District Court Rules for Provider on IME Research Issue

11 August 2009 Publication
Author(s): Lawrence W. Vernaglia

American Health Lawyers Association

By Lawrence Vernaglia and Alan Ouellette

On August 3, 2009, the United States District Court for the Northern District of Illinois, in University of Chicago Medical Center v. Sebelius, No. 08-520, slip. op. (N.D. Il. Aug. 4, 2009), held that the HHS Secretary improperly calculated the University of Chicago Medical Center's Medicare payments by excluding residents involved in educational research from the indirect medical education full-time equivalent (IME FTE) resident count (the IME Research Issue). This is the latest in a series of cases challenging the Secretary's interpretation of the IME Research Issue.4

The regulation at issue, 42 C.F.R. § 412.105(g), provides that in order for a resident to be included in the hospital's IME FTE count, the resident must: (1) be enrolled in an approved teaching program; and (2) be assigned to a portion of the hospital that is subject to the prospective payment system. The question before the court was whether the resident's assignment to a "portion of the hospital" refers to a geographical location within a hospital or a function that a resident performs within a hospital, irrespective of that resident's physical location.

In calculating the hospital's payment amount for FY 1996, the Secretary concluded that qualifying residents must perform a service related to patient care to be included in the IME FTE resident count. Under this interpretation of the regulation, residents involved in educational research that does not directly relate to a specific patient's care should be excluded from the IME FTE resident count. The hospital argued that residents involved in educational research that are assigned to a portion of the hospital subject to the prospective payment system should have been included in the IME FTE resident count. The Provider Reimbursement Review Board (PRRB), as it has in all other cases on this issue, agreed with the provider, and the administrator of the Centers for Medicare & Medicaid Services (CMS) disagreed.

The court agreed with the hospital that "portion" unambiguously refers to a geographic location. The court reasoned that: (1) the hospital's interpretation of "portion" comports with Seventh Circuit case law requiring hospitals to prove the physical location of its residents prior to collecting IME payments; (2) "portion" must possess a geographical meaning in order to give meaning to each word used in the regulation; and (3) the Secretary's Intermediary Manual never advised auditors to investigate whether a resident is performing a covered function.

The court also found that when Congress amended 42 U.S.C. § 1395ww(d) in 1997 to create a direct patient care requirement in non-hospital settings, their decision not to create a similar requirement in hospital settings was intentional. The court thus concluded that the plain language of the regulation and Congress' intent do not support the Secretary's interpretation of the regulation as including a direct patient care requirement in the regulation.

This case is important because it is the first federal court decision since the First Circuit issued the opposite ruling in an identical case. The First Circuit overturned the U.S. District Court for the District of Rhode Island, which had upheld an earlier PRRB decision, in the case of Rhode Island Hospital v. Leavitt, 548 F.3d 29 (1st Cir. 2008), and held that CMS was entitled to interpret the IME regulations as excluding from the IME FTE count the time residents spend involved in research where there is no direct patient care. The University of Chicago decision rejects the First Circuit analysis and follows the decisions of University Medical Center Corp. v. Leavitt, 2007 WL 891195 (D. Ariz. Mar. 21, 2007) and Riverside Methodist v. Thompson, 2003 WL 22658129 (S.D. Ohio July 31, 2003). While cases arising from cost-reporting periods later than 2001 have a different regulatory challenge, the courts are now split on the IME Research Issue. Providers seeking to protest adjustments to the IME FTE counts based on the IME Research Issue are reminded of the new PRRB rules under which new issues cannot be added to existing PRRB appeals unless action is taken within sixty days of the initial 180-day window (i.e., 240 days after the notice of program reimbursement or NPR).


4 Members of Foley & Lardner LLP's Health Care Industry Team have been following this issue closely and, for purposes of full disclosure, represented another hospital at the PRRB and in federal court on this issue, though not the University of Chicago.

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