the 
Department's June 19, 2000, Federal Register notice.

I. Funding

    The Department will make CHGME program payments in FFY 2001 as 
payments were made in FFY 2000, dividing the available funding based on 
the CHGME authorization statute with approximately one-third of the 
funds for direct medical education (DME) payments and two-thirds to IME 
payments. Should a FY 2001 appropriation act alter this plan, the CHGME 
program will revise the payment plan accordingly.
    The CHGME statute, as amended, sets forth the following funding 
process for DME and IME payments:
    1. Calculation of payments: The Secretary must determine the 
amounts to be paid for DME and IME before the beginning of each fiscal 
year for which payments will be made.
    2. Withholding: the Secretary must withhold up to 25 percent from 
each interim installment for DME and IME as necessary to ensure that a 
hospital will not be overpaid on an interim basis.
    3. Revised Counts: The Secretary must determine, prior to the end 
of the fiscal year, any changes to the number of residents reported by 
a hospital in its application for the current fiscal year to determine 
the final amount payable to the hospital for the current fiscal year 
for both DME and IME payments.
    4. Reconciliation: The Secretary then must pay any balance due or 
recoup any overpayments made to each hospital.

II. Withholding and Reconciliation

    The CHGME statute, prior to its amendment, provided for a 
withholding and reconciliation process designed to increase the 
accuracy of the DME payments made to hospitals. The amendments revised 
this provision to include IME payments in the withholding and 
reconciliation process.
    In FFY 2000, the Department did not implement the withholding and 
reconciliation process for DME payments provided for in the CHGME 
program statute due to inadequate time and restrictions in the FFY 2000 
Appropriations Act. The FFY 2000 Appropriations Act required all 
appropriated funds to be obligated in FFY 2000, thus prohibiting 
carryover funds to be awarded to hospitals in FFY 2001. To the extent 
possible, the Department will implement the CHGME program's withholding 
and reconciliation process for both DME and IME payments beginning in 
FFY 2001.
    As revised, the CHGME statute requires the Secretary to withhold up 
to 25 percent from each installment payment for both DME and IME as 
necessary to ensure that a hospital will not be overpaid on an interim 
basis. To distribute the funds withheld, prior to the end of the fiscal 
year the Secretary must determine any changes to the number of 
residents reported by a hospital in its application for the current 
fiscal year in order to determine the final amount payable to the 
hospital for the current fiscal year for both DME and IME payments. 
Then, the Secretary must pay any balance due or recoup any overpayments 
made to each hospital.
    As provided by statute, a hospital may request a hearing on the 
Secretary's payment determination by the Provider Reimbursement Review 
Board under section 1878 of the Social Security Act (42 U.S.C. 1395oo), 
implemented by regulations at 42 CFR subpart R.
    The Secretary will include in the reconciliation process funds that 
are returned to the Department during a fiscal year by the termination 
of hospitals from the CHGME program. These funds will be distributed to 
the remaining children's hospitals as part of reconciliation payments.

III. Eligible Hospitals

    Pub. L. 106-310 amended the CHGME statute to revise the definition 
of an eligible hospital, effective October 17, 2000. As revised, a 
``children's hospital'' eligible to participate in the CHGME program 
meets the following criteria:
    1. It participates in an approved GME program;
    2. It has a Medicare provider agreement;
    3. It is excluded from the Medicare inpatient prospective payment 
system (PPS) under section 1886(d)(1)(B)(iii) of the Social Security 
Act and its accompanying regulations; and
    4. It is a ``freestanding'' children's hospital.
    Several respondents indicated that the Department may have omitted 
additional potentially eligible hospitals from the list included in the 
June 19, 2000, Federal Register notice due to the proposed eligibility 
requirement published in that notice that a hospital have a provider 
agreement with a unique Medicare provider number as a ``children's 
hospital'' under section 1886(d)(1)(B)(iii) of the Social Security Act.
    The Department agreed with the respondents and for FFY 2000, used 
the following eligibility for the CHGME program;
    A ``children's hospital'' eligible to apply for CHGME funds in FFY 
2000 was a hospital that met all of the following criteria:
    1. More than 50% of its inpatients were individuals under 18 years 
of age;
    2. It participated in an approved GME program;
    3. It is excluded from the Medicare PPS under section 1886(d)(1)(B) 
of the Social Security Act; and
    4. It was a ``freestanding'' children's hospital. For purposes of 
the CHGME

[[Page 12942]]

program, the term ``freestanding'' excludes a hospital that shares a 
Medicare provider number with a health care system. Although an 
independent listing in the American Medical Association Directory or 
being separated physically from an adult hospital affiliate may be 
indicative of ``freestanding,'' for the purposes of the CHGME program, 
they do not alone make a hospital ``freestanding.''
    Several respondents indicated a concern with the term ``hospital 
system'' and suggested clarifying the definition of a ``freestanding'' 
hospital.
    The Department recognizes the ambiguity of the terms ``hospital 
system'' and ``freestanding,'' particularly in today's rapidly changing 
world of health care delivery. Some ``freestanding'' hospitals also may 
be affiliated with or are part of larger systems. For purposes of 
eligibility in the CHGME program, the Department intends to exclude 
those children's hospitals that operate under a Medicare hospital 
provider number assigned to a larger health care entity that would 
allow the children's hospital to receive Medicare GME payments as part 
of the larger health care entity. The Department will maintain its 
definition of ``freestanding'' as stated in the eligibility criteria.
    A number of respondents asserted that other entities such as 
children's units within PPS hospitals and, in some cases, PPS hospitals 
themselves should be eligible for CHGME funds, if they meet the other 
eligibility criteria, since they also may suffer from the allegedly 
inequitable internal distribution of GME funds under 1886(h) of the 
Social Security Act.
    The Department does not agree with these comments. The intent of 
the CHGME Act is to create parity in GME payments among all hospitals 
providing GME. It is clear that primarily two factors cause this 
disparity in children's hospitals: (1) low Medicare utilization; and 
(2) PPS-exempt status. While there may be some GME payment disparity 
among PPS hospitals that serve children and among children's units 
within PPS hospitals, unlike ``freestanding'' children's hospitals 
which are only eligible to receive DME payments, they are eligible to 
receive both DME and IME payments.
    One respondent requested the Department to clarify how waiver from 
the PPS system by a State would affect eligibility. Currently, Maryland 
is the only PPS-waivered State. A State's PPS status has no effect on 
the CHGME eligibility criteria. Hospitals in PPS-waivered States must 
still meet all the eligibility criteria of the CHGME program.
    Two respondents brought to the Department's attention the 
inconsistency in using the term ``accredited'' instead of the term 
``approved'' to refer to a GME training program. The Department agrees 
with this comment and will consistently refer to these training 
programs as ``approved'' in accordance with the Medicare program's 
definition of hospitals eligible to receive funds for GME, 42 U.S.C. 
256e(b)(1); 42 CFR 413.86.
    Based on the revised eligibility criteria, the Department has 
identified the below-listed hospitals as potentially eligible for 
participation in the CHGME program and will send these hospitals 
applications for FFY 2001 through FFY 2005. This list is not a final 
determination of eligibility. A hospital omitted from this list, 
including a new hospital, can obtain an application by download form 
the CHGME Web Site: http://bhpr.hrsa.gov/childrenshospitalgme.
            

 CHGME Hospitals                                             

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IV. Loss of Eligibility

    Several respondents noted that there should be a distinction 
preserved between hospitals that lose their eligibility to participate 
in the CHGME program and hospitals that retain their eligibility, but 
for some defined period have no residents rotating through the 
hospitals.
    The Department agrees with the need to clarify the definition of 
loss of eligibility for the CHGME program. A hospital is eligible to 
participate in the CHGME program if it trains residents as a 
freestanding children's hospital in the FFY for which the CHGME 
payments are being made. Reporting residents on Medicare cost reports 
is irrelevant to the eligibility of the hospital. Hospitals that do not 
report residents to Medicare remain eligible for the CHGME program if 
they continue to train residents as a freestanding children's hospital 
in the FFY for which the payment amounts are established.
    Any hospital which loses its eligibility during the course of a FFY 
must notify HRSA immediately of the change in status and the date on 
which it became ineligible. The Department will then terminate the 
hospitals payments under the CHGME program. The hospital will be liable 
for the reimbursement, with interest, of any funds received during a 
period after it became ineligible.
    Several respondents questioned the Department's legal authority to 
collect interest from ineligible institutions during a reimbursement 
process. They requested clarification on the applicability of interest 
to amounts paid to hospitals later deemed to be ineligible as opposed 
to overpayments to eligible hospitals that may be required to reimburse 
the Department after a reconciliation process for the DME and IME 
payments.
    The Federal Debt Collection Act requires the Department to collect 
interest on the recovery of CHGME funds, just as on any debt owed to 
the Federal Government. There is no interest due on payments recovered 
under the reconciliation process because this is not a debt owed to the 
government.

V. Determining FTE Resident Counts for DME

Residency FTE Reporting Period

    As amended, the CHGME statute provides that the Secretary make 
interim payments to hospitals ``based on the number of residents 
reported in the hospital's most recently filed Medicare cost report 
prior to the application date for the FFY for which the interim payment 
amounts are established. In the case of a hospital that does not report 
residents on a Medicare cost report, such interim payments shall be 
based on the number of residents trained during the hospital's most 
recently completed cost report filing period.'' For hospitals that 
report resident counts to Medicare, the most recently filed cost

[[Page 12944]]

report reflects the average of the actual FTE resident count for that 
filing period and the prior two cost report filing periods.
    Hospitals that do not report resident counts to Medicare are to 
report the number of FTE residents trained during their most recently 
completed Medicare cost report filing period. This number reflects the 
average of the actual FTE residents trained during the most recently 
completed Medicare cost report filing period and the prior two cost 
report filing periods.
    If the cost reporting period ends less than 5 months prior to the 
CHGME program's application deadline, hospitals that do not report 
residents to Medicare may use either the FTE resident count in the most 
recently completed cost report year or the FTE resident count in the 
previous cost report year. The determination of the 5-month period is 
based on the Medicare program's policy that hospitals have 5 months 
from the completion of the cost report year to file the Medicare cost 
report.
    Several respondents objected to the use of the FFY for calculating 
the FTE resident count in the FFY 2000 CHGME application process. They 
asserted that most hospitals use either an academic year (7/1-6/30) or 
the Medicare cost reporting period.
    Prior to amendment, the CHGME statute required the Secretary to 
make CHGME payments ``for each of fiscal years 2000 and 2001'' 
(emphasis added). For FFY 2000, the Department interpreted ``fiscal 
year'' to mean that payments were to be based on the FTE resident 
counts for FFYs (from October 1 of each year through September 30 of 
the following year), rather than the hospital cost reporting period or 
the hospital academic year.
    To assist hospitals in determining FTE resident counts based on the 
FFY required in the FFY 2000 CHGME application, tables contained in the 
application materials instructed hospitals on how to convert their data 
to the applicable FFY. In addition, the Department presented four 
technical assistance workshops to hospitals and related association 
staff to give advice on how to complete the necessary application forms 
and how to convert an academic/hospital accounting period to a FFY.

Counting FTE Residents in FFY 2000

    The methodology described by the Department in its June 19, 2000, 
Federal Register notice regarding the determination of a hospital's FTE 
resident count, generated considerable comment. Some respondents felt 
that it was unfair to allow hospitals that had not previously filed 
Medicare cost reports to recreate their resident count. Some 
respondents felt that all hospitals should be allowed to recreate their 
resident count because of the significant inaccuracies in the 
previously filed Medicare cost reports. Other respondents questioned 
the Department's proposed adoption of the Medicare GME resident 
counting methodology. Simpler methods were suggested that would 
eliminate the use of ``caps'', or ``rolling averages.''
    Section 340E(c)(1)(B) of the CHGME statute requires that the 
average number of FTE residents in the hospital's approved residency 
programs be determined according to section 1886(h)(4) (42 U.S.C. 
1395ww(h)(4)) of the Social Security Act. This section is implemented 
by regulations at 42 CFR 413.86(f), (g), (h), and (i). These provisions 
indicate: how to determine the total and weighted numbers of FTE 
residents; the required documentation and certification for purposes of 
application for Medicare payments by hospitals for cost reporting 
periods; and the application of the ``caps'' (described in sec. 
1886(h)(4)(f) of the Social Security Act; 42 U.S.C. sec. 
1395ww(h)(4)(f)) and ``rolling averages'' (described in sec. 
1886(h)(4)(g) of the Social Security Act; 42 U.S.C. sec. 
1395ww(h)(4)(g)) to FTE resident counts prior to weighting. The 
Department notes that dental and podiatric residents are not included 
in the resident FTE cap. Hospitals must certify the accuracy of their 
FTE resident counts and apply the Medicare cap and rolling average to 
this count. Since the Act specifically references use of caps and 
rolling averages for DME, the Department does not have discretion to 
accept the respondents' suggestion.
    For FFY 2000 applications, the Department was more flexible in the 
FTE resident counts accepted due to the short time frame hospitals had 
from publication of the June 19, 2000, Federal Register notice to the 
application deadline. Most respondents agreed with the Department's 
requirement that resident counts from Medicare hospital cost reports 
determine the CHGME resident counts. However, some objected because 
they may have under reported their resident counts on their past 
Medicare cost reports. Since the Medicare utilization and reimbursement 
was so low among the children's hospitals, many Fiscal Intermediaries 
(FIs) and hospitals paid little attention to the counts submitted or to 
correcting and auditing the counts.
    According to regulations, the FIs have 180 days from the reopening 
request and submission of all supporting data to finalize a cost 
report. Several hospitals wanted the Department to instruct Medicare 
FIs to respond quickly to their requests to reopen cost reports and 
adjust resident counts to more accurately reflect the actual training 
programs.
    The Department contacted the majority of hospitals' FIs, and, in 
accordance with existing rules and regulations, many of the CHGME 
program applicant hospital's FIs were able to expedite the review and 
revision process for new FTE resident counts. On average, these reviews 
were completed within a one-week period.
    Clearly, hospitals that have never submitted Medicare cost reports 
have no comparable validated counts to submit on their CHGME program 
applications. Therefore, these hospitals must determine FTE resident 
counts through the methodology described in the application. The 
accuracy of the resident counts, as all information filed by hospitals, 
is subject to audit by the Department and the General Accounting 
Office.
    Several respondents requested clarification on counting time spent 
by a resident on required research. The Department is using the 
Medicare regulation 42 CFR 413.86(f) to apply to counting research 
time. In brief, the research conducted by the resident must be part of 
the residency program and the resident must carry out the research in 
either:
    1. The children's hospital (clinical or bench research); or
    2. In a nonhospital site where the research involves direct patient 
care and the salaries of both the resident and the supervising faculty 
are paid by the children's hospital.
    Respondents were concerned that the CHGME program could 
inadvertently cause a shift in the primary care focus of pediatric GME. 
General pediatrics residency training programs require a significant 
amount of training (at least 50%) to occur in ambulatory care settings 
such as freestanding clinics and physicians' offices. Respondents 
asserted that the CHGME program payments should reflect the cost of 
training in both inpatient and outpatient settings.
    The Department recognizes the important of the primary care focus 
in general pediatrics residency training, which implements the 
Department's own goal of improving public access to primary care. All 
resident training in ambulatory care settings may be included in the 
resident FTE resident count as long as the hospital funds the faculty 
and resident cost of this training

[[Page 12945]]

through a written agreement between the hospital and the ambulatory 
care setting, according to 42 CFR 413.86(f)(3) and (4).
    One respondent requested that the Department provide a waiver of 
the requirement to obtain written agreements with participating 
ambulatory care sites. They contend that since children's hospitals 
were not able to claim significant GME payments, many failed to obtain 
written agreements with their participating ambulatory care sites.
    Hospitals will not be required to submit such written agreements to 
the Department with their annual applications to the CHGME program. 
Hospitals should be prepared to produce such agreements in any 
subsequent audit carried out by the Department.
    One respondent was concerned about what they perceived as the 
``arbitrary 5-year limit'' for the initial residency periods.
    The Department follows Medicare rules regarding the use of the 
initial residency period. The Medicare rules reduce counts for all 
hospitals that train residents beyond their initial residency period 
(i.e., fellows) with regard to the DME and IME portions of the GME 
reimbursement. In addition, this 5-year limit is not arbitrary, but 
rather reflective of the minimum number of years required for the 
resident to reach initial board eligibility.
    Several respondents suggested that the Department require that 
hospitals submit their Intern and Residents Information System (IRIS) 
diskettes as the primary source of data for validating their resident 
counts. This source would then provide a consistent method for 
verifying submitted counts. Another respondent indicated that the data 
on the IRIS diskettes are rarely completed correctly, frequently 
contained inaccurate data and duplicated resident counts between two 
hospitals.
    The department recognizes that the submission of IRIS diskettes by 
hospitals to the CHGME program may potentially reduce the 
administrative burden of reporting among those hospitals that submit 
IRIS diskettes for Medicare. There are several reasons, however, that 
the use of the IRIS diskettes as the primary source of data for the 
CHGME program would not be feasible: (1) Not all hospitals 
participating in the CHGME program submit IRIS diskettes to Medicare so 
there would not be a consistent source of information for all hospitals 
participating in the program; (2) information required by the CHGME 
program in its FFY 2000 applications included some information not 
available on the IRIS diskettes--the ``conversion'' of FTE resident 
counts based on the Medicare cost reporting period to an FTE resident 
count based on the FFY; (3) the CHGME program will not have access to 
the IRIS diskettes from those hospitals that may potentially be double 
counting residents so there would be no way to validate the IRIS data 
from hospitals participating in the program.
    One respondent commented that the Medicare provision for FTE 
adjustments in the context of an affiliated group cap requires a 
retroactive adjustment to account for situations in which the group 
remains under its aggregate cap, but individual hospitals exceed their 
individual caps (allowable under Medicare rules, so long as the 
aggregate cap is not exceeded). This respondent proposed that the FFY 
2000 and 2001 counts would need to be adjusted after audits of the 
respective hospital cost reports. The respondent stated that since the 
Department proposed no reconciliation for FFY 2000, the hospital might 
be disadvantaged.
    The Department is aware that it would be difficult for hospitals to 
estimate adjustments to their aggregate cap. In FFY 2000, there were no 
children's hospitals claiming an adjustment to their cap based on a 
written affiliation agreement. Given the recent legislative changes, 
hospitals will no longer have to estimate adjustments to their 
aggregate cap. Hospitals will report the actual adjustment made to the 
aggregate cap as reported on their Medicare cost reports.
    One respondent questioned the accuracy of examples B and D on page 
37988 of the Federal Register notice of June 19, 2000. The Department 
clarifies these examples as follows:
    Example B: One respondent questioned the accuracy of the 1999 
resident count. This example is correct as written. The two residents 
added to the hospital count for the period 7/1/99 to the end of the 
cost reporting year 12/31/99 would add 1.0 FTE to the count because the 
residents only were counted for one-half of the cost reporting year. 
One-half of two FTEs equals one FTE.
    Example D: The respondent stated that the 1999 resident count would 
not be reduced if the hospital is incurring all or substantially all of 
the training costs for the three residents in the continuity clinic. 
The Department agrees with the respondent's observation; however, this 
example demonstrates how to estimate the number of FTEs in 1996, when 
there was a substantial change to the number of FTEs trained. To 
determine the number of FTEs trained during the 1996 cost report year, 
subtract the 1.5 FTEs which were added to the program in 1997 from the 
1999 number of 25 FTEs to arrive at the cap of 23.5 FTEs.

Proposed Criteria for Determining FTE Resident Counts Beginning in FFY 
2001

    The Department invites comments on the following proposed criteria 
for determining FTE resident counts. The comments will be considered by 
the Department in developing final criteria for determining FTE 
resident counts to be used for the purposes of the CHGME program in 
determining payment to eligible hospitals. These final criteria will be 
published in a subsequent Federal Register notice and applied to the 
CHGME program beginning in FFY 2001.
    The Department wants to use the most accurate and valid data it can 
obtain on a hospital's resident counts. Beginning in FFY 2001, for 
hospitals that report residents to Medicare, the application 
requirement will be as follows:
    1. For the most recent cost reports ending on or before December 
31, 1996, a hospital must report the latest settled FTE resident count 
or a preliminary FI determined resident count. All preliminary FI 
determined counts must be determined according to HCFA and Medicare 
criteria. Hospitals may not use the ``preliminary'' numbers that were 
used for the FFY 2000 CHGME program unless those FTE resident counts 
have since become finalized or are validated according to HCFA and 
Medicare standards.
    2. For all other settled cost reports, a hospital must report the 
latest settled count. For a settled report that has been reopened, a 
hospital must report the latest settled count or, if available, the 
most recent ``preliminary'' FI determined FTE count.
    3. For cost reports which have never been settled, a hospital must 
report, in order of decreasing priority:
    a. The most recent ``preliminary'' FI determined FTE resident 
count;
    b. The ``amended'' FTE resident count; or
    c. The ``as filed'' FTE resident count.
    Resident count requirements remain unchanged for hospitals that do 
not report residents to Medicare but have been operating a residency 
training program. If these hospitals wish to revise their FTE resident 
counts, they must submit a detailed explanation of the revision with 
supporting documentation. For hospitals that have previously filed 
Medicare cost reports, the Department will use the cost reports filed 
with the FIs to verify the resident counts submitted.

[[Page 12946]]

Proposed Criteria for ``New Children's Teaching Hospitals''

    Because of the amendment revising the reporting of residents using 
the most recently filed Medicare cost report, the Department will need 
to propose a method for ``new children's teaching hospitals'' to report 
residents for application for funding under the CHGME program. 
Accordingly, the Department invites comments on the proposed criteria 
for reporting FTE residents by new children's teaching hospitals. The 
comments will be considered by the Department in developing final 
criteria for determining FTE resident counts in ``new children's 
teaching hospitals''. These final criteria will be published in a 
subsequent Federal Register notice and applied to the CHGME program 
beginning in FFY 2001.
    The Department defines a ``new children's teaching hospital'' as a 
children's hospital that began training residents from an already 
existent residency training program, less than three cost report 
periods prior to the FFY in which CHGME payments are being made. In 
order to participate in the CHGME program, a ``new children's teaching 
hospital'' must meet all necessary eligibility criteria.
    These ``new children's teaching hospitals'' are distinct from those 
teaching hospitals that are participating in a new medical residency 
training program, defined under 42 CFR 413.86(g)(9) as ``a medical 
residency that receives initial accreditation by the apporpriate 
accrediting body or begins training residents on or after January 1, 
1995.'' Medicare regulations at 42 CFR 413.86(g)(6)(i) and (g)(7) set 
forth criteria for applying the ``caps and rolling averages'' in these 
teaching hospitals with new residency training programs.

Establishing the Cap

    ``New children's teaching hospitals'' that did not train residents 
during the most recent cost report period ending on or before December 
31, 1996, would have a cap of zero. These hospitals may receive an 
adjustment to their cap through an affiliation agreement specifying an 
aggregate cap as described in 63 FR 26338, published May 12, 1998, 
which establishes the process for application of an aggregate FTE cap 
in accordance with section 1886(h)(4)(H) of the Social Security Act.
    To the extent that it is reasonable and feasible, the CHGME program 
will implement the HCFA final rule cited above. If a ``new children's 
teaching hospital'' elects to establish the cap through an affiliation 
agreement, it must comply with 63 FR 26338, published May 12, 1998, in 
accordance with section 1886(h)(4)(H) of the Social Security Act. For 
purposes of the CHGME program, however, the following exceptions to the 
HCFA final rule are proposed; these exceptions would be in effect only 
during the first year of a hospital's application for the CHGME 
program.
    (1) For the first year of the affiliation agreement, an effective 
date must be specified for purposes of the CHGME program. The effective 
date does not need to be July 1 for purposes of the CHGME program. 
However, for the first year of the agreement, an effective date of July 
1 will apply for purposes of the Medicare program (63 FR 26338, 
published May 12, 1998, in accordance with section 1886(h)(4)(H) of the 
Social Security Act.). Subsequent to the first year of the affiliation 
agreement, the effective date must comply with the above cited Federal 
Register final rule which specifies a date for all affiliation 
agreements.
    (2) The affiliation agreement must be for a minimum of 1 year and 
must include a full academic year (July 1-June 30 period).
    (3) The effective date and length of the affiliation agreement for 
an aggregate cap must be clearly documented in the agreement.
    (4) The affiliation agreement must be filed with all the necessary 
HCFA fiscal intermediaries and HRSA.
    ``New children's teaching hospitals'' will calculate their FTE 
resident count using the full value of the cap as determined by the 
affiliation agreement. The Department recognizes that the cap in ``new 
children's teaching hospital's'' first Medicare cost report may not 
agree with the cap specified by the affiliation agreement as Medicare 
does not apply an affiliation agreement for an aggregate cap until July 
1 (63 FR p. 26338, published May 12, 1998, in accordance with section 
1886(h)(4)(H) of the Social Security Act.) As a children's hospital's 
cost report period may not be July 1-June 30, it may potentially 
receive a prorated cap for its first Medicare cost reporting period.

Establishing FTE Resident Counts and Payments

    In general, the FTE resident count from each hospital reflects the 
residents trained during the Medicare cost report period, limited by 
the unweighted FTE resident count from the most recent cost report 
period ending on or before December 31, 1996 (the cap). Payments to 
each hospital are based on the average of the FTE resident count for 
the Medicare cost report and the prior two cost reports (3-year rolling 
average). The Department proposes that the ``new children's teaching 
hospitals'' training residents who were originally trained in a program 
that received and will continue to receive funds under the CHGME 
program wait until they have completed a Medicare cost report period 
before applying for payments from the CHGME program. These hospitals 
would also need to apply the 3-year rolling average consistent with 
Medicare regulations. Over a 3-year period, the ``new children's 
teaching hospital'' will gradually increase the number of FTE residents 
that can be claimed on the CHGME application as the children's hospital 
that previously received during for those FTE residents gradually 
decreases its resident count.
    The Department proposes the following methodology for determining 
FTE resident counts and payment for ``new children's teaching 
hospitals'' training residents that were never previously claimed for 
CHGME payment:
    1. Since payments under the CHGME program are based on FTE resident 
counts from a completed cost report filing period, ``new children's 
hospitals'' training residents never previously claimed for CHGME 
payment that have not completed a cost report filing period at the time 
of the CHGME program application would not have an FTE resident count 
to report to the program. The Department proposes that these ``new 
children's teaching hospitals'' submit FTE resident counts to the CHGME 
program according to the following methodology in their initial 
application:
    a. Divide the number of FTE residents trained from the effective 
date, specified for purposes of the CHGME program, of the affiliation 
agreement to the application deadline by the number of days during this 
period to produce the average number of FTEs per day.
    b. Multiply the average number of FTEs per day by the number of 
days the hospital will train residents during the FFY in which payments 
are being made.
    2. After the initial application year, a ``new children's teaching 
hospital'' training residents that were never previously claimed for 
CHGME payment will submit its actual FTE resident count from the most 
recently completed Medicare cost report period rather than using the 3-
year rolling average. Once these hospitals have completed three 
Medicare cost report periods, the 3-year rolling average will apply.
    Hospitals eligible for the CHGME program participating in a new 
medical residency training program, defined

[[Page 12947]]

under 42 CFR 413.86(g)(9), will follow Medicare regulations regarding 
the determination of their cap and 3-year rolling average (42 CFR 
413.86(g)(6)(i) and (g)(7)). If the hospital has not completed a 
Medicare cost report period to submission of the CHGME application, it 
will follow the methodology described above for ``new children's 
teaching hospitals'' training residents not previously claimed by the 
CHGME program in the calculation of its FTE resident count.

VI. Determining Direct Medical Education Payments

Wage Adjustment in Standardizing Per Resident Amounts

    The per resident amount applicable to a specific children's 
teaching hospital (prior to pro-rata reduction) is determined by 
multiplying the Medicare PPS labor-related share of the per resident 
amount by the FY 1999 hospital wage index and adding the non-labor 
related share to the result. Respondents expressed concern regarding 
use of the PPS labor-related share to standardize wages in determining 
the national standard per resident amount because the pediatric 
population is not represented in the wage index calculations. They 
asserted that since children's hospitals are PPS exempt and are not 
required to complete the wage index portion of the Medicare cost 
report, this factor does not reflect the children's hospital 
population.
    The Secretary recognizes that the wage data used to develop the PPS 
labor-related share is based on PPS hospitals which would not include 
information from PPS-exempt hospitals. Accordingly, the Department 
analyzed Medicare cost reports to develop a more accurate estimate of 
the labor-related share of the per resident amount. As the analytically 
derived labor-related share does not vary significantly from the 
Medicare labor-related share, for FFY 2000 the Department used the 
Medicare PPS labor-related share of 71.1 percent in the calculation of 
direct medical education payments. In FFY 2001 and beyond, the 
Secretary will use the most recent Medicare PPS labor-related share 
calculation.
    The Federal Register notice published in June 19, 2000, for the 
CHGME program announced that the Secretary would publish a computed 
national per resident amount in the final notice. The Secretary has 
determined that the national average per resident amount for cost 
reporting periods ending in FFY 1997 is $67,688. After updating for 
inflation as specified in the statute, the FFY 2000 national average 
per resident amount is $71,709.

VII. Determining Indirect Medical Education Payments

    The Federal Register notice of June 19, 2000, sought comments on 
the case mix measure to be used for determining IME payments. Due to 
lack of time, this notice omitted a detailed methodology for 
distribution of the IME funds. The Secretary also stated that this 
final Federal Register notice would include this methodology for public 
comment subject to revision in another final Federal Register notice.
    After considering suggestions submitted by respondents, the 
Department is proposing IME payment methodology for FFY 2001 organized 
by: (1) The purpose and use of payments under the program, (2) case 
mix, (3) number of FTE residents, (4) teaching intensity factor, (5) 
patient volume, (6) outpatient services, and (7) determination of 
payments. Interested parties are invited to submit comments on the 
proposed rules for a 30-day period. After consideration of the 
comments, the Department will publish the final IME methodology in the 
Federal Register and apply it to the determination of IME payments 
beginning in FFY 2001.

Purpose and Use of IME Payments

    The CHGME statue requires the Secretary to make payments for IME 
associated with operating approved graduate medical residency training 
programs for each of fiscal years 2000 through 2005. Section 
340E(b)(1)(B) describes IME payments as covering ``expenses associated 
with the treatment of more severely ill patients and the additional 
costs relating to teaching residents in such programs.''
    Section 340E(d)(2) of the Act requires the Secretary to determine 
IME payments by considering:
    1. Variations in case mix among children's hospitals; and
    2. The hospitals' number of FTE residents in approved training 
programs.
    One respondent commented that the educational purposes of the CHGME 
program take precedence over what he described as imitation of the 
Medicare system in developing the payment methodologies. This commenter 
recommended that the calculation for IME payments incorporate the costs 
associated with providing training opportunities in rural and 
underserved areas.
    The Department agrees that the CHGME program's purpose is to 
provide reimbursement to children's hospitals for costs associated with 
training residents.
    Although the CHGME statute describes factors that the Secretary 
must consider in developing payment methodology, the statute does not 
reference the type of training, such as training in rural and 
underserved areas. Nevertheless, the CHGME payment methodology which 
incorporates the Medicare FTE resident count does allow for an 
adjustment to the FTE resident cap for residents training in rural 
areas (42 CFR 413.86(g)(4) and (11)).
    One respondent expressed concern that the CHGME program payments 
would be disbursed only for inpatient training. The respondent stated 
it was essential for payments to be disbursed to children's hospitals 
to defray the costs of training in both inpatient and outpatient 
settings. The respondent cited the pediatrics Residency Review 
Committee of the Accreditation Council for Graduate Medical Education's 
requirements that at least 50 percent of resident training take place 
in ambulatory settings and the recommendation of the Council on 
Graduate Medical Education that clinical education should occur in 
settings representative of the environment in which graduates will 
eventually practice.
    These payments do reflect the cost of training residents in 
outpatient facilities in the hospital calculation of FTE resident 
count. Hospitals may include residents rotating through outpatient 
facilities and in ambulatory outpatient clinics, as provided in 42 CFR 
413.86(f)(3) and (4). However, the CHGME program has no statutory 
authority to prescribe how hospitals are to use the funds received from 
the program.
    One respondent indicated that the Federal Register notice of June 
19, 2000, did not state that the IME payments will be wage-adjusted, 
whereas Medicare DME and IME payments are both wage-adjusted.
    The Department agrees with this comment and revised the IME 
calculation used in FFY 2000 and proposed for FFY 2001, accordingly. 
For FFY 2000, the Department incorporated a wage adjustment into the 
formula for calculating IME payments by adjusting the labor-related 
share of the hospital operating cost for geographic differences by 
using the hospital wage index for FFY 1999. In FFY 2001, the Department 
will incorporate the same wage adjustment in its calculation of IME 
payments.

[[Page 12948]]

Determination of Case Mix

    Two respondents suggested that the case mix index (CMI) be excluded 
from the formula for distributing FFY 2000 funds because no 
standardized CMI and Diagnosis Related Group (DRG) weights exist for 
children's hospitals nationwide.
    The Department does not have the discretion to exclude the CMI from 
the IME formula because the CHGME statute explicitly requires the use 
of case-mix in determining IME payments under the program.
    The Department received several comments on the development and 
utilization of a uniform CMI for all hospitals applying for funding 
from the CHGME program, as follows:
    1. Five respondents supported the use of one CMI system for 
determining the IME payments to eliminate inconsistency among hospitals 
by using a variety of case mix index systems.
    2. One respondent stated that ``converting'' CMIs derived from 
different CMI systems, such as HCFA-DRG and All-Payer Refined DRG 
systems, was not possible.
    3. Four respondents recommended the use of the HCFA-DRG CMI system; 
one respondent suggested that version 15 of the HCFA-DRG system, with 
appropriate Medicare weights, should be used as the standard.
    4. One respondent suggested providing a default value for hospitals 
that cannot provide a HCFA-DRG CMI.
    The Department agrees that CMIs must be based on one system to 
assure equitable distribution of IME funds to hospitals. Due to 
insufficient implementation time, the Department could not establish a 
single CMI requirement for FFY 2000. Nevertheless, all but five of the 
56 children's hospitals applying for FFY 2000 CHGME program funds were 
eventually able to furnish one of three versions of a HCFA-DRG CMI 
(versions 15, 16 or 17).
    One respondent commented that case mix methodologies to be employed 
in determining IME payments should include both inpatient and 
outpatient care delivered by the hospital as well as factor in costs 
associated with providing residency training in rural and urban 
underserved areas, to avoid creating financial incentives that reduce 
education in primary care pediatrics.
    The Department agrees that payment systems should not produce 
incentives that reduce education in primary care pediatrics. However, 
all current case-mix systems rely totally on hospital inpatient data 
based on reporting for the Uniform Hospital Discharge Data System which 
includes only inpatient data. No present CMI reflects both inpatient 
and outpatient care.
    For FFY 2000, the Secretary used the average of all CMIs from the 
27 hospitals that furnished a CMI based on HCFA-DRG version 15 as a 
default CMI for those hospitals unable to furnish a HCFA-DRG CMI. For 
the hospitals that supplied a CMI from version 16 or 17 of the HCFA-
DRGs, the Secretary adjusted the version 16 or 17 reported by the 
hospital by the percentage difference in the CMI between the HCFA-DRG 
version 15 and the reported HCFA-DRG version according to the following 
table.

            

	Average FFY 1998 relative weight (HCFA v.15)	Average FFY1999 relative weight (HCFA v. 16)	Average FFY2000 relative weight (HCFA v. 17)
All cases excluding newborn	0.9711	1.0005	0.9639
Percent change from v. 15	\1\3.03	\1\-0.74	\1\ percent

    For FFY 2000, hospitals were asked to remove DRG 391, newborn 
births, from the calculation of their CMI. Given the time frame for 
CHGME program implementation in FFY 2000, it was difficult to create an 
accurate conversion factor including DRG 391 due in part to variability 
in hospitals reporting a CMI including DRG 391.
    Beginning in FFY 2001, all applicant hospitals must submit a CMI, 
based on the discharges from the most recently completed cost report 
period, using HCFA-DRG Version 17 with the appropriate HCFA Version 17 
weights reported to the ten-thousandth decimal place; all DRGs must be 
included in the calculation of this CMI. In subsequent years, the 
version of the HCFA-DRG to be used by hospitals will be updated 
annually.
    If a children's hospital eligible to participate in the CHGME 
program has not completed a Medicare cost report period prior to 
submission of an application to the CHGME program, it would base its 
CMI on discharges from the day it became eligible for the CHGME program 
until the CHGME application deadline.
    While the Department recognizes that the HCFA-DRG based CMI was not 
designed to be used with children's hospitals, this CMI system has been 
proposed as the most reasonable choice. Currently, the most commonly 
used case mix index system is based on CMIs. This system, however, does 
not exist for outpatient services. For future use, the Department 
intends to investigate the feasibility of developing a case mix index 
that is more reflective of the relative resource utilization 
experienced by children's hospitals in both an inpatient and an 
outpatient setting.

Determining the Number of FTE Residents for IME Payments

    One respondent stated that resident counts should not be used as a 
separate factor because it is already included in the measure of 
teaching intensity, and the purpose of IME payments is to compensate 
for higher patient care costs, not the number of residents.
    The Department agrees that resident counts should be incorporated 
only in the teaching intensity measure in the IME formula. The IME 
formula used in FFY 2000 and proposed for FFY 2001 and future years 
include the resident count only in the teaching intensity measure.
    Many respondents provided comments concerning the difficulty 
hospitals anticipated in reopening their Medicare cost reports and 
making any necessary corrections to their FTE resident counts used to 
develop caps and rolling averages.
    The June 19, 2000, Federal Register notice proposed using an 
unweighted FTE resident count for the IME portion of the payment and to 
apply the caps and rolling averages to the IME resident count, 
consistent with Medicare's application to its IME count. However, 
during the application process, the administrative difficulty of 
obtaining an unweighted FTE count from October 1, 1997, to September 
30, 2000, became clear. The unweighted resident FTE count was not 
reported on the HCFA-2552, E-3, Part IV worksheet until the Medicare 
cost report period beginning on or after October 1, 1997. For some 
hospitals, this occurred as late as their 1999 Medicare cost report. 
While it would have been possible to eventually determine the 
unweighted count for all

[[Page 12949]]

the years necessary in order to calculate a 3-year rolling average, it 
would have been additionally administratively burdensome to children's 
hospitals, fiscal intermediaries and HRSA. As a result, the payments 
for FFY 2000 would have been delayed.
    To resolve these difficulties, for FFY 2000, the Department did not 
apply either the caps or the rolling averages to the unweighted 
resident FTE count in calculating the IME payments. Since the CHGME 
statute does not require application of ``caps and rolling averages'' 
to the FTE resident count for IME payment (as it does for the DME 
payment), the Department calculated the unweighted FTE resident count 
from the application forms and the cost reports.
    In addition, the Department's June 19, 2000, Federal Register 
notice stated that the resident count for the IME portion would be 
based upon 42 CFR 412.105(a)(1). That regulation was cited in error 
because it refers to the determination of a ratio rather than an actual 
number.
    For FFY 2001, the Secretary believes that hospitals will have had 
sufficient notice and time to adjust their unweighted FTE counts from 
1996 through 1999 and to obtain their unweighted numbers from their 
FIs. Therefore, beginning with FFY 2001, the Secretary will apply the 
``caps and rolling averages'' consistent with Medicare regulation 42 
CFR 412.105(f), with the exception of 42 CFR 412.105(f)(1)(ii)(A) as it 
refers to the ``PPS sections'' of the hospital, in calculating IME 
payments.

Factoring in Teaching Intensity

    The Federal Register notice of June 19, 2000, proposed the addition 
of a teaching intensity factor to the statutorily required case-mix and 
FTE resident count in determining IME payments. The Secretary used the 
current Prospective Payment System (PPS) operating teaching intensity 
factor of 6.5 percent per 0.1 interns and residents-to-bed ratio (IRB) 
to determine IME payments for FFY 2000.
    The Department calculated the IRB using the unweighted FTE resident 
count and the number of beds reported by each hospital to Medicare for 
the most recently completed fiscal year. For those hospitals that did 
not report this information to Medicare, the Department used the number 
of available beds on July 1, 2000. According to Medicare regulations at 
42 CFR 412.105(b), the Department defined ``hospital beds'' as 
``available beds,'' which are beds that are permanently maintained for 
inpatients in rooms and wards, excluding beds and bassinets in the 
healthy newborn nursery.
    Several respondents suggested measures of teaching intensity in the 
formula for determining IME payments to hospitals. Two recommended 
using a resident-to-bed ratio, and two recommended a resident-to-
average daily census (RADC) ratio. One respondent recommended a 
resident-to-bed ratio, stating that either ratio was feasible but noted 
that Medicare uses a resident-to-bed ratio. One respondent recommended 
the RADC ratio stating that, the ADC is more appropriate because it 
measures actual activity, while the number of beds might not change 
even when the patient volume changes.
    For FFY 2001, the Department invites comment on:
    1. The proposed continuation of the use of the Medicare IRB-based 
teaching intensity factor in the calculation of IME payments. The CHGME 
program would use the most current PPS IRB in its calculation of IME 
payments;
    2. Application of a cap on the IRB ratio, similar to the cap 
applied by the Medicare program, 42 CFR 412.105(a)(1), whereby the 
ratio may not exceed the ratio for the hospital's most recent prior 
cost reporting period. Application of this cap will not be initiated 
until FFY 2002 due to the proposed change in the definition of bed 
count;
    3. Suggestions on alternative teaching intensity factors, such as 
the Medicare RADC-based teaching intensity factor (2.8 percent per 0.1 
percent increase in RADC ratio) or any other analytically justified 
teaching intensity factor; and
    4. The proposed definition of ``bed count'' to be used in 
calculating the Medicare IRB teaching intensity factor--the sum of all 
available beds per day in the most recently completed cost report 
filing period, including beds and bassinets in the healthy newborn 
nursery, divided by the number of days in that period. If a children's 
hospital eligible to participate in the CHGME program has not completed 
a Medicare cost report period prior to submission of an application to 
CHGME program, it would base its ``bed count'' on the sum of all 
available beds per day, including beds and bassinets in the healthy 
newborn nursery, in the period from the day it became eligible for the 
CHGME program until the CHGME application deadline, divided by the 
number of days in that period.
    In addition, the Department intends to explore for future proposal 
the development of other measures of teaching intensity which may be 
more appropriate for children's hospitals.

Patient Volume

    Since the IME payment is cover ``expenses associated with the 
treatment of more severely ill patients and the additional costs 
relating to teaching residents in such programs,'' the patient volume 
in a particular hospital is an important factor in its calculation. For 
FFY 2000, the Department used inpatient discharges from the hospital's 
most recently completed fiscal year as the measure of patient volume 
for IME payments. Beginning in FFY 2001, the Department will use 
inpatient discharges for the hospital's most recently completed 
Medicare cost report filing period as the measure of patient volume for 
IME payments.
    If a children's hospital eligible to participate in the CHGME 
program has not completed a Medicare cost report period prior to 
submission of an application to the CHGME program, its patient volume 
will be calculated by the following methodology:
    a. Divide the number of inpatient discharges from the date the 
hospital became eligible to the CHGME application deadline by the 
number of days during this period to produce the average number of 
discharges per day.
    b. Multiply the average number of discharges per day by the number 
of days the hospital will provide inpatient care as a hospital eligible 
to participate in the CHGME program during the FFY in which payments 
are being made.

Outpatient Services

    Since a large component of training programs in children's 
hospitals involves training in ambulatory outpatient settings, the 
Department will explore the development of a factor to indicate the 
resources associated with training in outpatient settings. Any such 
factor will be proposed for comment in a subsequent Federal Register 
notice.

Determining IME Payments to Hospitals

    For FFY 2000, the Department used the following formula to 
calculate IME payments:

[[Page 12950]]

[GRAPHIC] [TIFF OMITTED] TN01MR01.000

Where:
i = individual hospital
n = the total number of hospitals participating in the CHGME program
WI = area wage index for hospitali
NoD = number of discharges for hospitali
CMI = average case mix index for hospitali
IME Pay = IME payment to individual hospitali for the CHGME 
program
Z = total funds available for IME

    The Department used the current Medicare teaching intensity factor 
of 1.6((1 + residents-to-bed ration).405 -1). Residents 
indicated the unweighted actual FTE resident count during FFY 2000 
without application of the cap. The bed count was based on the number 
of beds reported on a hospital's most recently filed Medicare cost 
report or the number of available beds on July 1, 2000. The bed count 
did not include bassinets.
    This FFY 2000 IME payment formula used by the CHGME program was 
derived from the following basic formula:

Yi = X (.711*WIi + .289)* 
NoDi*CMIi*IMEi

Where:
X = national average cost per case
i = individual hospital
WI = area wage index for hospitali
NoD = number of discharges for hospitali
CMI = average case mix index for hospitali
IME = IME educational adjustment factor for hospitali
Y = IME payment to individual hospitali

    Because the CHGME program has a filed appropriation, a hospital's 
individual payment reflects its share of the sum of IME payments to all 
hospitals, multiplied by the total funds available for IME, as in the 
following formula:
[GRAPHIC] [TIFF OMITTED] TN01MR01.001

    Since the national average cost per case appears in both the 
numerator and denominator of the formula, it does not impact the 
calculation of a hospital's IME payment and may be removed from the 
final formula.
    For FFY 2001, the CHGME program will use the same formula that was 
used in FFY 2000. If the PPS IRB teaching intensity factor to be used 
in FFY 2001 is different from 6.5 percent to .1 interns and residents-
to-bed ratio, the teaching intensity factor in the equation to 
calculate IME payments would be altered accordingly.

Children's Hospitals With Average Lengths of Stay Greater Than or Equal 
to 30 Days

    In calculating IME payments for FFY 2000, it became apparent that 
certain hospitals with lengths of stay greater than or equal to 30 days 
were significantly disadvantaged by the formula utilized to calculate 
the IME payments. These hospitals provided a variety of services, 
including rehabilitative services, that required their patients to 
remain as inpatients for a prolonged period of time. The Department 
proposes to apply an adjustment factor in the calculation of IME 
payments for children's hospitals with average lengths of stay greater 
than or equal to 30 days.
    The Department found that when using the HCFA-DRG based CMI to 
measure relative resource allocation in the IME payment formula, it did 
not adequately account for the resources required to treat patients in 
children's hospitals with significantly long lengths of stay because 
the HCFR-DRG was developed based on different classes of patients in 
hospitals with shorter lengths of stay. For example, functional status, 
which is not measured by the DRG system, accounts for systematic 
differences in the cost of rehabilitation stays for the same diagnosis.
    Since the length of stay is a major factor in determining the 
relative costliness of an inpatient stay, the Department proposes an 
adjustment factor based on the average length of stay (ALOS) to more 
adequately reflect the relative costliness of patients treated by the 
children's hospitals with significantly long lengths of stay. For 
hospitals with ALOS greater than or equal to 30 days, the adjustment 
factor is the ALOS for the individual hospital divided by the average 
ALOS for all hospitals with ALOS less than 30 days.
    The IME calculation will use one formula to calculate IME payments 
for hospitals with an average length of stay less than 30 days and a 
second formula to calculate payments for hospitals with an average 
length of stay greater than or equal to 30 days, as follows:

Where:
NoD=number of discharges for hospital
CMI=average case mix index for hospital using HCFA v. 17
LOSadj=average length of stay (ALOS) per hospital with ALOS > or = 30 
days/ALOS for all hospitals with ALOS  30 days)
WI=area wage index for hospital
IME=IME adjustment factor for hospital
Z=total dollars available for CHGME program IME payments
IME Pay=total IME payments to hospital
i=individual hospital with ALOS  30 days
j=individual hospital with ALOS > or = 30 days
m=total number of hospitals with ALOS > or = 30 days participating in 
the CHGME program
n=total number of hospitals with ALOS  30 days participating in the 
CHGME program
residents=average number of unweighted FTE residents in the most 
recently completed cost reporting period with application of the cap.
beds=sum of available beds, including beds and bassinets in the healthy 
newborn nursery, in the most recently completed cost report filing 
period, divided by the number of days in that period.

    For children's hospitals with ALOS  30 days, the following formula 
will be used in FY 2001 to calculate the IME payment.

[[Page 12951]]

[GRAPHIC] [TIFF OMITTED] TN01MR01.002

    For children's hospitals with ALOS > or = 30 days, the following 
formula will be used in FY 2001 to calculate the IME payment:
[GRAPHIC] [TIFF OMITTED] TN01MR01.003

VIII. Evaluation Criteria

General Comments on Reporting

    Respondents generally supported the collection of some performance 
data, although a number of respondents raised concerns about the 
potential reporting burden. Most respondents favored the use of 
existing hospital data systems for the reports, whenever possible. Two 
respondents asserted that these performance measures are unnecessary.
    The Government Performance and Results Act (GPRA) requires the 
Department to collect, analyze and submit reports on the performance of 
its legislative programs. Therefore, the Department must collect 
information on performance measures for the CHGME program. To the 
extent the CHGME program is successful, aggregated hospital data 
reported should reflect this success. The reports will not affect the 
specific payment amounts made to participating hospitals.
    The Department will reduce this reporting burden by eliminating the 
requirement for reporting rotations to rural and underserved areas. 
However, the Department will continue to request data on the number of 
FTE residents participating in children's hospital approved residency 
training program; the percentage of gross revenue associated with 
patient care; hospital total and operating margins; and patient-related 
operating costs. The period for which the performance goals are 
measured is the most recently filed Medicare cost report. Hospitals 
that do not file Medicare cost reports should submit data from the most 
recently completed Medicare cost reporting period.

GPRA Performance Measures for CHGME Program

    Beginning in FFY 2001, the CHGME program will use the following 
GPRA performance measures:
     Maintain the number of FTE residents receiving training in 
the hospitals funded by the program;
     Maintain the number of FTE residents sponsored by 
hospitals funded by the program;
     Monitor the proportion of the hospital's gross revenue 
from patient care attributed to public insurance (Medicaid, Medicare, 
State Children's Health Insurance Program (SCHIP)), uncompensated care, 
and uninsured patients;
     Monitor the percentage of hospitals, funded by the 
program, with negative total margins; and
     Monitor the hospital's allowable operating costs.
    Some respondents requested clarification of performance elements 
and necessary data requirements. These data requirements are described 
below:
    1. A ``sponsoring institution'' is an institution that assumes the 
ultimate responsibility for a graduate medical education program. 
According to the Accreditation Council for Graduate Medical Education 
(ACGME), the following are the institutional requirements for a 
sponsoring institution: (1) A residency program must operate under the 
authority and control of a sponsoring institution; (2) there must be a 
written statement of institutional commitment to GME that is supported 
by the governing authority, the administration, and the teaching staff; 
(3) sponsoring institution must be in a substantial compliance with the 
Institutional Requirements and must ensure that their ACGME-accredited 
programs are in substantial compliance with the Program Requirements; 
and (4) an institution's failure to comply substantially with the 
Institutional Requirements may jeopardize the accreditation of all of 
its sponsored residency programs.
    2. Medicaid refers to any funding provided by Title XIX including 
that from Medicaid HMOs. Payments for Disproportionate Share Hospitals 
(DSH) are also included in gross revenue for Medicate patient care.
    3. State Children's Health Insurance Program (SCHIP) refers to 
funding provided under Title XXI.
    4. ``Uncompensated Care'' means bad debt and charity. 
``Uncompensated care'' does not include contractual allowances. The 
definition of ``uncompensated care'' is to be used for purposes of the 
CHGME program only. ``Uninsured patients'' means those patients that 
are self-pay.
    For hospitals which do not file Medicare cost reports--(a) 
operating margin is net income from service to patients (net patient 
revenues - total operating expenses)/net patient revenues (total 
patient revenues - contractual allowances) * 100; and (b) total margin 
is net income from all sources (net patient revenue + all other income 
- total operating-other expenses)/total hospital revenues (net patient 
revenues + total other income) * 100.
    For hospitals completing Medicare cost reports (HCFA-2552-96), the

[[Page 12952]]

margins should be calculated from Worksheet G-3:

Operating margin = (Line 5/Line 3) * 100
Total margin = (Line 31/(Line 3 + Line 25)) * 100

    In calculating hospital operating costs, hospitals should include 
allowable operating costs based on Medicare cost reports.

IX. Other Laws Applicable to the CHGME Program

    HHS is responsible to Congress and the U.S. taxpayers for carrying 
out its mission in compliance with applicable rules and regulations. 
HHS seeks to ensure integrity and accountability in its financial 
assistance programs. Applicants for and recipients of HHS funds are 
responsible for and must adhere to all applicable Federal statutes, 
regulations, and policies.

Legal Implication of Application

    To be considered for support, an applicant must be an eligible 
entity and must submit a complete application in accordance with the 
established deadline. The application must be signed by an authorized 
representative of the applicant organization. This person is the 
designated representative of the hospital in matter related to the 
award of HHS financial assistance. HHS does not specify the 
organizational location of the applicant's representative; however, it 
requires the designation of such an official as the focal point for the 
organization's responsibilities as the recipient of HHS funds.
    The signature of an authorized representative of the applicant on 
the application attests that:
    1. All information contained in the application is true and 
complete, and in conformance with Federal requirements and the 
organization's own policies and requirements; and
    2. The applicant organization's intent to comply with all 
assurances and certifications referenced in the application.
    Civil and criminal penalties apply to any certification, assurance 
or submission made to HHS made in connection with any program 
administered by HHS. Even if the application for funding is not 
granted, the applicant may be subject to penalties if the information 
contained in it, including its assurances, is found to be false, 
fictitious, or fraudulent. The applicable provisions are summarized 
below:
    The Program Fraud and Civil Remedies Act of 1986, 31 U.S.C. 3801, 
provides for the administrative imposition by HHS of civil penalties 
and assessments against persons who knowingly make false, fictitious, 
or misleading claims to the Federal Government for money, including 
money representing grants, loans, or benefits. A civil penalty of not 
more than $5,000 may be assessed for each such claim. If a grant is 
awarded and payment is made on a false or fraudulent claim, an 
assessment of not more than twice the amount of the claim may be made 
in lieu of damages, up to $150,000. Regulations at 45 CFR Part 79 
specify the process for imposing civil penalties and assessments, 
including hearing and appeal rights.
    The Criminal False Claims Act, 18 U.S.C. 287 and 1001, provides for 
criminal prosecution of a person who knowingly makes or presents any 
false, fictitious, or fraudulent statements or representations or 
claims against the United States. Such person may be subject to 
imprisonment of not more than 5 years and a fine.
    The Civil False Claims Act, 31 U.S.C. 2739, provides for imposition 
of penalties and damages by the United States, through civil 
litigation, against any person who knowingly makes a false or 
fraudulent claim for payment, makes or uses a false record or false 
statement to get a false claim paid or approved, or conspires to 
defraud the Government to get a false claim paid. A ``false claim'' is 
any request or demand for money or property made to the United States 
or to a contractor, grantee, or other recipient, if the Government 
provides or will reimburse any portion of the funds claimed. Civil 
penalties of $5,000 to $10,000 may be imposed for each false claim, 
plus damages of up to three times the amount of the false claim.
    45 CFR Part 74 authorizes HHS to recover funds administratively.

Record Retention and Access

    Financial and programmatic records, supporting documents, 
statistical records, and all other records of a participating hospital 
that are required by the terms of the award or may reasonably be 
considered pertinent to the award, must be retained for the time period 
specified in 45 CFR Part 74, Subpart D. Access to these records is also 
governed by the provisions of 45 CFR Part 74, Subpart D.

Audit

    HHS, or any other authorized Federal agency, may conduct an audit 
to determine whether the applicant hospital has complied with all 
governing laws and regulations in its application for funding. Any and 
all information submitted to HHS by an applicant or participating 
hospital during or after the award of funds is subject to review in an 
audit.
    Hospitals must comply with OMB requirements for audits. OMB 
Circulars explain the scope, frequency, and other aspects of the audit. 
OMB Circular A-128, Audits of State and Local Governments, contains the 
requirements for audits of governmental hospitals. OMB Circular A-133, 
Audits of Institutions of Higher Education and Other Nonprofit 
Institutions, issued March 8, 1990, establishes the audit requirements 
for institutions of higher education and other nonprofit institutions 
receiving Federal awards. The main features of this Circular are as 
follows:
    1. Nonprofit institutions receiving Federal awards of:
    a. $100,000 or more a year shall have an audit made in accordance 
with the Circular. However, if the awards are under one program, the 
institution can have either an audit made in accordance with the 
Circular or have an audit made of the one program only. Individual 
program audits must conform to the reporting requirements set forth in 
General Accounting Office publication, government Auditing Standards, 
1988 revision.
    b. At least $25,000 but less than $100,000 a year must have an 
audit made in accordance with the Circular or the requirements of each 
Federal award.
    c. Less than $25,000 a year are exempt from Federal audits but must 
have their records available for review by Federal agencies.
    An audit made in accordance with OMB Circular A-133 will be in lieu 
of any financial audit required under individual Federal awards. 
However HHS will perform any additional audits necessary to carry out 
its responsibilities under Federal law or regulation.
    Hospitals must submit a copy of audit reports to the National 
External Audit Resources, HHS Office of Audit Services, 323 West 8th 
Street, Lucas Place, Room 514, Kansas City, MO 64105.

Suspension, Termination, and Withholding of Support

    If a hospital has failed to materially comply with the terms and 
conditions of the CHGME program, HHS may suspend the award, pending 
corrective action, or may terminate the award for cause.
    Suspension: Temporary withdrawal of a hospital's authority to 
obligate funds, pending either corrective action by the

[[Page 12953]]

hospital, as specified by HHS, or a decision by HHS to terminate the 
award.
    Termination: Permanent withdrawal by HHS of a hospital's authority 
to obligate previously awarded funds before that authority would 
otherwise expire. HHS regulations at 45 CFR Part 76 provide for the 
debarment and suspension of individuals and institutions from 
eligibility to receive grants and other forms of financial assistance 
under HHS discretionary programs. (Also see Executive Order 12549, 
Debarment and Suspension.)

Fraud, Waste and Abuse

    HHS encourages anyone who becomes aware of the existence or 
apparent existence of fraud, abuse, and waste of HHS financial 
assistance to report this to the HHS Inspector General's Office in 
writing or on the Inspector General's Hotline. The toll-free number is 
1-800-368-5779. All telephone calls will be confidential. Address 
written complaints to Inspector General, HHS, Room 5250, 200 
Independence Avenue SW, Washington, D.C. 20201.

Economic and Regulatory Impact

    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when rulemaking is 
necessary, to select regulatory approaches that provide the greatest 
net benefits (including potential economic, environmental, public 
health, safety distributive and equity effects). In addition, under the 
Regulatory Flexibility Act (RFA of 1980), if a rule has a significant 
economic effect on a substantial number of small entities, the 
Secretary must specifically consider the economic effect of a rule on 
small entities and analyze regulatory options that could lessen the 
impact of the rule.
    Executive Order 12866 requires that all regulations reflect 
consideration of alternatives of costs, of benefits, of incentives, of 
equity, and of available information. Regulations must meet certain 
standards, such as avoiding an unnecessary burden. Regulations which 
are ``significant'' because of cost, adverse effects on the economy, 
inconsistency with other agency actions, effects on the budget, or 
novel legal or policy issues, require special analysis.
    The Department has determined that the only burden this action will 
impose on children's hospitals is the resources required to submit an 
application to the CHGME program. Therefore, in accordance with the RFA 
and the Small Business Regulatory Enforcement Act of 1996, which 
amended the RFA, the Secretary certifies that this action will have a 
significant impact on a substantial number of small entities in that 
this action will provide significant funding to eligible children's 
hospitals. However, since this action will not impose a significant 
burden on a substantial number of small entities, we have not examined 
any alternatives for reducing the burden on children's hospitals. The 
Secretary has also determined that this action does not meet with 
criteria for a major rule as defined by Executive Order 12866 and would 
have no major effect on the economy of Federal expenditures.
    We have determined that the proposed rule is not a ``major rule'' 
within the meaning of the statute providing for Congressional Review of 
Agency Rulemaking, 5 U.S.C. 801. Similarly, the proposed rule will not 
have effects on States, local and tribal governments and on the private 
sector such as to require consultation under the Unfunded Mandates 
Reform Act of 1995.
    Further, Executive Order 13132 establishes certain requirements 
that an agency must meet when it promulgates a rule that imposes 
substantial direct compliance costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. We have 
reviewed this action under the threshold criteria of Executive Order 
13132, Federalism, and, therefore, have determined that this action 
would not have substantial direct effects on the rights, roles, and 
responsibilities of States.

Paperwork Reduction Act of 1995

    In accordance with section 3507(a) of the Paperwork Reduction Act 
(PRA) of 1995, the Department is required to solicit public comments, 
and receive final Office of Management and Budget (OMB) approval, on 
collections of information. As indicated, in order to implement the 
Children's Hospital Graduate Medical Education Payment Program (CHGME), 
certain information is required as set forth in this notice in order to 
determine eligibility for payment. In accordance with the PRA, we are 
submitting to OMB at this time the following requirement for seeking 
review of these provisions. A 30-day notice was published in the 
Federal Register on November 7, 2000, to provide for public comment and 
to request a review of the information collection associated with 
CHGME.
    Collection of Information: The Children's Hospital Graduate Medical 
Education Program.
    Description: Data is collected on the number of full-time 
equivalent residents in applicant children's hospital training programs 
to determine the amount of direct and indirect expense payments to 
participating children's hospitals. Indirect expense payments will also 
be derived from a formula that requires the reporting of case mix index 
information from participating children's hospitals. Hospitals will be 
requested to submit such information in an annual application.
    Description of Respondents: Children's hospitals operating approved 
graduate medical residency training operations.
    Estimating Annual Reporting: The estimated average annual reporting 
for this data collection is approximately 150 hours per hospital. The 
estimated annual burden is as follows:
          

Form name	Number of respondents	Responses per respondent	Total responses	Hours per response	Total hour burden
HRSA-99-1:
(Annual)	54	1	54	99.9	5,395
(Reconciliation)	54	1	54	8	432
HRSA-99-2 (IME)	54	1	54	14	756
HRSA-99-4 (Required GPRA tables)	54	1	54	28	1,512
Total	54	1	54		8095

[[Page 12954]]

National Health Objectives for the Year 2000

    The Public Health Service is committed to achieving the health 
promotion and disease prevention objectives of Healthy People 2000, and 
its successor, Healthy People 2010. These are Department-led efforts to 
set priorities for national attention. The CHGME program is related to 
the priority area 1 (Access to Quality Health Services) in Health 
People 2010, which is available online at http://www.health.gov/
healthypeople.

Education and Service Linkage

    As part of its long-range planning, HRSA will be targeting its 
efforts to strengthening linkages between Department education programs 
and programs which provide comprehensive primary care services to the 
underserved.

Smoke-Free Workplace

    The Department strongly encourages all award recipients to provide 
a smoke-free workplace and promote abstinence from all tobacco 
products, and Public Law 103-227, the Pro-Children Act of 1994, 
prohibits smoking in certain facilities that receive Federal funds in 
which education, library, day care, health care, and early childhood 
development services are provided to children.
    This program is not subject to the Public Health Systems Reporting 
Requirements.

    Dated: February 6, 2001.
Claude Earl Fox,
Administrator.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-5008 Filed 2-28-01; 8:45 am]
BILLING CODE 4160-15-M