[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR413.85]

[Page 542-546]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING 
FACILITIES--Table of Contents
 
                 Subpart F--Specific Categories of Costs
 
Sec. 413.85  Cost of approved nursing and allied health education activities.

    (a) Statutory basis. This section implements section 1861(v)(1)(A) 
of the Act and section 4004(b) of the Omnibus Budget Reconciliation Act 
of 1990 (Public Law 101-508) by establishing the methodology for 
Medicare payment of the costs of approved nursing and allied health 
education activities.
    (b) Scope. (1) This section sets forth the rules for determining 
Medicare payments to hospitals for the costs of nursing and allied 
health education activities.
    (2) This section does not address Medicare payments for the direct 
and

[[Page 543]]

indirect costs of graduate medical education (that is, approved 
residency programs in medicine, osteopathy, dentistry, and podiatry). 
Medicare payment for these costs is determined as provided in 
Sec. 412.105 of this subchapter and Sec. 413.86.
    (3) The rules under this section do not apply to activities that are 
specified in paragraph (h) of this section and identified as normal 
operating costs.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    Approved educational activities means formally organized or planned 
programs of study of the type that:
    (1) Are operated by providers as specified in paragraph (f) of this 
section;
    (2) Enhance the quality of inpatient care at the provider; and
    (3) Meet the requirements of paragraph (e) of this section for State 
licensure or accreditation.
    Classroom instruction costs are those costs associated with formal, 
didactic instruction on a specific topic or subject in a class that 
meets at regular, scheduled intervals over a specific time period (for 
example, semester or quarter), and for which a student receives a grade.
    Clinical training costs means costs of training for the acquisition 
and use of the skills of a nursing or allied health profession or trade 
in the actual environment in which these skills will be used by the 
student upon graduation. Clinical training may involve occasional or 
periodic meetings to discuss or analyze cases, critique performance, or 
discuss specific skills or techniques; it involves no classroom 
instruction.
    Community support means funding that is provided by the community 
and generally includes all non-Medicare sources of funding (other than 
payments made for furnishing services to individual patients), including 
State and local government appropriations. Community support does not 
include grants, gifts, and endowments of the kind that are not to be 
offset in accordance with section 1134 of the Act.
    Redistribution of costs means an attempt by a provider to increase 
the amount, or to expand the types, of the costs of educational 
activities that are allowed for Medicare payment purposes by claiming 
costs that previously were not claimed by the provider and were 
considered costs of an educational institution. For example, costs for a 
school of nursing or allied health education or a medical school that 
were incurred by an educational institution and were not allowable to 
the provider in its prospective payment or rate-of-increase limit base 
year cost report, or graduate medical education per resident amount 
calculated under Sec. 413.86, are not allowable costs in subsequent 
fiscal years.
    (d) General payment rules. (1) Payment for a provider's net cost of 
nursing and allied health education activities is determined on a 
reasonable cost basis, subject to the following conditions and 
limitations:
    (i) An approved educational activity--
    (A) Is recognized by a national approving body or State licensing 
authority as specified in paragraph (e) of this section;
    (B) Meets the criteria specified in paragraph (f) of this section 
for identification as an operator of an approved education program.
    (C) Enhances the quality of inpatient care at the provider.
    (ii) The cost for certain nonprovider-operated programs are 
reimbursable on a reasonable cost basis if the programs meet the 
criteria specified in paragraph (g)(2) of this section.
    (2) Determination of net cost. (i) Subject to the provisions of 
paragraph (d)(2)(iii) of this section, the net cost of approved 
educational activities is determined by deducting the revenues that a 
provider receives from tuition and student fees from the provider's 
total allowable educational costs that are directly related to approved 
educational activities.
    (ii) A provider's total allowable educational costs are those costs 
incurred by the provider for trainee stipends, compensation of teachers, 
and other costs of the activities as determined under the Medicare cost-
finding principles in Sec. 413.24. These costs do not include patient 
care costs, costs incurred by a related organization, or costs that 
constitute a redistribution of costs from an educational institution to 
a provider or costs that have been or are

[[Page 544]]

currently being provided through community support.
    (iii) The net costs of approved certified registered nurse 
anesthetist (CRNA) education programs that are determined on a 
reasonable cost basis are subject to the additional condition that 
allowable compensation costs for faculty members who are CRNAs are 
limited to the compensation costs for administrative activities related 
to the educational program, the compensation costs directly related to 
hours spent in classroom instruction, and the costs related to the 
clinical training of students for which the CRNA may not receive payment 
under the CRNA fee schedule. No pass-through compensation costs are 
allowable for the time a CRNA spends in the clinical training of a 
student anesthetist during a surgical procedure in the operating room 
for which the CRNA may receive payment under the CRNA fee schedule. As 
specified at Sec. 414.46 of this chapter, if the CRNA continuously 
supervises the services of a single student nurse anesthetist, or where 
the medical direction rules allow a CRNA to bill for the service, 
payment can be made under the CRNA fee schedule.
    (iv) Net costs are subject to apportionment for Medicare utilization 
as described in Sec. 413.50.
    (e) Approved nursing and allied health education programs. CMS will 
consider an activity an approved nursing and allied health education 
program if the program is a planned program of study that is licensed by 
State law, or if licensing is not required, is accredited by the 
recognized national professional organization for the particular 
activity. Such national accrediting bodies include, but are not limited 
to, the Commission on Accreditation of Allied Health Education Programs, 
the National League of Nursing Accrediting Commission, the Association 
for Clinical Pastoral Education Inc., and the American Dietetic 
Association.
    (f) Criteria for identifying programs operated by a provider. (1) 
Except as provided in paragraph (f)(2) of this section, for cost 
reporting periods beginning on or after October 1, 1983, in order to be 
considered the operator of an approved nursing or allied health 
education program, a provider must meet all of the following 
requirements:
    (i) Directly incur the training costs.
    (ii) Have direct control of the program curriculum. (A provider may 
enter into an agreement with an educational institution to furnish basic 
academic courses required for completion of the program, but the 
provider must provide all of the courses relating to the theory and 
practice of the nursing or allied health profession involved that are 
required for the degree, diploma, or certificate awarded at the 
completion of the program.)
    (iii) Control the administration of the program, including 
collection of tuition (where applicable), control the maintenance of 
payroll records of teaching staff or students, or both (where 
applicable), and be responsible for day-to-day program operation. (A 
provider may contract with another entity to perform some administrative 
functions, but the provider must maintain control over all aspects of 
the contracted functions.)
    (iv) Employ the teaching staff.
    (v) Provide and control both classroom instruction and clinical 
training (where classroom instruction is a requirement for program 
completion), subject to the parenthetical sentence in paragraph 
(f)(1)(ii) of this section.
    (2) Absent evidence to the contrary, the provider that issues the 
degree, diploma, or other certificate upon successful completion of an 
approved education program is assumed to meet all of the criteria set 
forth in paragraph (f)(1) of this section and to be the operator of the 
program.
    (g) Payment for certain nonprovider-operated programs. (1) Payment 
rule. Costs incurred by a provider, or by an educational institution 
that is related to the provider by common ownership or control (that is, 
a related organization as defined in Sec. 413.17(b)), for the clinical 
training of students enrolled in an approved nursing or allied health 
education program that is not operated by the provider, are paid on a 
reasonable cost basis if the conditions specified in paragraph (g)(2) of 
this section are met.

[[Page 545]]

    (2) Criteria for identification of nonprovider-operated education 
programs. Payment for the incurred costs of educational activities 
identified in paragraph (g)(1) of this section will be made if the 
following conditions are met:
    (i) The clinical training must occur on the premises of the 
provider, that is, in the hospital itself or in the physical area 
immediately adjacent to the provider's main buildings, or in other areas 
and structures that are not strictly contiguous to the main buildings 
but are located within 250 yards of the main buildings.
    (ii) The provider must have claimed and been paid for clinical 
training costs on a reasonable cost basis during the most recent cost 
reporting period that ended on or before October 1, 1989. This condition 
is met if a notice of program reimbursement (NPR) was issued for that 
cost reporting period by November 5, 1990, and the clinical training 
costs were included as pass-through costs. If an NPR was not issued by 
that date, or an NPR was issued but did not treat the clinical training 
costs as pass-through costs, the condition is met if--
    (A) The intermediary included the clinical training costs in the 
allowable costs used to determine the interim rate for the most recent 
cost reporting period ending on or before October 1, 1989; or
    (B) The provider claimed the clinical training costs as pass-through 
costs when the cost report for the most recent cost reporting period 
ending on or before October 1, 1989, was initially submitted.
    (iii) In any cost reporting period, the percentage of total 
allowable provider cost attributable to allowable clinical training cost 
does not exceed the percentage of total cost for clinical training in 
the provider's most recent cost reporting period ending on or before 
October 1, 1989.
    (iv) The students in the educational program must provide a benefit 
to the provider through the provision of clinical services to patients 
of the provider.
    (v) The clinical training costs must be incurred by the provider or 
by an educational institution related to the provider by common control 
or ownership as defined in Sec. 413.17(b) (``Cost to related 
organizations.'') Costs incurred by a third-party, regardless of its 
relationship to either the provider or the educational institution, are 
not allowed.
    (vi) The costs incurred by a provider does not exceed the costs the 
provider would have incurred if it was the sole operator of the program.
    (h) Cost of educational activities treated as normal operating 
costs. The costs of the following educational activities incurred by a 
provider but not operated by that provider are recognized only as normal 
operating costs and paid in accordance with the reimbursement principles 
specified in Part 412 of this subchapter. They include:
    (1) Orientation and on-the-job training.
    (2) Part-time education for bona fide full-time employees at 
properly accredited academic or technical institutions (including other 
providers) devoted to undergraduate or graduate work.
    (3) Educational seminars, workshops, and continuing education 
programs in which the employees participate that enhance the quality of 
medical care or operating efficiency of the provider.
    (4) Maintenance of a medical library.
    (5) Training of a patient or patient's family in the use of medical 
appliances or other treatments.
    (6) Except as provided in paragraph (g) of this section, clinical 
training and classroom instruction of students enrolled in an 
educational program that is not operated by the provider. The following 
are clinical training and classroom instruction costs that are allowable 
as normal operating costs:
    (i) Costs incurred in the clinical training of students, including 
the clinical training or clerkship of undergraduate medical school 
students that takes place in a provider.
    (ii) Classroom instruction costs incurred by a provider that meet 
the following criteria:
    (A) The provider's support does not constitute a redistribution of 
nonprovider costs to the provider. The support must be in addition to 
the costs already being incurred by the nonprovider-operated program. If 
the nonprovider entity reduces its costs due to receiving provider 
support, this reduction constitutes a redistribution of

[[Page 546]]

costs from an educational institution to a patient care institution and 
is a nonallowable provider cost.
    (B) The provider receives a benefit for the support it furnishes.
    (C) The cost of the provider's support is less than the cost the 
provider would incur were it to operate the program.
    (7) Other activities that do not involve the actual operation of an 
approved educational program.

[66 FR 3374, Jan. 12, 2001, as amended at 66 FR 14342, Mar. 12, 2001]