Medicare Program; Medicare Graduate Medical Education Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations, 18654-18667 [06-3492]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 71, Number 70 (Wednesday, April 12, 2006)]
[Rules and Regulations]
[Pages 18654-18667]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3492]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412 and 413

[CMS-1531-IFC]
RIN 0938-AO35


Medicare Program; Medicare Graduate Medical Education Affiliation 
Provisions for Teaching Hospitals in Certain Emergency Situations

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period will modify the 
current Graduate Medical Education (GME) regulations as they apply to 
Medicare GME affiliations to provide for greater flexibility during 
times of disaster. Specifically, this rule will implement the emergency 
Medicare GME affiliated group provisions that will address issues that 
may be faced by certain teaching hospitals in the event that residents 
who would otherwise have trained at a hospital in an emergency area (as 
that term is defined in section 1135(g) of the Social Security Act (the 
Act)) are relocated to alternate training sites.

DATES: This interim final rule is effective as of August 29, 2005.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on June 12, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1531-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1531-IFC, P.O. Box 8011, Baltimore, MD 
21244-8011.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1531-IFC, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-9994 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Elizabeth Truong, (410) 786-6005. 
Renate Rockwell, (410) 786-4645.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on all issues set forth in this rule to assist us in 
fully considering issues and developing policies. You can assist us by 
referencing the file code CMS-1531-IFC and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 
three weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]

[[Page 18655]]

A. Legislative Authority

    The stated purpose of section 1135 of the Act is to enable the 
Secretary to ensure, to the maximum extent feasible, in any emergency 
area and during an emergency period, that sufficient health care items 
and services are available to meet the needs of enrollees in Medicare, 
Medicaid, and the State Children's Health Insurance Program (SCHIP). 
Section 1135 of the Act authorizes the Secretary, to the extent 
necessary to accomplish the statutory purpose, to temporarily waive or 
modify the application of certain types of statutory and regulatory 
provisions (such as conditions of participation or other certification 
requirements, program participation or similar requirements, or pre-
approval requirements) with respect to health care items and services 
furnished by health care provider(s) in an emergency area during an 
emergency period.
    The Secretary's authority under section 1135 of the Act arises in 
the event there is an ``emergency area'' and continues during an 
``emergency period'' as those terms are defined in the statute. Under 
section 1135(g) of the Act, an emergency area is a geographic area in 
which there exists an emergency or disaster that is declared by the 
President according to the National Emergencies Act or the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act, and a public 
health emergency declared by the Secretary according to section 319 of 
the Public Health Service Act. (Section 319 of the Public Health 
Service Act authorizes the Secretary to declare a public health 
emergency and take the appropriate action to respond to the emergency, 
consistent with existing authorities.) Throughout the remainder of this 
discussion, we will refer to such emergency areas and emergency periods 
as ``section 1135'' emergency areas and emergency periods.
    Section 1871(e)(1)(A) of the Act, as amended by section 903(a)(1) 
of the Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173), generally prohibits the Secretary from 
making retroactive substantive changes in policy unless retroactive 
application of the change is necessary to comply with statutory 
requirements, or failure to apply the change retroactively would be 
contrary to the public interest. Due to the infrastructure damage and 
disruption of operations experienced by medical facilities, and the 
consequent disruption in residency training, caused by Hurricanes 
Katrina and Rita in 2005, there is urgent need for the regulation 
changes provided in this interim final rule with comment period to be 
applied retroactively. Existing regulations do not adequately address 
the issues faced by hospitals that are located in the emergency areas 
addressed in this rule, or hospitals that assisted by training 
displaced residents from the emergency area. We believe failure to 
apply the regulatory changes retroactively would be contrary to the 
public interest because hospitals affected by Hurricanes Katrina and 
Rita could otherwise face dramatic financial hardship and impede the 
recovery of graduate medical education programs in the emergency area.
    Specifically, the training programs at many teaching hospitals in 
New Orleans and surrounding areas were temporarily closed in the 
aftermath of the hurricanes, and the displaced residents were 
transferred to other hospitals to continue their training programs in 
other parts of the country. While many residents will likely be able to 
return to the hurricane-affected hospitals after some period of time, 
others may need to remain where they have been transferred for an 
extended period of time. A regulatory change is required so that 
Medicare graduate medical education (GME) funding can be maintained 
while there are displaced residents training at various hospitals 
outside of the emergency area even as the hurricane-affected hospitals 
incrementally bring residents back in the process of rebuilding their 
training programs.
    Under section 1886(h) of the Act, as amended by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272), the Secretary is authorized to make payments to hospitals for 
the direct costs of approved GME programs. Section 1886(d)(5)(B) of the 
Act provides that prospective payment hospitals that have residents in 
an approved GME program receive an additional payment for a Medicare 
discharge to reflect the higher patient care costs of teaching 
hospitals, that is, the indirect graduate medical education (IME) 
costs. Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act 
established limits on the number of allopathic and osteopathic 
residents that hospitals may count for purposes of calculating direct 
GME payments and the IME adjustment, respectively, thereby establishing 
hospital-specific direct GME and IME full-time equivalent (FTE) 
resident caps. However, under the authority granted by section 
1886(h)(4)(H)(ii) of the Act, the Secretary may issue rules to allow 
institutions that are members of the same affiliated group to apply 
their direct GME and IME FTE resident caps on an aggregate basis 
through a Medicare GME affiliation agreement. The Secretary's 
regulations permit hospitals, through a Medicare GME affiliation 
agreement, to adjust IME and direct GME FTE resident caps to reflect 
the rotation of residents among affiliated hospitals. The current 
regulation at Sec.  413.75(b), implementing Medicare GME affiliations, 
specifies that hospitals may only form a Medicare GME affiliated group 
with other hospitals if they are in the same or contiguous urban or 
rural areas, if they are under common ownership, or if they are jointly 
listed as program sponsors or major participating institutions in the 
same program. The existing regulations do not provide for hospitals 
whose residency programs have been disrupted in an emergency area to 
enter into valid Medicare GME affiliation agreements with host 
hospitals where the hospitals may not meet the regulatory requirements 
for Medicare GME affiliations. Therefore, through this interim final 
rule with comment period, we are supplementing the regulations at Sec.  
413.75(b) and Sec.  413.79(f) with provisions for emergency Medicare 
GME affiliated groups to provide relief to hospitals with disrupted 
residency programs in an emergency area. These provisions are being 
made effective retroactive to August 29, 2005.

B. Overview of Medicare Direct GME and IME

    As we discussed in the previous section, the Medicare program makes 
payments to teaching hospitals to account for two types of costs, the 
direct costs (direct GME) and the indirect costs (IME) of a hospital's 
graduate medical education program. Direct GME payments represent the 
direct costs of training residents (for example, resident salaries, 
fringe benefits, and teaching physician costs associated with an 
approved GME program) and generally are calculated by determining the 
product of the Medicare patient load (that is, the percentage of the 
hospital's Medicare inpatient days), the hospital's per resident 
payment amount, and the weighted number of FTE residents training at 
the hospital during the cost reporting period.
    The IME adjustment is made to teaching hospitals for the additional 
indirect patient care costs attributable to teaching activities. For 
example, teaching hospitals typically offer more technologically 
advanced treatments to their patients, and therefore, patients who are 
sicker and need more sophisticated treatment are more likely

[[Page 18656]]

to go to teaching hospitals. Furthermore, there are additional costs 
related to the presence of inefficiencies associated with teaching 
residents resulting from the additional tests or procedures ordered by 
residents and the demands put on physicians who supervise, and staff 
who support, the residents. IME payments are made as a percentage add-
on adjustment to the per discharge Hospital Inpatient Prospective 
Payment System (IPPS) payment, and are calculated based on the 
hospital's ratio of FTE residents to available beds as defined at Sec.  
412.105(b). The statutory formula for calculating the IME adjustment 
is: c x [(1 + r)\.405\ - 1], where ``r'' represents the hospital's 
ratio of FTE residents to beds, and ``c'' represents an IME multiplier, 
which is set by the Congress.
    The amount of IME payment a hospital receives for a particular 
discharge is dependent upon the number of FTE residents the hospital 
trains, the hospital's number of available beds, the current level of 
the statutory IME multiplier, and the per discharge IPPS payment. 
Sections 1886(d)(5)(B)(v) and 1886(h)(4)(F) of the Act established 
hospital specific limits (that is, caps) on the number of allopathic 
and osteopathic FTE residents that hospitals may count for purposes of 
calculating indirect and direct GME payments, respectively.

C. Effect of Existing Regulations

    As explained above, the Secretary's authority under section 1135 of 
the Act is prompted by the occurrence of an emergency or disaster that 
leads to designation of a section 1135 emergency area, and continues 
throughout a section 1135 emergency period. For example, when Hurricane 
Katrina occurred on August 29, 2005, disrupting health care operations 
and medical residency training programs at teaching hospitals in New 
Orleans and the surrounding area, the conditions were met for an 
emergency area and emergency period under section 1135(g) of the Act. 
Under section 1135 of the Act, the Secretary was then authorized to 
waive a number of provisions to ensure that sufficient services would 
be available in the section 1135 emergency area to meet the needs of 
Medicare, Medicaid, and SCHIP patients. Shortly after Hurricane Katrina 
occurred, we were informed by hospitals in New Orleans that the 
training programs at many teaching hospitals in the city were closed as 
a result of the disaster and that the displaced residents were being 
transferred to training programs at host hospitals in other parts of 
the country. For purpose of discussion in this rule, a host hospital is 
a hospital that trains residents displaced from a training program in a 
section 1135 emergency area. A home hospital is a hospital that meets 
all of the following: (1) Is located in a section 1135 emergency area 
(2) had its inpatient bed occupancy decreased by 20 percent or more due 
to the disaster so that it is unable to train the number of residents 
it originally intended to train in that academic year, and (3) needs to 
send the displaced residents to train at a host hospital.
    Immediately after Hurricane Katrina, home and host hospitals 
petitioned CMS for a mechanism to allow host hospitals to count the 
displaced FTE residents they would be training for direct GME and IME 
payment purposes. In response to the petitions, we immediately issued a 
Question and Answer (Q&A), which cited provisions in existing 
regulations at Sec.  413.79(h). Section 413.79(h) allows home hospitals 
that closed, or closed one or more residency training programs, to 
temporarily transfer FTE residents to host hospitals and allows host 
hospitals that were already training residents at or above their FTE 
resident caps to count those displaced residents for direct GME and IME 
payment (see the CMS Q&A's Web site: https://questions.cms.hhs.gov (the 
Web site link is located at ID 5696)).
    As specified at Sec.  413.79(h), Medicare considers a program at a 
hospital to be closed if ``* * * the hospital ceases to offer training 
for residents in a particular approved medical residency training 
program.'' Section 413.79(h) also defines closure of a hospital as when 
a hospital ``* * * terminates its Medicare agreement under the 
provisions of Sec.  489.52 * * *.'' The regulations at Sec.  413.79(h) 
allow a host hospital that accepts residents from the closed program to 
receive a temporary increase in its IME and direct GME resident caps 
for those residents as long as the home hospital agrees to a 
corresponding temporary reduction to its own caps. The host hospital 
under the closed program provisions would receive temporary FTE 
resident cap adjustments only as long as the specific resident(s) is 
displaced (and only as long as the home hospital or home hospital's 
program remains closed). Therefore, once the resident(s) completes 
training in the program that he or she was training in when the program 
closed, or he or she returns to train at the home hospital, no 
additional FTE resident cap adjustments for the host hospital are 
permitted under Sec.  413.79(h). Furthermore, Sec.  413.79(h) specifies 
that a host hospital can receive a temporary increase in its FTE 
resident caps in order to count displaced FTE residents only if the 
proper documentation is submitted to the fiscal intermediaries (FIs) by 
both the home and host hospital no later than 60 days after the host 
hospital begins to train the displaced resident(s).
    In accordance with the authority granted to the Secretary under 
section 1135 of the Act, as stated in our Q&A posted on the CMS Web 
site, we extended the regulatory 60-day deadline for submitting 
documentation to CMS as required by Sec.  413.79(h) and thus allowed 
hospitals to submit the documentation by the earlier of the end of the 
section 1135 emergency period granted for Hurricanes Katrina and Rita 
or by June 30, 2006. The section 1135 emergency period ended on January 
31, 2006. We believe the existing regulation at Sec.  413.79(h) 
addressed the issue of finding host hospitals for residents displaced 
from home hospitals in the immediate aftermath of Hurricanes Katrina 
and Rita. However, teaching hospitals in section 1135 emergency areas 
have since made us aware of several issues that are not addressed (or 
not addressed adequately) under current regulations. For instance, some 
of the hurricane-affected programs in New Orleans and elsewhere did not 
in fact close entirely. In many cases, a reduced number of residents 
continued to train in the hospitals' outpatient departments. Therefore, 
those programs at the home hospitals did not actually close, and 
neither the home or host hospitals will be able to use the regulatory 
provisions at Sec.  413.79(h) to enable host hospitals that are at or 
above their FTE resident caps to count displaced residents from home 
hospitals for Medicare direct GME and IME purposes. We understand that 
even hospitals that had originally completely closed their programs 
have been in the process of gradually reopening their programs (that 
is, residents are being brought back to the home hospitals in stages). 
Therefore, even where a home hospital temporarily closed a program 
following the disaster, once it begins training any residents (even a 
fraction of an FTE resident) in that program again, the program is no 
longer closed and any adjustments made to the host hospital's cap under 
the closed program regulation would no longer be allowed. Therefore, we 
believe that, in order to remove the disincentive faced by hospitals 
that are at or above their FTE resident caps to continue training 
displaced residents, some kind of regulatory relief is necessary.

II. Meeting the Needs of Teaching Hospitals Affected by a Disaster

    [If you choose to comment on issues in this section, please include 
the

[[Page 18657]]

caption ``TEACHING HOSPITALS AFFECTED BY A DISASTER'' at the beginning 
of your comments.]
    This interim final rule with comment period will amend the Medicare 
GME affiliation regulations to address the needs and incentives of home 
and host hospitals in the event of an emergency or disaster. In 
developing a policy to provide home and host hospitals flexibility in 
response to a disaster, we address two priorities. First, we believe 
that in disaster situations, to the extent that the statute permits, 
the policy should facilitate the continuity of GME, minimizing the 
disruption of residency training. Second, the policy should take into 
account that the training programs at home hospitals have been severely 
disrupted by a disaster and that home hospitals will usually want to 
rebuild their GME programs as soon as possible.

A. Overview of the Closed Programs Provisions

    As we noted in our Q&A (posted on the CMS Web site), issued in 
response to inquiries from hospitals affected by Hurricane Katrina, the 
regulations at Sec.  413.79(h) offer a payment policy option that could 
be applied in limited situations occurring after a disaster. Thus, a 
host hospital would be allowed to make temporary adjustments to its IME 
and direct GME caps (limited by the home hospital's IME and direct GME 
caps) in order to count displaced residents for direct GME and IME 
payment purposes. However, due to the complexity of training programs 
where residents train at multiple hospitals (this is a common training 
model used throughout the country), there are many potential 
difficulties that can arise in applying this policy to address disaster 
situations.
    Typically, residents in a program spend time training during the 
year at multiple hospitals, some of which may have been affected by the 
disaster, while others may not have been affected. For example, a first 
year resident in a family practice program may spend one third of the 
year training at a hospital in New Orleans, and the remaining two-
thirds of the year at other hospitals in Baton Rouge. When the New 
Orleans hospital closed due to the hurricane, this resident may have 
been training at one of the Baton Rouge hospitals. Therefore, although 
the resident was not immediately displaced by the hurricane, since the 
resident would have rotated to the New Orleans hospital later in the 
year, the resident will ultimately be affected. Conversely, a resident 
that was training in New Orleans at the time of the hurricane was 
immediately displaced, so even if the resident was transferred to a 
host hospital in Texas to continue training, that resident may be able 
to continue to train at the unaffected Baton Rouge hospital after 
completing a rotation at the host hospital.
    Additional complexity can arise through the interaction of the home 
and host hospital's FTE resident caps. Each one of the home hospitals 
involved in the previous example could be training residents above 
their respective IME and direct GME FTE resident caps. Since the closed 
program provisions are resident-specific, that is, the host hospital's 
cap adjustment is tied to the specific resident who was displaced, as 
specified at Sec.  413.79(h), documentation would be required to 
account for each resident's FTE time spent training at each of the home 
and host hospitals. Additionally, because the policy under Sec.  
413.79(h) is resident-specific, the host hospital would only receive a 
temporary cap adjustment for as long as the specific residents are 
displaced. Therefore, home and host hospitals would need to provide a 
very detailed accounting of each resident's training as required at 
Sec.  413.79(h).
    Hospitals in New Orleans have notified us that in light of the 
damage they suffered from the hurricane, documenting the specific 
residents, their rotations at the various home and host hospitals (and 
the FTEs associated with each rotation) and where the displaced 
residents were sent after the hurricane constitutes a major 
documentation burden. We note that although CMS extended the 
documentation deadline to January 31, 2006, under the authority of 
section 1135 of the Act, giving hospitals 5 months from the time of the 
hurricane to submit this type of documentation, we are aware of no 
hospitals that complied with all of the documentation requirements 
listed at Sec.  413.79(h) by the due date. Therefore, due to the 
challenges and complexities mentioned above, we believe that the 
existing closed program regulations do not adequately address the 
issues associated with Medicare direct GME and IME payment policies 
that are faced by residency training programs affected by a disaster.

B. Overview of the Medicare GME Affiliation Provisions

    Accordingly, we are revising Sec.  413.75(b) to include definitions 
of emergency Medicare GME affiliated group, home hospital, host 
hospital, section 1135 emergency area, and section 1135 emergency 
period. We are also revising Sec.  413.79(f) to set forth the 
requirements of an emergency Medicare GME affiliation agreement.
    The existing definition of Medicare GME affiliated group at Sec.  
413.75(b) specifies that hospitals may only form a Medicare GME 
affiliated group with other hospitals if they are in the same or 
contiguous urban or rural areas, if they are under common ownership, or 
if they are jointly listed as program sponsors or major participating 
institutions in the same program. The existing Medicare GME affiliation 
provisions at Sec.  413.79(f) permit participating teaching hospitals 
to aggregate and ``share'' FTE caps during a specified academic year. 
The Medicare GME affiliation regulations allow hospitals that need to 
either decrease or increase their FTE resident counts to reflect the 
normal movement of residents among affiliated hospitals to do so for 
the agreed-upon training years.
    Hospitals that affiliate must submit a Medicare GME affiliation 
agreement, as specified at Sec.  413.75(b), to their Medicare FIs and 
to CMS no later than July 1 of the relevant academic year. Each 
hospital in the Medicare GME affiliated group must have a shared 
rotational arrangement 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 shared 
rotational arrangements. The net effect of the adjustments to 
hospitals' FTE resident caps, whether positive or negative on a 
hospital-specific basis, in the aggregate must not exceed zero. While 
additional hospitals may not be added to the Medicare GME affiliated 
group after July 1 of a year, amendments to the affiliation agreement 
to adjust the distribution of the number of FTE residents in the 
original Medicare GME affiliation among the hospitals that are part of 
the Medicare GME affiliated group can be made through June 30 of the 
academic year for which they are effective.

C. Overview of the Emergency Medicare GME Affiliated Group Provision

    [If you choose to comment on issues in this section, please include 
the caption ``OVERVIEW OF THE EMERGENCY MEDICARE GME AFFILIATED GROUP 
PROVISION'' at the beginning of your comments.]
    Based on what we have learned about the impact of a disaster on 
teaching hospitals, we believe it is necessary to provide hospitals 
with greater flexibility to distribute FTE resident caps within a group 
of home and host hospitals if there is an emergency at a home hospital 
that has resulted in the designation of a section 1135 emergency

[[Page 18658]]

area. We believe that a modified Medicare GME affiliation policy would 
allow affected hospitals the maximum degree of flexibility following 
the disaster so that residents displaced by the disaster can continue 
their residency training at other hospitals, while the home hospitals 
can remain committed to reopening their programs.
    While there may be hospitals in the section 1135 emergency area 
that do not experience a disruption in residency training due to the 
disaster, the provisions in this rule are only intended to help home 
hospitals, that is, hospitals that have been directly affected by the 
disaster to the extent that their inpatient bed occupancy is 
diminished, limiting the hospital's ability to train residents. In 
determining whether a hospital in a section 1135 emergency area 
qualifies as a home hospital, we believe it is appropriate to compare 
the inpatient bed occupancy of the hospital one week before the earlier 
of the date the section 1135 emergency period begins, or the date on 
which the hospital began any evacuation efforts in anticipation of an 
event that results in the declaration of a section 1135 emergency area, 
to the inpatient bed occupancy of the hospital one week after the 
section 1135 emergency period begins. If the inpatient bed occupancy 
decreases by 20 percent or more between these two comparison 
timeframes, we believe that the significant drop in occupancy can be 
assumed to be the result of the event that led to the declaration of a 
section 1135 emergency period. We believe a hospital that experiences 
such a drop in occupancy may not have enough patients to continue to 
provide for adequate residency training, and therefore, may need to 
send residents to host hospitals. The emergency Medicare GME 
regulations are applicable to these home hospitals. These emergency 
Medicare GME affiliated group provisions in Sec.  413.79(f)(6) are 
effective as of the date of the first day of a section 1135 emergency 
period (for example, in the case of Hurricane Katrina, they are 
effective on August 29, 2005). The duration of these emergency Medicare 
GME affiliation agreements is limited to the remainder of the academic 
year during which the section 1135 emergency period began, plus two 
additional academic years. Thus, an emergency Medicare GME affiliation 
agreement is permitted to remain in effect for no more than 3 training 
years, beginning with the first day of the section 1135 emergency 
period. (An emergency Medicare GME affiliation agreement could remain 
in effect for three full academic years only if the first day of a 
section 1135 emergency period occurred on July 1.)
    For example, in the case of Hurricane Katrina, an emergency 
Medicare GME affiliation could be effective from August 29, 2005, to 
June 30, 2006 (we refer to this as the first effective year); the 
affiliation could also be effective for two subsequent academic years: 
the second effective year of the emergency Medicare GME affiliation 
would be from July 1, 2006 to June 30, 2007, and the third effective 
year would be from July 1, 2007 to June 30, 2008. At the conclusion of 
the allowable effective period for an emergency Medicare GME affiliated 
group, the emergency provisions at Sec.  413.79(f)(6) cease to apply, 
and the existing provisions for Medicare GME affiliation agreements at 
Sec.  413.79(f)(1) through (5) would apply.
    We believe that the limits on the allowable effective period for 
emergency Medicare GME affiliated group serve to maintain GME funding 
over a sufficient period to allow home hospitals to rebuild their GME 
programs, while also supporting the continuity of residency training. 
We welcome public comments on whether the allowable effective period is 
sufficient time to accommodate rebuilding of residency programs at home 
hospitals.

D. Emergency Medicare GME Affiliated Group Provisions

1. Affiliation Agreement
    To provide home hospitals with more flexibility to train displaced 
residents at various sites, and to allow host hospitals to count 
displaced residents for IME and direct GME, home hospitals may enter 
into emergency Medicare GME affiliation agreements effective 
retroactive to the date of the first day of the section 1135 emergency 
period.
    The emergency Medicare GME affiliated group may include hospitals 
that would not meet the requirements for a Medicare GME affiliated 
group as specified as Sec.  413.75(b). Specifically, for these 
emergency Medicare GME affiliated groups, home hospitals may affiliate 
with host hospitals anywhere in the country because we recognize that 
immediately following a disaster, home hospitals need flexibility to 
assign displaced residents to any available program. As home hospitals 
recover the ability to train residents after a disaster, the emergency 
Medicare GME affiliated group provisions allow home hospitals to return 
residents to their training sites, thereby giving home hospitals the 
opportunity to rebuild their programs incrementally.
    For the year during which the section 1135 emergency was declared, 
each hospital participating in the emergency affiliation must submit a 
copy of the emergency Medicare GME affiliation agreement, as specified 
under Sec.  413.79(f)(6), to CMS and the CMS FI servicing each hospital 
in the agreement by the later of 180 days after the section 1135 
emergency period begins or by June 30 of the relevant training year. 
Emergency Medicare GME affiliation agreements for the subsequent 2 
academic years must be submitted by the later of 180 days after the 
section 1135 emergency period begins or by July 1 of each of the years. 
Amendments to the emergency Medicare GME affiliation agreement to 
adjust the distribution of the number of FTE residents in the original 
emergency Medicare GME affiliation among the hospitals that are part of 
the emergency Medicare GME affiliated group can be made through June 30 
of the academic year for which they are effective. The emergency 
Medicare GME affiliation agreement must be written, signed, and dated 
by responsible representatives of each participating hospital and must: 
(1) List each participating hospital and its provider number, and 
specify whether the hospital is a home or host hospital; (2) specify 
the effective period of the emergency Medicare GME affiliation 
agreement; (3) list each participating hospital's IME and direct GME 
FTE caps in effect for the current academic year before the emergency 
Medicare GME affiliation (that is, if the hospital was already a member 
of a regular Medicare GME affiliated group before entering into the 
emergency Medicare GME affiliation, the emergency Medicare GME 
affiliation must be premised on the FTE caps of the hospital as 
adjusted per the regular Medicare GME affiliation agreement, and not 
include any slots gained under section 422 of the MMA); and (4) specify 
the total adjustment to each hospital's FTE caps in each 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 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 caps of 
the hospitals participating in the emergency Medicare GME affiliated 
group. A home hospital's IME and direct GME FTE cap reductions under an 
emergency Medicare GME affiliation agreement are limited to the

[[Page 18659]]

home hospital's IME and direct GME FTE resident caps in effect for the 
academic year in accordance with regulations at Sec.  413.79(c)(1) 
through (c)(3) or Sec.  413.75(b), that is, the hospital's base year 
FTE resident caps as adjusted by any and all existing affiliation 
agreements.
    In addition to meeting the requirements for an emergency Medicare 
GME affiliation agreement, a host hospital will be required to document 
that any FTE residents counted pursuant to the emergency Medicare GME 
affiliation agreement are, in fact, displaced residents from a program 
located in the emergency area. That is, the host hospital will need to 
provide the FI with a list of resident names and social security 
numbers, and the name of the original sponsor of the program located at 
the home hospital in the emergency area for each displaced resident. We 
note that the hospital is already required, as specified at Sec.  
413.75(d), to provide much of this information in order to include any 
resident in its FTE count for a particular cost reporting period. We 
are adding the requirement that a host hospital document the original 
program sponsor of each displaced resident it is training in order to 
document that any additional FTE residents counted pursuant to the 
emergency Medicare GME affiliation agreement are indeed due to training 
of displaced residents. Providing appropriate and sufficient 
documentation permits the FI to properly reconcile the correct FTE 
resident count for each hospital.
2. Multiple Affiliations
    In many cases, home hospitals will already have Medicare GME 
affiliation agreements in effect before the section 1135 emergency 
period, and may be entering into emergency Medicare GME affiliation 
agreements with host hospitals that will already have regular Medicare 
GME affiliation agreements in effect. Therefore, such situations will 
lead to multiple layers of Medicare GME affiliations. It is critical 
that the emergency Medicare GME affiliation agreements accurately state 
the appropriate caps for each hospital in the affiliated group in order 
for the FIs to pay the hospitals correctly. The hospitals must attach 
copies of all existing Medicare GME affiliation agreements (that is, a 
hospital's regular or other emergency Medicare GME affiliations already 
in place for the year) when submitting the emergency Medicare GME 
affiliation agreement to the FI so that the FI can verify and reconcile 
the cap adjustments. For example, if a home hospital has a direct GME 
cap of 100 but has an existing affiliation agreement before the 
disaster in which it reduced its cap by 40 FTEs, then, for purposes of 
entering into the emergency Medicare GME affiliation agreement, it has 
an adjusted direct GME cap of 60 with which to affiliate under the 
emergency affiliation provisions. The emergency Medicare GME 
affiliation provisions are different from the regular Medicare GME 
affiliation provisions in that regular Medicare GME affiliations are 
based upon the hospitals' FTE resident caps before any adjustments 
resulting from Medicare GME affiliation agreements. Because they are 
likely to occur during an academic year, and cannot be anticipated 
before the beginning of the year, emergency Medicare GME affiliations 
are based upon hospitals' FTE resident caps as they are already 
modified by any existing Medicare GME affiliation agreement(s).
    In order to provide each hospital with its correct payment, the CMS 
FIs involved need to be aware of both regular Medicare GME affiliation 
agreements and any emergency Medicare GME affiliation agreements in 
which a hospital is participating. Without the correct information on 
each hospital's Medicare GME affiliation agreements (whether regular or 
emergency affiliations), hospitals could be paid improperly for direct 
GME and IME based on application of incorrect FTE resident caps that do 
not reflect all Medicare GME affiliation agreements in effect (that is, 
regular and emergency affiliations).
    Furthermore, to determine direct GME and IME payments under an 
emergency Medicare GME affiliation, the normal FTE-counting rules as 
specified at Sec.  413.78 will apply. For example, residents beyond the 
initial residency period are counted at .5 FTE for direct GME purposes. 
The existing IME FTE-counting rules as specified at Sec.  412.105(f) 
apply in determining the IME adjustment. Therefore, when the CMS FI 
settles a cost report for a hospital in which an emergency Medicare GME 
affiliation agreement is reflected, each participating hospital would 
be held to its adjusted IME and adjusted direct GME caps as agreed to 
and specified in the emergency Medicare GME affiliation agreement.
    We note that in the IPPS final rule published in the Federal 
Register on August 11, 2004 (69 FR 49142), we state ``* * * hospitals 
that receive section 422 cap increases from CMS and participate in a 
Medicare GME affiliation agreement under Sec.  413.79(f) on or after 
July 1, 2005 may only affiliate for the purposes of adjusting their 
1996 FTE caps (adjusted for new programs and any other reductions under 
section 1886(h)(7)(A) of the Act) for direct GME and IME. The 
additional slots that a hospital receives under section 422 of the MMA 
may not be aggregated and applied to the FTE resident caps of any other 
hospitals.'' Similarly, we are providing that any slots gained under 
section 422 of the MMA may not be used in any emergency Medicare GME 
affiliation agreement.
    We are providing examples below of the emergency Medicare GME 
affiliation agreements and discussing the ramifications of the 
provisions.

Example I

    For the training year beginning on July 1, 2005, Hospital A and 
Hospital B have a regular Medicare GME affiliation agreement in which 
Hospital A (which has IME and direct GME caps of 20 FTEs) agrees to 
transfer 10 FTEs to Hospital B (which has IME and direct GME caps of 15 
FTEs). Under the regular affiliation agreement, Hospital B now has 
adjusted caps of 25 FTEs and Hospital A has adjusted caps of 10 FTEs 
for both IME and direct GME. As a result of Hurricane Zeta on November 
1, 2005, Hospital A sustained damage to its inpatient facilities 
(reducing its occupancy by 20 percent or more) and has displaced 
residents that it needs to send to other hospitals for training. 
Hospital A is located in a section 1135 emergency area, and the first 
day of the section 1135 emergency period is November 1, 2005. In this 
case, Hospital A is a home hospital as defined under Sec.  413.75(b), 
and is permitted to enter into an emergency Medicare GME affiliation 
agreement as specified at Sec.  413.79(f)(6).
    In Example I above, Hospital B was not affected by the hurricane 
(that is, Hospital B was able to continue training residents at the 
same level it was before the hurricane, and is training the maximum 
number of residents under its FTE caps as adjusted by the existing 
Medicare GME affiliation agreement with Hospital A). We note that 
Hospitals A and B may modify their regular Medicare GME affiliation 
agreement, if necessary, no later than June 30, 2006, under the 
requirements as specified at Sec.  413.79(f)(5). In this case, Hospital 
B does not qualify as a home hospital since its inpatient occupancy was 
not reduced by 20 percent or more even though it was located in the 
area covered by the section 1135 waiver. Hospital A elects to enter 
into an emergency Medicare GME affiliation agreement with host 
Hospitals C and D in two other States because those

[[Page 18660]]

hospitals are well-situated to provide residents displaced from 
Hospital A with an appropriate training experience.
    Accordingly, all of the hospitals (A, C, and D) in the emergency 
Medicare GME affiliated group must submit copies of the emergency 
Medicare GME affiliation agreement to CMS and to the CMS FIs servicing 
the hospitals participating in the emergency Medicare GME affiliation 
agreement by June 30, 2006 (in this case, June 30, 2006 is the later of 
180 days after the section 1135 emergency period begins (November 1, 
2005) or by June 30 of the relevant training year). In Table I below, 
we list the FTE resident cap information that the emergency Medicare 
GME affiliation agreement, included for the first effective period, 
which was submitted to CMS and the CMS FI on June 30, 2006.

 Table I.--Emergency Medicare GME Affiliation Agreement Due to Hurricane Zeta for Effective Period--November 1,
                                              2005 to June 30, 2006
----------------------------------------------------------------------------------------------------------------
                                                                                                     Adjusted
                                                  IME cap before  Direct GME cap   Adjusted IME   Direct GME cap
          Hospital name            Provider No.      emergency        before       cap under the     under the
                                                    affiliation      emergency       emergency       emergency
                                                                    affiliation     affiliation     affiliation
----------------------------------------------------------------------------------------------------------------
Hospital A......................         19-9999              10              10          1 (-9)          1 (-9)
Hospital C......................         45-9999              10              10         14 (+4)         14 (+4)
Hospital D......................         33-9999              10              10         15 (+5)         15 (+5)
----------------------------------------------------------------------------------------------------------------

    As indicated in Example I above, Hospital B was not affected by the 
hurricane, and therefore did not participate in an emergency Medicare 
GME affiliated group. However, Hospital A is required to attach a copy 
of the existing Medicare GME affiliation agreement it has with Hospital 
B to the emergency Medicare GME affiliation agreement submitted to CMS 
and its FI to document its adjusted cap of 10 FTEs. Hospitals C and D 
are similarly required to attach copies of all existing Medicare GME 
affiliation agreements that they may be participating in as of July 1, 
2005, (including any regular or emergency affiliation agreements) in 
order to document their caps.
    To further illustrate this policy continuing with the above 
example, Hospital C, which has an adjusted direct GME cap under the 
emergency Medicare GME affiliation of 14 FTEs, could count up to four 
displaced FTE residents during the first effective year assuming that 
Hospital C can document that these FTEs are from programs in the 
section 1135 emergency area. However, upon cost report settlement, the 
CMS FI determined that Hospital C has actually trained a total of 16 
FTEs during the cost reporting period. Since each participating 
hospital will be held to their adjusted IME and adjusted direct GME 
caps as agreed to and specified in the emergency Medicare GME 
affiliation agreement, the CMS FI would only allow four of the six 
additional FTEs Hospital C trained pursuant to the emergency Medicare 
GME affiliation agreement.

Example II

    Alternatively, assume that both Hospitals A and B from Example I 
above are affected by the same hurricane, both qualify as a home 
hospital, and both need to participate in an emergency Medicare GME 
affiliation with host Hospitals C and D in the other States.
    We note that while Hospitals A and B may modify their existing 
Medicare GME affiliation agreement on or before June 30, 2006, 
Hospitals A and B may find it easier to reflect the changes in training 
(and the resultant shift of FTE resident caps) due to Hurricane Zeta 
through the emergency Medicare GME affiliation agreement. In this 
scenario, Hospitals A and B may execute an emergency Medicare GME 
affiliation agreement in which the emergency Medicare GME affiliated 
group includes Hospitals A, B, C, and D. In Table II below, we list the 
FTE cap information that the emergency Medicare GME affiliation 
agreement included for the first effective period, which was submitted 
to CMS and the CMS FI on June 30, 2006.

Table II.--Emergency Medicare GME Affiliation Agreement Due to Hurricane Zeta for Effective Period-- November 1,
                                              2005 to June 30, 2006
----------------------------------------------------------------------------------------------------------------
                                                                                                     Adjusted
                                                  IME cap before  Direct GME cap   Adjusted IME   Direct GME cap
          Hospital name            Provider No.      emergency        before       cap under the     under the
                                                    affiliation      emergency       emergency       emergency
                                                                    affiliation     affiliation     affiliation
----------------------------------------------------------------------------------------------------------------
Hospital A......................         19-9999              10              10          1 (-9)          1 (-9)
Hospital B......................         19-8999              25              25        10 (-15)        10 (-15)
Hospital C......................         45-9999              10              10         19 (+9)         19 (+9)
Hospital D......................         33-9999              10              10        25 (+15)        25 (+15)
----------------------------------------------------------------------------------------------------------------

    We note that the pre-existing regular Medicare GME affiliation 
agreement between Hospitals A and B which pre-dated the disaster is 
still in effect according to existing affiliation agreement rules; 
therefore Hospitals A and B must account for any FTE resident cap 
transfers specified in the regular affiliation agreement when they 
enter into the emergency Medicare GME affiliation agreement with host 
Hospitals C and D. In addition, a copy of Hospital A and B's regular 
Medicare GME affiliation agreement must be attached to the emergency 
Medicare GME affiliation agreement that is submitted to CMS and the 
hospitals' CMS FIs.
3. Submission Process
    Submissions of emergency Medicare GME affiliation agreements should 
be sent to:
    Centers for Medicare & Medicaid Services, Division of Acute Care, 
Attention: Elizabeth Truong or Renate Rockwell, Mailstop C4-08-06, 7500

[[Page 18661]]

Security Boulevard, Baltimore, MD 21244.
    ``Emergency Medicare GME Affiliation Agreement'' should be clearly 
labeled on the outside envelope.
4. Application of Existing Rules
    [If you choose to comment on issues in this section, please include 
the caption ``APPLICATION OF EXISTING RULES'' at the beginning of your 
comments.]

a. New Teaching Hospitals

    Immediately after a disaster, home hospitals are in the best 
position to determine where their residents should be sent to continue 
with their residency training. Although home hospitals may send their 
residents to train at existing teaching hospitals, in some cases, 
hospitals affected by a disaster may need to send residents to non-
teaching hospitals (that is, hospitals that have not included any 
residents training in approved medical residency training programs on a 
previous Medicare cost report) to continue their training.
    The following discussion is intended to inform hospitals of how CMS 
will determine the GME payments to the host hospital in the case where 
home hospitals choose to send displaced residents to host hospitals 
that were previously non-teaching hospitals. These host hospitals will 
become new teaching hospitals once they begin to train residents from 
the home hospitals as part of an approved medical residency training 
program. As a new teaching hospital, such a hospital initially will 
have IME and direct GME FTE resident caps of zero (based on the number 
of residents training in the 1996 base year for FTE resident caps). 
However, the new teaching hospital, by participating in an emergency 
Medicare GME affiliation agreement, can receive a temporary cap 
increase in order to count the displaced FTE residents for purposes of 
IME and direct GME payments.
    As a new teaching hospital, the hospital will not have an existing 
per resident amount for direct GME payment purposes. The per resident 
amounts for these hospitals will be established as specified at Sec.  
413.77(e) (just as any other new teaching hospital would have its per 
resident amount established). The new teaching hospital's per resident 
amount is established based on the lower of the hospital's direct GME 
costs per resident in its base year, or the updated weighted mean value 
of the per resident amounts of all hospitals located in the same 
geographic wage area as specified at Sec.  413.77. Therefore, it is 
very important for a new teaching host hospital to incur direct GME 
costs in its base year and to document all of the direct GME costs it 
incurs (for example, the residents' salaries, fringe benefits, any 
portion of the teaching physician salaries attributable to GME, and 
other direct GME costs) for the displaced residents it is training; 
otherwise the host hospital risks being assigned a very low per 
resident amount in accordance with our regulations. If the host, new 
teaching hospital incurs no GME costs in the relevant base year, its 
per resident amount would be zero dollars. We advise hospitals to refer 
to the provisions at Sec.  413.77(e) for the rules concerning the 
establishment of a new teaching hospital's per resident amount. In 
accordance with section 1886(h) of the Act and our regulations at Sec.  
413.77, once the base year per resident amount is established, it is 
fixed and not subject to adjustment to reflect costs incurred in years 
subsequent to the base year that might be associated with new programs 
or additional residents.

b. Shared Rotational Requirements

    As specified at Sec.  413.79(f)(2), each hospital in a regular 
Medicare GME affiliated group must have a shared rotational arrangement 
with at least one other hospital participating in the Medicare GME 
affiliation agreement. All of the hospitals within the Medicare GME 
affiliated group would therefore be connected by a series of shared 
rotational arrangements. As defined at Sec.  413.75(b), a shared 
rotational arrangement ``means a residency training program under which 
a resident(s) participates in training at two or more hospitals in that 
program.'' We are specifying at Sec.  413.79(f)(6) that hospitals that 
are members of an emergency Medicare GME affiliated group are not 
required to participate in a shared rotational arrangement with the 
other hospitals participating in the emergency Medicare GME affiliation 
agreement. We are implementing this provision because we recognize that 
members of an emergency Medicare GME affiliated group may be 
geographically dispersed across the country, which would make it 
difficult for residents to participate in shared rotational 
arrangements. Additionally, after a disaster, affected hospitals may 
not have the resources available to participate in shared rotational 
arrangements with host hospitals situated around the country. For 
example, hospitals may not have the financial capability to 
continuously transport residents between States. Therefore, we are 
exempting participants in emergency Medicare GME affiliations from the 
shared rotational requirements.

c. Weighted FTE Counts (``3-Year Rolling Average'')

    As specified at Sec.  412.105(f)(1)(v) and Sec.  413.79(d), a ``3-
year rolling average'' is applied to a hospital's count of FTE 
residents to calculate IME and direct GME payments for a cost reporting 
period (that is, the number of FTEs used to calculate payments is the 
average of the number of FTE residents reported for the current year, 
the prior year, and the penultimate year). For example, if the hospital 
trained 115 FTE residents (for IME) in the current cost reporting 
period, 100 FTEs in the prior cost reporting period, and 100 FTEs in 
the penultimate cost reporting period, then the IME payment would not 
be based solely on the 115 residents trained in the current year. 
Rather, the IME payment in the current year would be based on the 3-
year rolling average FTE count (that is, (115 + 100 + 100) / 3 which 
equals 105 FTEs).
    Thus, if a hospital increases its number of FTE residents, as a 
result of the 3-year rolling average rule, the hospital would be able 
to count only one third of the additional FTE residents in that year, 
two-thirds of the additional FTEs for the next year, and the full 
number in the third year (assuming there are no other changes in the 
number of FTE residents training in subsequent years). Conversely, if a 
hospital decreases its number of FTE residents in the current year, 
then the 3-year rolling average minimizes the effect of the reduced GME 
payments based on the reduced level of training over the next 3 years. 
Home hospitals that have reduced the number of FTE residents training 
at their hospitals would benefit under this provision since only one-
third of the FTE resident reduction will apply in the first cost 
reporting year in which an emergency period is declared. The 3-year 
rolling average provision, as specified at Sec.  412.105 and Sec.  
413.79(d), will be applied to all hospitals in the emergency Medicare 
GME affiliation, and their associated FTE resident counts while the 
agreement is in effect. This provision is the same as applied under 
existing regulations in which hospitals participating in a Medicare GME 
affiliation agreement(s) are subject to the 3-year rolling average.
    However, there is an exception to the application of the 3-year 
rolling average rules for closed program and closed hospital 
regulations as specified at Sec.  413.79(d)(6). In the case of host 
hospitals that participate in emergency Medicare GME affiliated groups 
relating to the section 1135 emergency declared

[[Page 18662]]

following Hurricanes Katrina and Rita, which occurred in 2005, we 
understand that, based on the Q&A we posted on the CMS Web site 
discussing application of the closed program and closed hospital 
regulations to these hospitals, there was an expectation among host 
hospitals that the displaced FTE residents they accepted for training 
would be exempt from application of the 3-year rolling average, and 
that the host hospitals would immediately be permitted to include all 
of those residents in their FTE resident counts. Many host hospitals, 
believing that the existing regulations regarding closed hospitals and 
closed programs would be applied, took in displaced residents with the 
reasonable expectation that they would be able to count those 
additional residents as FTEs not subject to the 3-year rolling average 
rules specified at Sec.  412.105 and Sec.  413.79(d). In recognition of 
this expectation, we are providing for a time-limited exception to the 
3-year rolling average rules so that a host hospital participating in 
an emergency Medicare GME affiliation agreement relating to Hurricanes 
Katrina and Rita and training residents in excess of its cap, 
consistent with the rolling average provisions applicable for closed 
programs as specified at Sec.  413.79(d)(6), will exclude from the 3-
year rolling average FTE residents associated with displaced residents 
from August 29, 2005, to June 30, 2006. All host hospitals in an 
emergency Medicare GME affiliated group will be subject to the existing 
3-year rolling average requirements beginning on July 1, 2006.
    Accordingly, we revised Sec.  413.79(f) by adding a new paragraph 
(6) to provide for more flexibility in Medicare GME affiliations for 
home hospitals located in section 1135 emergency areas to allow the 
home hospitals to efficiently find training sites for displaced 
residents. Under the flexibility provided by the emergency Medicare GME 
affiliated group provisions as specified at Sec.  413.79(f)(6), 
decisions regarding the transfer of FTE resident cap slots, including 
how to address situations where the home hospital was training a number 
of residents in excess of its cap before the disaster, and the tracking 
of those FTE resident slots, would be left to the home and host 
hospitals to work out among themselves. The home and host hospitals 
are, however, required to include much of this information in their 
emergency Medicare GME affiliation agreements as specified under Sec.  
413.79(f)(6). Furthermore, since hospitals may amend the emergency 
Medicare GME affiliation agreement (on or before June 30 of the 
relevant academic year) to reflect the actual training situation among 
the hospitals participating in the emergency Medicare GME affiliated 
group, hospitals are provided with greater flexibility to accommodate 
any changing residency training circumstances within the emergency 
Medicare GME affiliated group. We note that the emergency Medicare GME 
affiliated group provisions promulgated herein are intended for the 
purpose of providing for continued training of residents displaced from 
a section 1135 emergency area, and not to enable hospitals to merely 
shift and change FTE resident caps with other hospitals in the country 
(for instance, in order to maximize Medicare IME and direct GME 
payments).

III. Provisions of the Interim Final Rule

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS OF THE INTERIM FINAL RULE'' at the beginning 
of your comments.]
    We are revising the Medicare GME regulations at Sec.  412.105, 
Sec.  413.75(b), and Sec.  413.79(f) to implement an emergency Medicare 
GME affiliated group policy that will only apply to certain home 
hospitals in a section 1135 emergency area and host hospitals that 
accept displaced residents from a home hospital.

Section 412.105 Special Treatment: Hospitals That Incur Indirect Costs 
for Graduate Medical Education Programs

    In Sec.  412.105, we revised paragraph (a)(1)(i) to specify that 
special treatment for hospitals that incur indirect costs for GME 
programs also applies to the emergency Medicare GME affiliated groups.
    In addition, we revised paragraph (f)(1)(vi) to specify that 
hospitals that are part of the same Medicare GME affiliated group or 
emergency Medicare GME affiliate group may elect to apply the limit at 
paragraph (f)(1)(iv) of this section on an aggregate basis, as 
specified in Sec.  413.97(f).

Section 413.75 Direct GME Payments: General Requirements

    In Sec.  413.75(b), we added the definition of an ``Emergency 
Medicare GME affiliated group,'' and within this definition, we specify 
the meaning of ``Home hospital'' and ``Host hospital,'' and we define 
``Section 1135 emergency area or section 1135 emergency period.''

Section 413.79 Direct GME Payments: Determination of the Weighted 
Number of FTE Residents

    In Sec.  413.79(f), we revised the introductory text to specify 
that a hospital may receive a temporary adjustment to its FTE cap, 
which, except as provided in subsection (6)(iv), is subject to the 
averaging rules at Sec.  413.79(d), to reflect residents added or 
subtracted because the hospital is participating in a Medicare GME 
affiliated group or an emergency Medicare GME affiliated group as 
defined at Sec.  413.75(b).
    In Sec.  413.79(f)(6), we set forth the requirements for emergency 
Medicare GME affiliated group.
    In paragraph (f)(6)(i), we specify the requirements for the 
emergency Medicare GME affiliation agreement that each hospital 
participating in the emergency Medicare GME affiliated group must 
submit. Specifically, each participating hospital must submit an 
emergency Medicare GME affiliation agreement that is written, signed, 
and dated by responsible representatives of each participating 
hospital, and the emergency Medicare GME affiliation agreement must 
include the following:
     Specify the effective period of the emergency Medic