The Consolidated Appropriations Act, 2021, creates 1,000 new Medicare-funded graduate medical education (GME) residency positions, expands opportunities for rural residency training, and allows hospitals that have very low resident full-time equivalent (FTE) caps and/or per resident amounts (PRAs) due to short-term resident rotations to “reset” their calculations, resulting in increased opportunities to receive Medicare payment for resident training. These changes represent the first significant increase in Medicare funding for residency training in almost 25 years.

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The Medicare program subsidizes a portion of residency training costs incurred by teaching hospitals through both direct GME (DGME) payments, which are calculated by multiplying the teaching hospital’s PRA by the weighted number of FTE residents and the hospital’s Medicare share of total inpatient days and indirect medical education (IME) payments, which are calculated using a hospital’s ratio of FTE residents to beds and a multiplier that is set by Congress. Medicare has established limits on the number of residents that hospitals may count for purposes of calculating DGME and IME payments (often referred to as resident caps), which have not been meaningfully increased since 1996. As a result, many hospitals train residents far in excess of the number for which Medicare payment is available.

The Act contains three important provisions supporting GME:

• Increase in Residency Slots: Under the Act, 1,000 aggregate FTE Medicare-funded residency slots will be distributed over a five-year period to qualifying hospitals that submit applications. No more than 200 additional FTE residency slots will be distributed in any one year, and no hospital may receive more than 25 additional FTE residency slots. Teaching hospitals in rural areas, hospitals that are currently training residents over their cap, hospitals in states with new medical schools and hospitals that care for underserved communities will receive at least 10% of the new slots.

• Addressing Low Caps and PRAs: The Act also permits certain hospitals that triggered—in many cases inadvertently—a very low PRA or residency cap based on training a small number of rotating residents from another hospital’s teaching program to establish new GME caps and/or PRAs using the existing processes for setting GME caps and PRAs for new teaching hospitals. Going forward, the Centers for Medicare and Medicaid Services will not set GME caps or PRAs until a hospital has trained at least one FTE resident during a cost report year. These changes will allow hospitals to host a limited number of residents for short-term rotations without being negatively affected by setting low and permanent GME caps or PRAs.

• Creating Flexibility for Rural Training Track (RTT): Finally, the Act makes changes to the Medicare GME RTT program by eliminating a requirement for “separate accreditation” to be eligible for RTT funding, beginning October 1, 2022. This change provides greater flexibility for rural and urban hospitals to partner and address the physician workforce needs of rural areas.

Despite years of advocacy efforts from teaching hospitals, lawmakers have generally resisted increasing Medicare funding for residency training in favor of pursuing a different funding model to support medical education. The public health emergency caused by the COVID-19 pandemic has put unprecedented strain on the healthcare provider community, which has in turn highlighted the need to invest in the healthcare workforce, particularly in rural and other underserved communities. As a result, the Act will implement the first increase to the GME program in almost 25 years.