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Medical Education Reimbursement

Purpose of the Direct Graduate Medical Education (DGME) Payment

Hospitals that train residents incur significant costs beyond those customarily associated with providing patient care. The Medicare program makes payments to teaching hospitals for a portion of these added costs through direct graduate medical education (DGME) payments. The DGME payment compensates teaching hospitals for "Medicare's share" of the costs directly related to the training of residents. DGME is paid on a per-resident amount as a separate pass-through payment, independent of MS-DRG payment.

For more information from the CMS website: Website

Purpose of the Indirect Medical Education (IME) Payment

Medicare pays for the indirect costs involved in the training of residents. For each Medicare case paid under the inpatient PPS, a teaching hospital receives an additional payment, calculated as a percentage add-on to the basic price per case. The hospital's IME payment is determined by inserting its individual intern/resident-to-bed ratio into a formula set-up under Medicare statute. When a hospital's GME increases, its percentage add-on to the basic PPS payment also increases. Teaching hospitals are not paid directly by Medicare for treating managed care patients, an IME payment is calculated by the hospital submitting a no pay claim to Medicare that is used to calculate the IME payment.

Teaching hospitals also receive an IME payment associated with Medicare's capital PPS. This payment is based on residents-to-average daily census rather than the intern/resident-to-bed ratio to measure teaching intensity.

For more information from the CMS website: Website

Documentation Required for Establishing Interim Rates for a New Teaching Hospital

All documentation should be emailed to

The following documentation is required to establish interim IME and DGME rates due to a new approved teaching program:

  • Formal accreditation letter or proof of accreditation of the applicable program(s) by the relevant accrediting body.
  • Number of accredited positions being trained in the program for the relevant cost reporting year for which interim rates are being established
  • Rotation schedules, or similar documentation, indicating where the residents are training, from which to develop estimated FTE counts applicable to the requesting hospital. For IME, FTE residents training in locations specified in the regulations at 42 CFR §412.105(f)(1)(ii) (A)—(E) can be counted. For DGME, FTE residents training in the regulations at 42 CFR §413.78 can be counted.

Establishment of the Per Resident Amount (PRA) for a New Teaching Hospital

A new PRA is equal to the lower of the hospital's actual cost per resident incurred in the base period, or the weighted mean average PRA of all of the other existing teaching hospitals located in the same core-based statistical area (CBSA) as the new teaching hospital. The actual cost per resident is determined from the final settled base year cost report. Therefore, the PRA will not be formally established until that time. For rates determined prior to that time will be based on the locality adjusted national average.

Rural Training Programs

On December 27, 2021, CMS published a final rule with comment period CMS-1752-FC3 that implements changes to Medicare GME payments for teaching hospitals. The rule implements the legislative changes to direct GME and indirect medical education (IME) payments to teaching hospitals included in sections 126, 127, and 131 of the Consolidated Appropriations Act (CAA), 2021.

Section 127 made several changes with regard to urban hospitals and rural hospitals training residents in Rural Training Programs (formerly called rural training tracks). The purpose of this CR is to provide guidance to hospitals and instructions to the MACs on how to review and implement requests to increase hospitals' IME and direct GME interim rates (and eventually, rural track Full-time Equivalent (FTE) limitations) due to participating in new RTPs and/or adding clinical participating sites to existing RTPs.

Hospitals wishing to receive an increase to their IME and direct GME interim rates for participating in new RTPs or adding clinical participating sites and FTE residents may contact their MACs and provide the appropriate documentation. This request and documentation should be sent to

Documentation Required for Interim Rate Increase:

  1. The ACGME accreditation for the program as a whole (that is, both urban and rural training components), and documents showing whether the urban and rural participating sites are starting the RTP for the first time in this particular specialty, or whether the urban and rural hospital already have an RTP in this specialty, but are adding additional participating sites to the RTP.
  2. A list of all urban and rural hospital and nonprovider training sites in the RTP. If more than one RTP, the hospital should separately list the training sites for each. Also, include the dates each RTP started.
  3. Next to each hospital or nonprovider training site name, specify the state, county name, and the geographic CBSA that each site is located. Specify any reclassification under section 1886(d) of the Act that any participating hospital may have, and the effective date of that reclassification.
  4. Resident rotation schedules (or similar documentation) showing that residents in the specified RTP spend greater than 50 percent of their training in a geographically rural area in the program in order to receive IME and direct GME rural track FTE limitations. In the instance where only a subset of the residents in the particular program is participating in the RTP, and the training time of these RTP residents is included in the main rotation schedule for the entire program, the hospital must specifically highlight the names of the residents and their urban and rural training locations on the main rotation schedule, so that the MAC can easily identify which residents are training in the RTP, where they are training, and be able to verify that over 50 percent of their training time is spent in a rural area.

NOTE: Hospitals are not allowed to prorate and exclude FTEs from the rolling average for the portion of a cost reporting period that occurs after October 1, 2022.

Reviewed: 12.02.22


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