[Code of Federal Regulations]
[Title 42, Volume 2]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR413.79]

[Page 717-728]
 
                         TITLE 42--PUBLIC HEALTH
 
                             HUMAN SERVICES
 
 PART 413_PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
 END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT 
 
                 Subpart F_Specific Categories of Costs
 
Sec.  413.79  Direct GME payments: Determination of the weighted number of FTE residents.

    Subject to the provisions in Sec.  413.80, CMS determines a 
hospital's number of FTE residents by applying a weighting factor to 
each resident and then summing the resulting numbers that represent each 
resident. The weighting factor is determined as follows:
    (a) Initial residency period. Generally, for purposes of this 
section, effective July 1, 1995, an initial residency period is defined 
as the minimum number of years required for board eligibility.
    (1) Prior to July 1, 1995, the initial residency period equals the 
minimum number of years required for board eligibility in a specialty or 
subspecialty plus 1 year. An initial residency period may not exceed 5 
years in order to be counted toward determining FTE status except in the 
case of a resident in an approved geriatric program whose initial 
residency period may last up to 2 additional years.
    (2) Effective October 1, 2003, for a resident who trains in an 
approved geriatric program that requires the residents to complete 2 
years of training to initially become board eligible in the geriatric 
specialty, the 2 years spent in the geriatrics program are treated as 
part of the resident's initial residency period.
    (3) Effective July 1, 2000, for residency programs that began 
before, on, or after November 29, 1999, the period of board eligibility 
and the initial residency period for a resident in an approved child 
neurology program is the period of board eligibility for pediatrics plus 
2 years.
    (4) Effective August 10, 1993, residents or fellows in an approved 
preventive medicine residency or fellowship program also may be counted 
as a full FTE resident for up to 2 additional years beyond the initial 
residency period limitations.
    (5) For combined residency programs, an initial residency period is 
defined as the time required for individual certification in the longer 
of the programs. If the resident is enrolled in a combined medical 
residency training program in which all of the individual programs (that 
are combined) are for training primary care residents (as defined in 
Sec.  413.75(b)) or obstetrics and gynecology residents, the initial 
residency period is the time required for individual certification in 
the longer of the programs plus 1 year.
    (6) For residency programs other than those specified in paragraphs 
(a)(2) through (a)(4) of this section, the initial residency period is 
the minimum number of years of formal training necessary to satisfy the 
requirements for initial board eligibility in the particular specialty 
for which the resident is training, as specified in the

[[Page 718]]

most recently published edition of the Graduate Medical Education 
Directory.
    (7) For residency programs in osteopathy, dentistry, and podiatry, 
the minimum requirement for certification in a specialty or subspecialty 
is the minimum number of years of formal training necessary to satisfy 
the requirements of the appropriate approving body listed in Sec.  
415.152 of this chapter.
    (8) For residency programs in geriatric medicine, accredited by the 
appropriate approving body listed in Sec.  415.152 of this chapter, 
these programs are considered approved programs on the later of--
    (i) The starting date of the program within a hospital; or
    (ii) The hospital's cost reporting periods beginning on or after 
July 1, 1985.
    (9) The time spent in residency programs that do not lead to 
certification in a specialty or subspecialty, but that otherwise meet 
the definition of approved programs, as described in Sec.  413.75(b), is 
counted toward the initial residency period limitation.
    (10) Effective for portions of cost reporting periods beginning on 
or after October 1, 2004, if a hospital can document that a resident 
simultaneously matched for one year of training in a particular 
specialty program, and for a subsequent year(s) of training in a 
different specialty program, the resident's initial residency period 
will be determined based on the period of board eligibility for the 
specialty associated with the program for which the resident matched for 
the subsequent year(s) of training. Effective for portions of cost 
reporting periods beginning on or after October 1, 2005, if a hospital 
can document that a particular resident, prior to beginning the first 
year of residency training, matched in a specialty program for which 
training would begin at the conclusion of the first year of training, 
that resident's initial residency period will be determined in the 
resident's first year of training based on the period of board 
eligibility associated with the specialty program for which the resident 
matched for subsequent training year(s).
    (b) Weighting factor--(1) If the resident is in an initial residency 
period, the weighting factor is one.
    (2) If the resident is not in an initial residency period, the 
weighting factor is 1.00 during the period beginning on or after July 1, 
1985 and before July 1, 1986, .75 during the period beginning on or 
after July 1, 1986 and before July 1, 1987, and .50 thereafter without 
regard to the hospital's cost reporting period.
    (c) Unweighted FTE counts--(1) Definitions. As used in this 
paragraph (c):
    (i) Otherwise applicable resident cap refers to a hospital's FTE 
resident cap that is determined for a particular cost reporting period 
under paragraph (c)(2) of this section.
    (ii) Reference resident level refers to a hospital's resident level 
in the applicable reference period specified under paragraph (c)(3)(ii) 
of this section.
    (iii) Resident level refers to the number of unweighted allopathic 
and osteopathic FTE residents who are training in a hospital in a 
particular cost reporting period.
    (2) Determination of the FTE resident cap. Subject to the provisions 
of paragraphs (c)(3) through (c)(6) of this section and Sec.  413.81, 
for purposes of determining direct GME payment--
    (i) For cost reporting periods beginning on or after October 1, 
1997, a hospital's resident level may not exceed the hospital's 
unweighted FTE count (or, effective for cost reporting periods beginning 
on or after April 1, 2000, 130 percent of the unweighted FTE count for a 
hospital located in a rural area) for these residents for the most 
recent cost reporting period ending on or before December 31, 1996.
    (ii) If a hospital's number of FTE residents in a cost reporting 
period beginning on or after October 1, 1997, and before October 1, 
2001, exceeds the limit described in this section, the hospital's total 
weighted FTE count (before application of the limit) will be reduced in 
the same proportion that the number of FTE residents for that cost 
reporting period exceeds the number of FTE residents for the most recent 
cost reporting period ending on or before December 31, 1996.
    (iii) If the hospital's number of FTE residents in a cost reporting 
period beginning on or after October 1, 2001 exceeds the limit described 
in this section, the hospital's weighted FTE count (before application 
of the limit)

[[Page 719]]

for primary care and obstetrics and gynecology residents and nonprimary 
care residents, respectively, will be reduced in the same proportion 
that the number of FTE residents for that cost reporting period exceeds 
the number of FTE residents for the most recent cost reporting period 
ending on or before December 31, 1996.
    (iv) Hospitals that are part of the same Medicare GME affiliated 
group (as described under Sec.  413.75(b)) may elect to apply the limit 
on an aggregate basis as described under paragraph (f) of this section.
    (v) The fiscal intermediary may make appropriate modifications to 
apply the provisions of this paragraph (c) of this section based on the 
equivalent of a 12-month cost reporting period.
    (3) Determination of the reduction to the FTE resident cap due to 
unused FTE resident slots. If a hospital's reference resident level is 
less than its otherwise applicable FTE resident cap as determined under 
paragraph (c)(2) of this section or paragraph (e) of this section in the 
reference cost reporting period (as described under paragraph (c)(3)(ii) 
of this section), for portions of cost reporting periods beginning on or 
after July 1, 2005, the hospital's otherwise applicable FTE resident cap 
is reduced by 75 percent of the difference between the otherwise 
applicable FTE resident cap and the reference resident level. Under this 
provision--
    (i) Exemption for certain rural hospitals. A rural hospital, as 
defined at subpart D of part 412 of this subchapter, with less than 250 
beds (as determined at Sec.  412.105(b)) in its most recent cost 
reporting period ending on or before September 30, 2002, is exempt from 
any reduction to the otherwise applicable FTE resident cap limit under 
paragraph (c)(3) of this section.
    (ii) Reference cost reporting periods.
    (A) To determine a hospital's reference resident level, CMS uses one 
of the following periods:
    (1) A hospital's most recent cost reporting period ending on or 
before September 30, 2002, for which a cost report has been settled or 
if the cost report has not been settled, the as-submitted cost report 
(subject to audit); or
    (2) A hospital's cost reporting period that includes July 1, 2003 if 
the hospital submits a timely request to CMS to increase its resident 
level due to an expansion of an existing program and that expansion is 
not reflected on the hospital's most recent settled cost report. An 
expansion of an existing program means that, except for expansions due 
to newly approved programs under paragraph (c)(3)(ii)(A)(3) of this 
section, the number of unweighted allopathic and osteopathic FTE 
residents in any cost reporting period after the hospital's most recent 
settled cost report, up to and including the hospital's cost report that 
includes July 1, 2003, is greater than the number of unweighted 
allopathic and osteopathic FTE residents in programs that were existing 
at that hospital during the hospital's most recent settled cost report.
    (3) A hospital may submit a timely request that CMS adjust the 
resident level for purposes of determining any reduction under paragraph 
(c)(3) of this section for the following purposes:
    (i) In the hospital's reference cost reporting period under 
paragraph (c)(3)(ii)(A)(1) of this section, to include the number of FTE 
residents for which a new program was accredited by the appropriate 
allopathic or osteopathic accrediting body (listed under Sec.  415.152 
of this chapter) before January 1, 2002, if the program was not in 
operation during the reference cost reporting period under paragraph 
(c)(3)(ii)(A)(1); or
    (ii) In the hospital's reference cost reporting period under 
paragraph (c)(3)(ii)(A)(2) of this section, to include the number of FTE 
residents for which a new program was accredited by the appropriate 
allopathic or osteopathic accrediting body (listed under Sec.  415.152 
of this chapter) before January 1, 2002, if the program was not in 
operation during the cost reporting period that includes July 1, 2003, 
and if the hospital also qualifies to use its cost report under 
paragraph (c)(3)(ii)(A)(2) of this section due to an expansion of an 
existing program.
    (B) If the cost report that is used to determine a hospital's 
otherwise applicable FTE resident cap in the reference period is not 
equal to 12 months, the

[[Page 720]]

fiscal intermediary may make appropriate modifications to apply the 
provisions of paragraph (c)(3)(i)(A) of this section based on the 
equivalent of a 12-month cost reporting period.
    (iii) If the new program described in paragraph (c)(3)(ii)(A)(3)(i) 
or paragraph (c)(3)(ii)(A)(ii) was accredited for a range of residents, 
the hospital may request that its reference resident level in its 
applicable reference cost reporting period under paragraph 
(c)(3)(ii)(A)(1) or (c)(3)(ii)(A)(2) of this section be adjusted to 
reflect the maximum number of accredited slots applicable to that 
hospital.
    (iv) Consideration of Medicare GME affiliated group agreements. For 
hospitals that are members of the same affiliated group for the program 
year July 1, 2003 through June 30, 2004, in determining whether a 
hospital's otherwise applicable resident FTE resident cap is reduced 
under paragraph(c)(3) of this section, CMS treats these hospitals as a 
group. Using information from the hospitals' cost reports that include 
July 1, 2003, if the hospitals' aggregate FTE resident counts are equal 
to or greater than the aggregate otherwise applicable FTE resident cap 
for the affiliated group, then no reductions are made under paragraph 
(c)(3) of this section to the hospitals' otherwise applicable FTE 
resident caps. If the hospitals' aggregate FTE resident count is below 
the aggregate otherwise applicable FTE resident cap, then CMS determines 
on a hospital-specific basis whether the individual hospital's FTE 
resident count is less than its otherwise applicable resident cap (as 
adjusted by affiliation agreement(s)) in the hospital's cost report that 
includes July 1, 2003. If the hospital's FTE resident count is in excess 
of its otherwise applicable FTE resident cap, the hospital will not have 
its otherwise applicable FTE resident cap reduced under paragraph (c)(3) 
of this section. Hospitals in the affiliated group that have FTE 
resident counts below their individual otherwise applicable FTE resident 
caps are subject to a pro rata reduction in their otherwise applicable 
FTE resident caps that is equal, in total, to 75 percent of the 
difference between the aggregate FTE cap and the aggregate FTE count for 
the affiliated group. The pro rata reduction to the individual 
hospital's otherwise applicable resident cap is calculated by dividing 
the difference between the hospital's individual otherwise applicable 
FTE resident cap and the hospital's FTE resident count by the total 
amount by which all of the hospitals' individual FTE resident counts are 
below their otherwise affiliated FTE resident caps, multiplying the 
quotient by the difference between the aggregate FTE resident cap and 
the aggregate FTE resident counts for the affiliated group, and 
multiplying that result by 75 percent.
    (4) Determination of an increase in otherwise applicable resident 
cap. For portions of cost reporting periods beginning on or after July 
1, 2005, a hospital may receive an increase in its otherwise applicable 
FTE resident cap up to an additional 25 FTEs (as determined by CMS) if 
the hospital meets the requirements and qualifying criteria of section 
1886(h)(7) of the Act and implementing instructions issued by CMS and if 
the hospital submits an application to CMS within the timeframe 
specified by CMS.
    (5) Special rules for hospitals that participate in demonstration 
projects or voluntary resident reduction plans. (i) If a hospital was 
participating in a demonstration project under section 402 of Pubic Law 
90-248 or the voluntary reduction plan under Sec.  413.88 for a greater 
period of time than the time period that elapsed since it withdrew from 
participation (or if it completed its participation) in the 
demonstration program or the voluntary reduction plan, for purposes of 
determining a possible reduction to the FTE resident caps under 
paragraph (c)(3) of this section, CMS compares the higher of the 
hospital's base number of residents (after subtracting any dental and 
podiatric FTE residents) or the hospital's reference resident level to 
the hospital's otherwise applicable resident cap determined under 
paragraph (c)(2) of this section.
    (ii) If a hospital participated in the demonstration project or the 
voluntary resident reduction plan for a period of time that is less than 
the time that elapsed since it withdraw from participation in the 
demonstration project or

[[Page 721]]

the voluntary reduction plan, the special rules in paragraph (c)(5)(i) 
do not apply, and the hospital is subject to the procedures applicable 
to all other hospitals for determining possible reductions to the FTE 
resident caps under paragraph (c)(3) of this section.
    (iii) CMS will not redistribute residency positions that are 
attributable to a hospital's participation in a demonstration project or 
a voluntary resident reduction plan to other hospitals that seek to 
increase their FTE resident caps under paragraph (c)(4) of this section.
    (6) FTE resident caps for rural hospitals that are redesignated as 
urban. A rural hospital redesignated as urban after September 30, 2004, 
as a result of the most recent census data and implementation of the new 
MSA definitions announced by OMB on June 6, 2003, may retain the 
increases to its FTE resident cap that it received under paragraphs 
(c)(2)(i), (e)(1)(iii), and (e)(3) of this section while it was located 
in a rural area.
    (d) Weighted FTE counts. Subject to the provisions of Sec.  413.81, 
for purposes of determining direct GME payment--
    (1) For the hospital's first cost reporting period beginning on or 
after October 1, 1997, the hospital's weighted FTE count is equal to the 
average of the weighted FTE count for the payment year cost reporting 
period and the preceding cost reporting period.
    (2) For cost reporting periods beginning on or after October 1, 
1998, and before October 1, 2001, the hospital's weighted FTE count is 
equal to the average of the weighted FTE count for the payment year cost 
reporting period and the preceding two cost reporting periods.
    (3) For cost reporting periods beginning on or after October 1, 
2001, the hospital's weighted FTE count for primary care and obstetrics 
and gynecology residents is equal to the average of the weighted primary 
care and obstetrics and gynecology counts for the payment year cost 
reporting period and the preceding two cost reporting periods, and the 
hospital's weighted FTE count for nonprimary care residents is equal to 
the average of the weighted nonprimary care FTE counts for the payment 
year cost reporting period and the preceding two cost reporting periods.
    (4) The fiscal intermediary may make appropriate modifications to 
apply the provisions of this paragraph (d) based on the equivalent of 
12-month cost reporting periods.
    (5) If a hospital qualifies for an adjustment to the limit 
established under paragraph (c)(2) of this section for new medical 
residency programs created under paragraph (e) of this section, the 
count of the residents participating in new medical residency training 
programs above the number included in the hospital's FTE count for the 
cost reporting period ending during calendar year 1996 is added after 
applying the averaging rules in this paragraph (d), for a period of 
years. Residents participating in new medical residency training 
programs are included in the hospital's FTE count before applying the 
averaging rules after the period of years has expired. For purposes of 
this paragraph (d), for each new program started, the period of years 
equals the minimum accredited length for each new program. The period of 
years begins when the first resident begins training in each new 
program.
    (6) Subject to the provisions of paragraph (h) of this section, FTE 
residents that are displaced by the closure of either another hospital 
or another hospital's program are added to the FTE count after applying 
the averaging rules in this paragraph (d), for the receiving hospital 
for the duration of the time that the displaced residents are training 
at the receiving hospital.
    (7) Subject to the provisions under paragraph (k) of this section, 
effective for cost reporting periods beginning on or after April 1, 
2000, FTE residents in a rural track program at an urban hospital are 
included in the urban hospital's rolling average calculation described 
in this paragraph (d).
    (e) New medical residency training programs. If a hospital 
establishes a new medical residency training program as defined in 
paragraph (l) of this section on or after January 1, 1995, the 
hospital's FTE cap described under paragraph (c) of this section may be 
adjusted as follows:

[[Page 722]]

    (1) If a hospital had no allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 1996, 
and it establishes a new medical residency training program on or after 
January 1, 1995, the hospital's unweighted FTE resident cap under 
paragraph (c) of this section may be adjusted based on the product of 
the highest number of residents in any program year during the third 
year of the first program's existence for all new residency training 
programs and the number of years in which residents are expected to 
complete the program based on the minimum accredited length for the type 
of program. The adjustment to the cap may not exceed the number of 
accredited slots available to the hospital for the new program.
    (i) If the residents are spending an entire program year (or years) 
at one hospital and the remainder of the program at another hospital, 
the adjustment to each respective hospital's cap is equal to the product 
of the highest number of residents in any program year during the third 
year of the first program's existence and the number of years the 
residents are training at each respective hospital.
    (ii) Prior to the implementation of the hospital's adjustment to its 
FTE cap beginning with the fourth year of the hospital's residency 
program(s), the hospital's cap may be adjusted during each of the first 
3 years of the hospital's new residency program using the actual number 
of residents participating in the new program. The adjustment may not 
exceed the number of accredited slots available to the hospital for each 
program year.
    (iii) Except for rural hospitals, the cap will not be adjusted for 
new programs established more than 3 years after the first program 
begins training residents.
    (iv) Effective for affiliation agreements entered into on or after 
October 1, 2005, an urban hospital that qualifies for an adjustment to 
its FTE cap under paragraph (e)(1) of this section is permitted to be 
part of a Medicare GME affiliated group for purposes of establishing an 
aggregate FTE cap only if the adjustment that results from the 
affiliation is an increase to the urban hospital's FTE cap.
    (v) A rural hospital that qualifies for an adjustment to its FTE cap 
under paragraph (e)(1) of this section is permitted to be part of a 
Medicare GME affiliated group for purposes of establishing an aggregate 
FTE cap.
    (2) If a hospital had allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 1996, 
the hospital's unweighted FTE cap may be adjusted for new medical 
residency training programs established on or after January 1, 1995 and 
on or before August 5, 1997. The adjustment to the hospital's FTE 
resident limit for the new program is based on the product of the 
highest number of residents in any program year during the third year of 
the newly established program and the number of years in which residents 
are expected to complete each program based on the minimum accredited 
length for the type of program.
    (i) If the residents are spending an entire program year (or years) 
at one hospital and the remainder of the program at another hospital, 
the adjustment to each respective hospital's cap is equal to the product 
of the highest number of residents in any program year during the third 
year of the first program's existence and the number of years the 
residents are training at each respective hospital.
    (ii) Prior to the implementation of the hospital's adjustment to its 
FTE cap beginning with the fourth year of the hospital's residency 
program, the hospital's cap may be adjusted during each of the first 3 
years of the hospital's new residency program, using the actual number 
of residents in the new programs. The adjustment may not exceed the 
number of accredited slots available to the hospital for each program 
year.
    (3) If a hospital with allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 1996, 
is located in a rural area (or other hospitals located in rural areas 
that added residents under paragraph (e)(1) of this section), the 
hospital's unweighted FTE limit may be adjusted in the same manner 
described in paragraph (e)(2) of this

[[Page 723]]

section to reflect the increase for residents in the new medical 
residency training programs established after August 5, 1997. For these 
hospitals, the limit will be adjusted for additional new programs but 
not for expansions of existing or previously existing programs.
    (4) A hospital seeking an adjustment to the limit on its unweighted 
resident count policy must provide documentation to its fiscal 
intermediary justifying the adjustment.
    (f) Medicare GME affiliated group. A hospital may receive a 
temporary adjustment to its FTE cap, which is subject to the averaging 
rules under paragraph (d) of this section, to reflect residents added or 
subtracted because the hospital is participating in a Medicare GME 
affiliated group (as defined under Sec.  413.75(b)). Under this 
provision--
    (1) Each hospital in the Medicare GME affiliated group must submit 
the Medicare GME affiliation agreement, as defined under Sec.  413.75(b) 
of this section, to the CMS fiscal intermediary servicing the hospital 
and send a copy to CMS's Central Office no later than July 1 of the 
residency program year during which the Medicare GME affiliation 
agreement will be in effect.
    (2) Each hospital in the Medicare GME affiliated group must have a 
shared rotational arrangement, as defined in Sec.  413.75(b), with at 
least one other hospital within the Medicare GME affiliated group, and 
all of the hospitals within the Medicare GME affiliated group must be 
connected by a series of such shared rotational arrangements.
    (3) During the shared rotational arrangements under a Medicare GME 
affiliation agreement, as defined in Sec.  413.75(b), more than one of 
the hospitals in the Medicare GME affiliated group must count the 
proportionate amount of the time spent by the resident(s) in its FTE 
resident counts. No resident may be counted in the aggregate as more 
than one FTE.
    (4) The net effect of the adjustments (positive or negative) on the 
Medicare GME affiliated hospitals' aggregate FTE cap for each Medicare 
GME affiliation agreement must not exceed zero.
    (5) If the Medicare GME affiliation agreement terminates for any 
reason, the FTE cap of each hospital in the Medicare GME affiliated 
group will revert to the individual hospital's pre-affiliation FTE cap 
that is determined under the provisions of paragraph (c) of this 
section.
    (6) Emergency Medicare GME affiliated group. Effective on or after 
August 29, 2005, home and host hospitals as defined at Sec.  413.75(b) 
may form an emergency Medicare GME affiliated group by meeting the 
requirements provided in this section. The emergency Medicare GME 
affiliation agreement may be made effective beginning on or after the 
first day of a section 1135 emergency period, and terminates no later 
than at the conclusion of two academic years following the academic year 
during which the section 1135 emergency period began.
    (i) Each hospital in the emergency Medicare GME affiliated group 
must submit an emergency Medicare GME affiliation agreement that is 
written, signed, and dated by responsible representatives of each 
participating hospital in the manner specified in paragraph (ii) and 
includes the following information:
    (A) List each participating hospital and its provider number; and 
indicate whether each hospital is a home or host hospital.
    (B) Specify the effective period of the emergency Medicare GME 
affiliation agreement (which must, in any event, terminate at the 
conclusion of two academic years following the academic year in which 
the section 1135 emergency period began).
    (C) List each participating hospital's IME and direct GME FTE caps 
in effect before the emergency Medicare GME affiliation agreement 
(including any adjustments to those caps in effect as a result of other 
Medicare GME affiliation agreements but not including any slots gained 
under Sec.  413.79(c)(4)).
    (D) Specify the total adjustment to each participating hospital's 
FTE caps in each academic year that the emergency Medicare GME 
affiliation agreement is in effect, for both direct GME and IME, that 
reflects a positive adjustment to the host hospital's direct and 
indirect FTE caps that is offset by a negative adjustment to the home

[[Page 724]]

hospital's (or hospitals') direct and indirect FTE caps of at least the 
same amount. The sum total of adjustments to all the participating 
hospitals' FTE caps under the emergency Medicare GME affiliation 
agreement may not exceed the aggregate adjusted FTE caps of the 
hospitals participating in the emergency Medicare GME affiliated group. 
A home hospital's IME and direct GME FTE cap reductions in an emergency 
Medicare GME affiliation agreement are limited to the home hospital's 
IME and direct GME FTE resident caps at Sec.  413.79(c) or Sec.  
413.79(f)(1) through (f)(5), that is, as adjusted by any and all 
existing affiliation agreements as applicable.
    (E) Attach copies of all existing Medicare GME affiliation 
agreements and emergency Medicare GME affiliation agreements in which 
the hospital is participating at the time the emergency Medicare GME 
affiliation agreement is executed.
    (ii) Deadline for submission of the emergency Medicare GME 
affiliation agreement. (A) Except for emergency Medicare GME affiliation 
agreements that meet the requirements of paragraph (f)(6)(ii)(B) of this 
section, each participating hospital must submit an emergency Medicare 
GME affiliation agreement to CMS and submit a copy to its CMS fiscal 
intermediary by--
    (1) First year. The later of 180 days after the section 1135 
emergency period begins or by June 30 of the academic year in which the 
section 1135 emergency was declared; or
    (2) Two subsequent academic years. The later of 180 days after the 
section 1135 emergency period begins, or by July 1 of each academic year 
for the 2 subsequent academic years.
    (B) For emergency Medicare GME affiliation agreements that would 
otherwise be required to be submitted by June 30, 2006 or July 1, 2006, 
each participating hospital must submit an emergency Medicare GME 
affiliation agreement to CMS and submit a copy to its CMS fiscal 
intermediary on or before October 9, 2006.
    (iii) Exemption from the Shared Rotational Arrangement Requirement. 
During the effective period of the emergency Medicare GME affiliation 
agreement, hospitals in the emergency Medicare GME affiliated group are 
not required to participate in a shared rotational arrangement as 
defined at Sec.  413.75(b).
    (iv) Host Hospital Exception from the Rolling Average for the Period 
from August 29, 2005 to June 30, 2006. To determine the FTE resident 
count for a host hospital that is training residents in excess of its 
cap, a two step process will be applied. First, subject to the limit at 
paragraph (f)(6)(i)(D) of this section, a host hospital is to exclude 
the displaced FTE residents that are counted by a host hospital in 
excess of the hospital's cap pursuant to an emergency Medicare GME 
affiliation agreement from August 29, 2005, to June 30, 2006, from the 
current year's FTE resident count before applying the three-year rolling 
averaging rules under Sec.  413.75 (d) to calculate the average FTE 
resident count. Second, the displaced FTE residents that are counted by 
the host hospital in excess of the host hospital's cap pursuant to an 
emergency Medicare GME affiliation agreement from August 29, 2005, to 
June 30, 2006, are added to the hospital's 3-year rolling average FTE 
resident count to determine the host hospital's FTE resident count for 
payment purposes.
    (g) Newly constructed hospitals. A hospital that began construction 
of its facility prior to August 5, 1997, and sponsored new medical 
residency training programs on or after January 1, 1995, and on or 
before August 5, 1997, that either received initial accreditation by the 
appropriate accrediting body or temporarily trained residents at another 
hospital(s) until the facility was completed, may receive an adjustment 
to its FTE cap.
    (1) The newly constructed hospital's FTE cap is equal to the lesser 
of--
    (i) The product of the highest number of residents in any program 
year during the third year of the newly established program and the 
number of years in which residents are expected to complete the programs 
based on the minimum accredited length for each type of program; or
    (ii) The number of accredited slots available to the hospital for 
each year of the programs.
    (2) If the new medical residency training programs sponsored by the 
newly constructed hospital have been

[[Page 725]]

in existence for 3 years or more by the time the residents begin 
training at the newly constructed hospital, the newly constructed 
hospital's cap will be based on the number of residents training in the 
third year of the programs begun at the temporary training site.
    (3) If the new medical residency training programs sponsored by the 
newly constructed hospital have been in existence for less than 3 years 
by the time the residents begin training at the newly constructed 
hospital, the newly constructed hospital's cap will be based on the 
number of residents training at the newly constructed hospital in the 
third year of the programs (including the years at the temporary 
training site).
    (4) A hospital that qualifies for an adjustment to its FTE cap under 
this paragraph (g) may be part of an affiliated group for purposes of 
establishing an aggregate FTE cap.
    (5) The provisions of this paragraph (g) are applicable during 
portions of cost reporting periods occurring on or after October 1, 
1999.
    (h) Closure of hospital or hospital residency program--(1) 
Definitions. For purposes of this section--
    (i) Closure of a hospital means the hospital terminates its Medicare 
agreement under the provisions of Sec.  489.52 of this chapter.
    (ii) Closure of a hospital residency training program means the 
hospital ceases to offer training for residents in a particular approved 
medical residency training program.
    (2) Closure of a hospital. A hospital may receive a temporary 
adjustment to its FTE cap to reflect residents added because of another 
hospital's closure if the hospital meets the following criteria:
    (i) The hospital is training additional residents from a hospital 
that closed on or after July 1, 1996.
    (ii) No later than 60 days after the hospital begins to train the 
residents, the hospital submits a request to its fiscal intermediary for 
a temporary adjustment to its FTE cap, documents that the hospital is 
eligible for this temporary adjustment by identifying the residents who 
have come from the closed hospital and have caused the hospital to 
exceed its cap, and specifies the length of time the adjustment is 
needed.
    (3) Closure of a hospital's residency training program. If a 
hospital that closes its residency training program voluntarily agrees 
to temporarily reduce its FTE cap according to the criteria specified in 
paragraph (h)(3)(ii) of this section, another hospital(s) may receive a 
temporary adjustment to its FTE cap to reflect residents added because 
of the closure of the residency training program if the criteria 
specified in paragraph (h)(3)(i) of this section are met.
    (i) Receiving hospital(s). A hospital may receive a temporary 
adjustment to its FTE cap to reflect residents added because of the 
closure of another hospital's residency training program if--
    (A) The hospital is training additional residents from the residency 
training program of a hospital that closed a program; and
    (B) No later than 60 days after the hospital begins to train the 
residents, the hospital submits to its fiscal intermediary a request for 
a temporary adjustment to its FTE cap, documents that it is eligible for 
this temporary adjustment by identifying the residents who have come 
from another hospital's closed program and have caused the hospital to 
exceed its cap, specifies the length of time the adjustment is needed, 
and submits to its fiscal intermediary a copy of the FTE reduction 
statement by the hospital that closed its program, as specified in 
paragraph (h)(3)(ii)(B) of this section.
    (ii) Hospital that closed its program(s). A hospital that agrees to 
train residents who have been displaced by the closure of another 
hospital's program may receive a temporary FTE cap adjustment only if 
the hospital with the closed program--
    (A) Temporarily reduces its FTE cap based on the FTE residents in 
each program year training in the program at the time of the program's 
closure. This yearly reduction in the FTE cap will be determined based 
on the number of those residents who would have been training in the 
program during that year had the program not closed; and

[[Page 726]]

    (B) No later than 60 days after the residents who were in the closed 
program begin training at another hospital, submit to its fiscal 
intermediary a statement signed and dated by its representative that 
specifies that it agrees to the temporary reduction in its FTE cap to 
allow the hospital training the displaced residents to obtain a 
temporary adjustment to its cap; identifies the residents who were in 
training at the time of the program's closure; identifies the hospitals 
to which the residents are transferring once the program closes; and 
specifies the reduction for the applicable program years.
    (i) Additional FTEs for residents on maternity or disability leave 
or other approved leave of absence. Effective for cost reporting periods 
beginning on or after November 29, 1999, a hospital may receive an 
adjustment to its FTE cap of up to three additional resident FTEs, if 
the hospital meets the following criteria:
    (1) The additional residents are residents of a primary care program 
that would have been counted by the hospital as residents for purposes 
of the hospital's FTE cap but for the fact that the additional residents 
were on maternity or disability leave or a similar approved leave of 
absence during the hospital's most recent cost reporting period ending 
on or before December 31, 1996;
    (2) The leave of absence was approved by the residency program 
director to allow the residents to be absent from the program and return 
to the program after the leave of absence; and
    (3) No later than 6 months after August 1, 2000, the hospital 
submits to the fiscal intermediary a request for an adjustment to its 
FTE cap, and provides contemporaneous documentation of the approval of 
the leave of absence by the residency director, specific to each 
additional resident that is to be counted for purposes of the 
adjustment.
    (j) Residents previously trained at VA hospitals. For cost reporting 
periods beginning on or after October 1, 1997, a non-Veterans Affairs 
(VA) hospital may receive a temporary adjustment to its FTE cap to 
reflect residents who had previously trained at a VA hospital and were 
subsequently transferred to the non-VA hospital, if that hospital meets 
the following criteria:
    (1) The transferred residents had been training previously at a VA 
hospital in a program that would have lost its accreditation by the 
ACGME if the residents continued to train at the VA hospital;
    (2) The residents were transferred to the hospital from the VA 
hospital on or after January 1, 1997, and before July 31, 1998; and
    (3) The hospital submits a request to its fiscal intermediary for a 
temporary adjustment to its FTE cap, documents that it is eligible for 
this temporary adjustment by identifying the residents who have come 
from the VA hospital, and specifies the length of time those residents 
will be trained at the hospital.
    (k) Residents training in rural track programs. Subject to the 
provisions of Sec.  413.81, an urban hospital that establishes a new 
residency program, or has an existing residency program, with a rural 
track (or an integrated rural track) may include in its FTE count 
residents in those rural tracks, in addition to the residents subject to 
its FTE cap specified under paragraph (c) of this section. An urban 
hospital with a rural track residency program may count residents in 
those rural tracks up to a rural track FTE limitation if the hospital 
complies with the conditions specified in paragraphs (k)(2) through 
(k)(7) of this section.
    (1) If an urban hospital rotates residents to a separately 
accredited rural track program at a rural hospital(s) for two-thirds of 
the duration of the program for cost reporting periods beginning on or 
after April 1, 2000, and before October 1, 2003, or for more than one-
half of the duration of the program for cost reporting periods beginning 
on or after October 1, 2003, the urban hospital may include those 
residents in its FTE count for the time the rural track residents spend 
at the urban hospital. The urban hospital may include in its FTE count 
those residents in the rural track training at the urban hospital, not 
to exceed its rural track FTE limitation, determined as follows:
    (i) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for each urban hospital will

[[Page 727]]

be the actual number of FTE residents, subject to the rolling average at 
paragraph (d)(7) of this section, training in the rural track at the 
urban hospital.
    (ii) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of the highest 
number of residents, in any program year, who during the third year of 
the rural track's existence are training in the rural track at the urban 
hospital or the rural hospital(s) and are designated at the beginning of 
their training to be rotated to the rural hospital(s) for at least two-
thirds of the duration of the program for cost reporting periods 
beginning on or after April 1, 2000, and before October 1, 2002, or for 
more than one-half of the duration of the program effective for cost 
reporting periods beginning on or after October 1, 2003, and the number 
of years those residents are training at the urban hospital.
    (2) If an urban hospital rotates residents to a separately 
accredited rural track program at a rural nonhospital site(s) for two-
thirds of the duration of the program for cost reporting periods 
beginning on or after April 1, 2000, and before October 1, 2003, or for 
more than one-half of the duration of the program for cost reporting 
periods beginning on or after October 1, 2003, the urban hospital may 
include those residents in its FTE count, subject to the requirements 
under Sec.  413.78(d). The urban hospital may include in its FTE count 
those residents in the rural track, not to exceed its rural track FTE 
limitation, determined as follows:
    (i) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for each urban hospital will be the actual number 
of FTE residents, subject to the rolling average specified in paragraph 
(d)(7) of this section, training in the rural track at the urban 
hospital and the rural nonhospital site(s).
    (ii) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of--
    (A) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the rural 
track at--
    (1) The urban hospital and are designated at the beginning of their 
training to be rotated to a rural nonhospital site(s) for at least two-
thirds of the duration of the program for cost reporting periods 
beginning on or after April 1, 2000 and before October 1, 2003, or for 
more than one-half of the duration of the program for cost reporting 
periods beginning on or after October 1, 2003; and
    (2) The rural nonhospital site(s); and
    (B) The number of years in which the residents are expected to 
complete each program based on the minimum accredited length for the 
type of program.
    (3) If an urban hospital rotates residents in the rural track 
program to a rural hospital(s) for less than two-thirds of the duration 
of the program for cost reporting periods beginning on or after April 1, 
2000, and before October 1, 2003, or for one-half or less than one-half 
of the duration of the program for cost reporting periods beginning on 
or after October 1, 2003, the rural hospital may not include those 
residents in its FTE count (if the rural track is not a new program 
under paragraph (e)(3) of this section, or if the rural hospital's FTE 
count exceeds that hospital's FTE cap), nor may the urban hospital 
include those residents when calculating its rural track FTE limitation.
    (4) If an urban hospital rotates residents in the rural track 
program to a rural nonhospital site(s) for less than two-thirds of the 
duration of the program for cost reporting periods beginning on or after 
April 1, 2000 and before October 1, 2003, or for one-half or less than 
one-half of the duration of the program for cost reporting periods 
beginning on or after October 1, 2003, the urban hospital may include 
those residents in its FTE count, subject to the requirements under 
Sec.  413.78(d). The urban hospital may include in its FTE count those 
residents in the rural track, not to exceed its rural track limitation, 
determined as follows:
    (i) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for the urban hospital will be the actual number of 
FTE residents, subject to the rolling average specified in paragraph 
(d)(7) of this section,

[[Page 728]]

training in the rural track at the rural nonhospital site(s).
    (ii) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of--
    (A) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the rural 
track at the rural nonhospital site(s) or are designated at the 
beginning of their training to be rotated to the rural nonhospital 
site(s) for a period that is less than two-thirds of the duration of the 
program for cost reporting periods beginning on or after April 1, 2002, 
and before October 1, 2003, or for one-half or less than one-half of the 
duration of the program for cost reporting periods beginning on or after 
October 1, 2003; and
    (B) The length of time in which the residents are being training at 
the rural nonhospital site(s) only.
    (5) All urban hospitals that wish to count FTE residents in rural 
tracks, not to exceed their respective rural track FTE limitation, must 
also comply with all of the following conditions:
    (i) An urban hospital may not include in its rural track FTE 
limitation or (assuming the urban hospital's FTE count exceeds its FTE 
cap) FTE count residents who are training in a rural track residency 
program that were already included as part of the hospital's FTE cap.
    (ii) The hospital must base its count of residents in a rural track 
on written contemporaneous documentation that each resident enrolled in 
a rural track program at the hospital intends to rotate for a portion of 
the residency program to a rural area.
    (iii) All residents that are included by the hospital as part of its 
rural track FTE count (not to exceed its rural track FTE limitation) 
must train in the rural area. However, where a resident begins to train 
in the rural track program at the urban hospital but leaves the program 
before completing the total required portion of training in the rural 
area, the urban hospital may count the time the resident trained in the 
urban hospital if another resident fills the vacated FTE slot and 
completes the training in the rural portion of the rural track program. 
An urban hospital may not receive GME payment for the time the resident 
trained at the urban hospital if another resident fills the vacated FTE 
slot and first begins to train at the urban hospital.
    (6) If CMS finds that residents who are included by the urban 
hospital as part of its FTE count did not actually complete the training 
in the rural area, CMS will reopen the urban hospital's cost report 
within the 3-year reopening period as specified in Sec.  405.1885 of 
this chapter and adjust the hospital's Medicare GME payments (and, where 
applicable, the hospital's rural track FTE limitation).
    (l) For purposes of this section, a new medical residency training 
program means a medical residency that receives initial accreditation by 
the appropriate accrediting body or begins training residents on or 
after January 1, 1995.
    (7) If an urban hospital had established a rural track training 
program under the provisions of this paragraph (k) with a hospital 
located in a rural area and that rural area subsequently becomes an 
urban area due to the most recent census data and implementation of the 
new labor market area definitions announced by OMB on June 6, 2003, the 
urban hospital may continue to adjust its FTE resident limit in 
accordance with this paragraph (k) for the rural track programs 
established prior to the adoption of such new labor market area 
definitions. In order to receive an adjustment to its FTE resident cap 
for a new rural track residency program, the urban hospital must 
establish a rural track program with hospitals that are designated rural 
based on the most recent geographical location designations adopted by 
CMS.

[69 FR 49254, Aug. 11, 2004, as amended at 69 FR 60252, Oct. 7, 2004; 69 
FR 78530, Dec. 30, 2004; 70 FR 47489, Aug. 12, 2005; 71 FR 18666, Apr. 
12, 2006; 71 FR 38266, July 6, 2006; 71 FR 48142, Aug. 18, 2006]