ISSUE BRIEF # 26 Systems Development Series KEY CONSIDERATIONS IN DEVELOPING RESIDENCY TRAINING PROGRAM COLLABORATIONS

THE NATIONAL ASSOCIATION OF COMMUNITY HEALTH CENTERS, INC. ISSUE BRIEF # 26 Systems Development Series KEY CONSIDERATIONS IN DEVELOPING RESIDENCY TRAINING PROGRAM COLLABORATIONS Prepared by: Jacqueline C. Leifer, Esq., Michael D. Golde, Esq. Feldesman, Tucker, Leifer, Fidell & Bank, LLP April 20, 2004 For more information contact: Tom Curtin, M.D., Chief Medical Officer National Association of Community Health Centers 7200 Wisconsin Avenue, Suite 210, Bethesda, MD 20814 301/347-0400 Fax 301/347-0459 Email: Tcurtin@NACHC.com This publication was supported by Cooperative Agreement Number U30CS00209 from the Health Resources Services Administration, Bureau of Primary Health Care (HRSA/PBHC) Its contents are solely the responsibility of the authors and do not represent the official view of HRSA/BPHC

KEY CONSIDERATIONS IN DEVELOPING RESIDENCY TRAINING PROGRAM COLLABORATIONS Prepared by Jacqueline C. Leifer, Esq., Michael D. Golde, Esq. Feldesman, Tucker, Leifer, Fidell LLP I. INTRODUCTION Medical residency training programs provide new physicians an opportunity to develop their hands-on clinical skills and attain general competencies in a particular area of expertise after graduation from medical school. Residency programs are broadly distributed on a national basis, including both urban and rural settings. According to the Accreditation Council for Graduate Medical Education ( ACGME ), there are more than 7,700 residency programs and 700 institutional sponsors of graduate medical education in the United States, training approximately 100,000 residents. 1 Most residency programs require residents to undertake clinical rotations in both an inpatient hospital environment, and outpatient/ambulatory care settings. Given the increasing emphasis on the need for primary care physicians (as opposed to specialists ) and the nation-wide distribution of primary care-related residency programs (i.e., family practice, pediatrics, internal medicine, obstetrics/gynecology ( OB-GYN )), it is not surprising that Federally qualified health centers ( FQHCs or health centers ) are increasingly collaborating with teaching hospitals that sponsor residency programs by serving as training sites for the programs and providing, through health center clinicians, preceptors for those programs. There are many important motivating factors for developing these collaborative arrangements. A FQHC can enhance a residency program by offering a unique rotation environment that a teaching hospital can promote and market to prospective residents seeking a diverse educational experience. Many teaching hospitals have found it quite advantageous to offer trainees the opportunity to develop their clinical and professional skills in primary care specialties in a true community-based setting serving a diverse, underserved patient population. 2 Moreover, an academic collaboration with a FQHC may create the foundation for a relationship that can be expanded to include collaborations in other areas of interest, such as clinical research. From the FQHC s perspective, collaborating with a residency program by serving as a rotation site for a reputable teaching hospital may be very appealing. Specifically, the infusion of additional practitioners (possibly teaching hospital faculty/preceptors, as well as residents) into the health center may enable the health center to increase the scope and breadth of services 1 www.acgme.org/new/gmeguide.pdf 2 Residents are assigned to particular sponsoring institution through a matching program which is extremely competitive for both residents and the institutions. Through the matching program, graduating medical students select and rank the sponsoring institutions based on where they prefer to train while the sponsors compete to obtain the best qualified residents for their particular programs. Institutions that offer a more diverse experience are often more attractive to prospective residents. 1

offered to patients in the community and may serve as a recruitment tool, with graduating residents moving into the health center s permanent clinical workforce. The collaboration with a well-recognized teaching hospital may also offer an opportunity to enhance the status of the health center to its staff, the community and/or other third parties, just as the teaching hospital s reputation and credibility in the community may be enhanced by its linkage with the health center. Such arrangements can provide an excellent opportunity for a health center s clinical staff to be active in teaching by serving as preceptors. In addition, the influx of residents and academic faculty can create a dynamic environment within a health center, fostering the collegial exchange of information and thereby enhancing a health center staff s ability to keep abreast of emerging treatment regimens and technological advances, and the hospital s staff and residents ability to apply them in a community-based setting. More recently, many FQHCs and teaching hospitals have negotiated more complex arrangements pursuant to which the health center assumes ownership of clinical sites previously operated by the hospital and agrees to secure some level of the clinical capacity the health center needs through continued operation of the residency programs. 3 The reasons for the growth in this type of collaboration are largely attributable to the financial realities of providing primary care in medically underserved communities. Specifically, hospitals located in these medically underserved communities are increasingly reporting substantial losses on their ambulatory care sites as a consequence of serving significant numbers of low-income, uninsured and underinsured populations without compensation, and low Medicare and Medicaid reimbursement rates. At the same time, increases in appropriations for Section 330 grants available to support (1) the otherwise uncompensated costs of serving underserved populations at new primary care access points, (2) expanded medical capacity, (3) oral health and behavioral health services, as well as chronic care management programs in medically underserved communities, and (4) the FQHCs entitlement to cost-related Medicare and Medicaid reimbursement, have been well publicized. Hospitals are well aware of the tremendous growth in the number of FQHCs and the number of clinic sites operated by FQHCs. 4 Having summarized reasons health centers and teaching hospitals consider clinical and teaching program collaborations, it is important to note that serving as a rotation site for a residency program can also have negative effects on a health center that should be anticipated and addressed before executing definitive agreements. In particular, depending on the scope of the program at a particular health center, serving as a rotation site can generate substantial costs (e.g., higher marginal costs due to lost productivity, residents higher utilization of equipment and supplies, and increased ordering of laboratory services) which, as discussed in Section IV, below, teaching hospitals receiving graduate medical education ( GME ) reimbursement are not legally obligated to reimburse (although the health center may insist the hospital do so). For example, first year residents (and their preceptors) are generally reported to be far less 3 Typically, the health center agrees to retain (at least initially) the teaching hospital s faculty physicians at the transferred site to precept some or all of the patient care activities of the residents in the health center rotation. In some instances, the faculty transfers to the health center s workforce; in other instances, the health center purchases clinical capacity from the faculty. 4 According to the National Association of Community Health Centers, Inc., 843 FQHC grantees (as well as approximately 125 FQHC look-alikes ) were in operation in 2002, a 17.7% increase over the 694 grantees in existence in 1998. 2

productive than their second and third year counterparts. Therefore, to the extent a health center is assigned a disproportionate number of first year residents, it is much more likely to experience substantial costs which are not reimbursed by a third party payor. In addition, unpredictability in resident scheduling, and the associated disruption in health center support and supervisory staffing, is a common problem cited by health centers. Unless a health center can negotiate with a teaching hospital sufficient reimbursement to address these costs, a health center may determine that it is infeasible to collaborate with a teaching program by serving as a rotation site. 5 Equally important, the health center and potential hospital partner must evaluate whether the health center s clinical service model and the residency program(s) are compatible. If a health center and a teaching hospital determine that there are sufficient mutual benefits to be reaped from a collaboration, it is important that the parties execute a formal, written agreement or agreements to define the scope of collaboration and their respective authorities and responsibilities in key areas, such as patient care, teaching program authorities and accreditation requirements, as well as to establish which party will pay the other for which activities. Addressing such issues in a manner which achieves a reasonable balance between the requirement that the health center exercises control over the delivery of primary care, while the teaching hospital retains control over the training program typically represents the greatest challenge in establishing a successful collaborative arrangement. II. ALLOCATION OF AUTHORITIES When developing collaborative arrangements as between a teaching hospital and a FQHC, it is of critical importance that the parties appropriately define their respective authorities for training/teaching activities versus the provision of direct clinical care. The general principle guiding this allocation of authority/responsibility should be that the hospital retains primary authority and control over, and is responsible for covering costs associated with, teaching/training activities at the FQHC site (whether or not it was previously hospital-owned and operated), while the health center retains authority and control over, and is responsible for covering costs associated with, the provision of primary care within its scope of project and with respect to which it is the licensed and billing provider. Under the express and/or implied terms of ACGME program guidelines for the most relevant primary care-related training programs, this allocation of responsibility is permissible. However, the particular requirements for each type of residency program (e.g., family practice, internal medicine, pediatrics, OB-GYN) may vary considerably and need to be individually examined. Teaching/training activities for which the hospital retains primary responsibility and control (even in instances where health center-employed clinicians act as preceptors) would typically include activities such as classroom teaching, retreats, orientation programs, undergraduate training, faculty/program meetings, curriculum development, resident/program evaluation, research, publication activities, resident recruitment and selection, and general teaching program administration. 5 For a considered analysis on the costs of conducting GME programs at health centers, see NACHC Monograph, Costs of Health Professions Education in Community Health Centers by James R. Boex. 3

Conversely, the health center should maintain responsibility for, and control over, activities related to clinical service delivery, including decisions regarding the scope, location and scheduling of services. 6 At the individual clinician level, characteristics of clinical service delivery activities typically include: (i) diagnosis/treatment-related activities (i.e., history, examination and medical decision-making) by employed and/or contracted clinical staff; (ii) direct patient involvement/interaction; and (iii) the generation of a bill for the services provided. Quality assurance activities related to primary care clinical service delivery should also remain within the health center s purview, and residents and preceptors providing services on the health center s behalf should be required to participate in such activities. Precepting (i.e., the supervision of residents in patient care activities) represents a regulatory gray area, inasmuch as it includes, as a practical matter, a teaching/training component, yet also involves supervision over the provision of direct patient care for which, in the majority of cases, a bill will be generated by the health center. Unfortunately, as discussed in greater detail in Section IV, below, the Department of Health and Human Services ( DHHS ) discussion of precepting, as set forth in the preamble to the applicable Federal regulations governing graduate medical education ( GME ) at non-hospital sites, is inconsistent in its characterization of supervision or precepting as either a teaching activity or a clinical activity. Given the lack of clear guidance and the fact that most health centers intend to bill for the direct clinical services provided by residents (see discussion under section IV, below) under the supervision of the preceptors, we believe the reasonable interpretation is to treat precepting as a clinical activity for which the health center maintains responsibility and control. III. KEY ELEMENTS OF A JOINT RESIDENCY TRAINING AGREEMENT Once the health center and hospital agree in principle that the health center will serve as a rotation site (either in current facilities or at new access points which may have previously been owned and operated by the hospital), the parties should memorialize the key terms of the collaboration in a formal agreement that defines the responsibilities and duties of each of the parties, and formally documents their respective obligations regarding the allocation of clinical versus teaching/training costs. Key elements of such an agreement are discussed below. However, this list is not exhaustive. The assistance of a qualified attorney in negotiating and drafting such an agreement is recommended. 1. Scope. The agreement should describe each party's duties and responsibilities regarding the operation of the residency program at the FQHC site, including the time commitment and level of involvement of health center staff (i.e., administration, physicians, other health professionals) in teaching activities 7 (such as the supervision and performance evaluation of the 6 Health centers should periodically evaluate clinical operations to ensure that the full scope of services is available to all health center patients, regardless of whether the patient presents at a teaching site or a non-teaching site. 7 For the majority of residency programs, there is no requirement preventing health center physician staff from serving as preceptors, provided that they satisfy the applicable preceptor criteria for the program and, in an increasing number of cases, health center-employed clinicians are serving as preceptors. Note that in situations where a health center operates a site primarily through contracted clinicians, it may have to consider whether this results in the majority of the health center s total primary care clinician FTEs being contracted clinicians. If so, a 4

residents, assignment of residents, curriculum development, etc.). In this regard, a health center and training institution need to reach a mutual understanding of how much true collaboration between and among their respective staffs is desirable (i.e., is the health center workforce going to have significant involvement in training/precepting? Is the teaching institution going to have significant involvement in the oversight of the health center s delivery of clinical services or the development of clinical protocols?). Similarly, this agreement (or a separate agreement) should define each party s duties/responsibilities regarding the provision of clinical services by residents and hospital employed or contracted preceptors, the number of preceptor FTEs, types of services to be performed (including participation in health center quality assurance activities) and scheduled hours should be addressed. 2. Authority/Policies. As discussed in Section II, the agreement should appropriately allocate clinical services authority/costs and teaching program authorities/costs, recognizing that: (1) as the licensed provider, the health center has ultimate responsibility and decision-making authority related to the provision of direct patient care services; and (2) the teaching hospital has ultimate authority for teaching activities and operating the program in a manner that satisfies applicable accreditation requirements. In this regard, the agreement should specify that the health care policies and protocols approved by the FQHC s governing board shall guide the treatment, care, and health guidance of all FQHC patients by residents and preceptors, and that the FQHC s medical director shall at all times be responsible for, and have primary authority over, directing the provision of patient care at the FQHC by the residents and preceptors. In addition, it is advisable for each party to designate an individual (usually a senior clinician) to serve as a liaison for addressing issues that relate to the residency program rotation at the health center site and to coordinate the education and training activities at the health center rotation. 3. Payment. The agreement should also specify how the health center will be reimbursed for the costs it incurs with respect to pure teaching activities. Conversely, if a health center purchases the preceptor s clinical services from the teaching hospital, the health center should pay the hospital for the fair market value of the preceptor s clinical services. In such cases, if this purchase of preceptor services is a Federally funded procurement (i.e., some or all of the costs will be funded with Federal grant funds), the health center will need to be able to justify, at a minimum, the cost/price paid for the preceptor s clinical services in accordance with applicable Federal procurement standards set forth in 45 C.F.R. Part 74. Moreover, the health center should determine fair market value based on its objective assessment about what it would pay comparable clinicians it employs or might contract with not based on what the hospital chooses to pay the preceptors. 4. Billing and Collections. The agreement should provide that all patients receiving primary health care services at the FQHC site shall be considered patients of the FQHC. Accordingly, the FQHC should be solely responsible for all billings and collections for primary care services rendered to FQHC patients by any attending faculty physician providing direct patient care, or supervising residents in direct patient care, and all such revenue so generated will be retained by good cause exception to BPHC s preference that health centers employ the majority of their clinicians will be needed. See BPHC PIN 98-24. 5

FQHC. In this regard, if the health center has provided an attestation to Medicare to allow it to bill for the services of residents under the primary care exception, the agreement should specify that the FQHC will bill the services provided by residents and retain all revenues generated. 5. Allocation of Costs. The agreement should contain provisions regarding the allocation of training and clinical service costs consistent with the foregoing principles. Typically, this would include language specifying, at a minimum, that the party receiving GME (almost always the hospital) is responsible for payment of resident salaries and benefits, as well as a fair allocation of overhead costs directly attributable to teaching activities. In addition, to the extent the party not receiving GME (typically the health center) incurs teaching expenses (which may include expenses of lost productivity, excess supplies etc.) and some portion of preceptor time is spent in pure teaching activities, the agreement should provide that the hospital will reimburse the health center for such costs. In addition, the cost of space and/or equipment which is used primarily or exclusively for teaching activities should be covered by the teaching hospital. To the extent precepting is a clinical activity (i.e., a service for which a bill is generated by the health center), the health center would pay this cost (i.e., the health center would pay fair market value for the preceptors time spent supervising residents clinical care activities, or directly furnishing clinical services). 6. Resident Qualifications/Appointment. The agreement should specify that all residents assigned by the hospital to the health center rotation will be properly licensed and qualified in accordance with training program requirements and State law, as applicable. In addition, the agreement should specify the maximum number of residents to be assigned at any one time to a health center rotation, as well as any relevant formula regarding the educational level of such residents (e.g., 5 third-year residents, 4 second-year, 3 first-year residents) to be assigned at any one time. As noted previously, the latter is a particularly important indicator of the residency program s effect on health center productivity and other costs that may be incurred. 7. Referrals/Patient Freedom of Choice. Inasmuch as these arrangements involve health care providers who are in position to refer patients to each other and who have additional business relationships involving payments under Federal health programs, it is advisable (to prevent perceived or real kickback violations) that the parties agree to a provision stating that health professionals, including residents, performing services at the FQHC may refer patients to any willing provider according to the professional's independent medical judgment and patient freedom of choice, subject to any valid managed care plan restrictions. 8. Suspension/Removal. The agreement should provide the health center s management the right to immediately suspend a resident (or a preceptor) from the health center rotation if the health center, in its sole discretion, believes a resident (or a preceptor) poses a threat to health center patients and/or is unduly disruptive vis-à-vis employees. Upon a resident s suspension from clinical duties at the health center rotation, the hospital (or other sponsor) should have responsibility for conducting and directing any administrative due process which it includes as part of the residency program and the health center should agree to reasonably cooperate with the hospital in any such proceeding. 6

9. Resident/Preceptor Scheduling. Typically, the hospital will maintain responsibility for establishing resident schedules consistent with the work schedule of the precepting physicians. However, the FQHC has the right and obligation to establish a schedule that will accommodate community needs. In some instances, the parties will be able to agree on a schedule that is mutually satisfactory; in other cases, the health center retains the option of providing services directly. It is advisable that the agreement specify the agreed-upon clinical schedule and require that the hospital use best efforts to provide the FQHC with reasonable advance notice of potential changes to residents/preceptors schedules and to cooperate in making any necessary adjustments to accommodate any such changes. If scheduling changes and insufficient notice are likely to be significant problems for a particular health center s rotation, then it may be advisable to establish financial or other penalties to deter such behavior or compensate the health center for losses associated with such problems. 10. Insurance. The agreement should specify all insurance responsibilities, including the residents employer s (which is typically the hospital) obligation to ensure that residents have sufficient malpractice/professional liability insurance at the employers' expense. In addition, the agreement should enable any Section 330 grantee health center to substitute Federal Tort Claims Act ( FTCA ) coverage (if it is deemed) in lieu of its malpractice insurance obligations. With respect to FTCA coverage for residents, Bureau of Primary Health Care (BPHC) Policy Information Notice (PIN) 97-6 (January 13, 1997) clarifies that the deemed health center and its practitioners are covered under FTCA for teaching activities within the health center s facilities, but indicates that the students or residents (who generally are employed by the hospital) are not covered by FTCA. Additionally, the PIN indicates that time spent by health center practitioners in non-health center facilities such as hospitals supervising the care provided by residents to nonhealth center patients is not covered. However, notwithstanding this guidance set forth in BPHC PIN 97-6 providing that residents and students are not covered by FTCA, residents who are directly employed by a FQHC would arguably be covered under the statutory language authorizing FTCA coverage for health centers and their employees. 8 Accordingly, although we note the conclusion set forth in PIN 97-6 (i.e., that FTCA does not cover residents), we do not think this conclusion applies to residents directly employed by the FQHC providing activities within their scope of employment and within the health center s scope of project (in terms of the applicable health center s sites and services). Before proceeding to assume FTCA coverage of any resident, however, the health center should seek confirmation from DHHS. 11. Cooperation. In the spirit of collaboration, it is advisable that the health center and hospital agree to cooperate by disclosing opportunities and preparing funding proposals and/or applications related to the residency program collaboration. 8 In this respect, we note that PIN 97-6 pre-dates the promulgation of the Federal regulations allowing FQHCs to receive DME reimbursement. 7

IV. ALLOCATION OF COSTS AND ASSOCIATED BILLING AUTHORITIES A. GME Reimbursement In order to properly allocate costs and payment obligations as between the hospital (for teaching activities) and the health center (for clinical service delivery), it is important to understand the key components of GME reimbursement. Hospitals typically receive Federal reimbursement for certain allowable costs incurred in conducting an accredited residency training program. There are two kinds of Federal GME reimbursement which are paid through the Medicare program: (1) direct GME, commonly referred to as DME ; and (2) indirect GME (or IME ). In order to receive GME reimbursement (whether DME or IME), the program must be an approved medical residency program, such as one listed in the Directory of Graduate Medical Education Programs published by the AMA, or listed in the Annual Report and Reference Handbook published by the American Board of Medical Specialties, or must be approved by ACGME as a fellowship program in geriatric medicine. 9 The purpose of DME is to reimburse institutions, on a cost-basis, for the direct training costs incurred by institutions involved in training programs. 10 Allowable DME costs include items such as: (1) the salary and fringe benefits (including travel and lodging where applicable) of the residents; (2) the portion of the cost of teaching physicians salaries and fringe benefits attributable to teaching activities; and (3) the portion of overhead directly attributable to the residency program. 11 Generally, in order to receive DME, the DME recipient must incur all or substantially all of such direct training costs. The Social Security Act authorizes hospitals to include the time a resident spends in patient care activities at a non-hospital setting in its direct GME and IME full-time equivalency ( FTE ) count if the hospital incurs all or substantially all of the costs of training at that non-hospital setting. 12 Specifically, in determining the total FTE for residents in cost reporting periods after July 1, 1991, Federal regulations at 42 C.F.R. '412.105(f)(1)(ii) state that, effective after October 1, 1997, the time spent by residents in patient care activities in a non-hospital setting is counted if the criteria set forth in 42 C.F.R. '413.86(f) are met. Pursuant to 42 C.F.R. '413.86(f)(4), for cost reporting periods after January 1, 1999, the time spent by residents in non-provider settings, such as freestanding clinics and physician offices, in connection with an 9 42 C.F.R. 413.86(a)(2); 42 C.F.R. 412.90(g). 10 42 C.F.R. 413.86(a). 11 42 C.F.R. 413.86(b). 12 See Sections 1886(d)(5)(B)(iv) and 1886(h)(4)(E) of the Social Security Act; 42 U.S.C. '1395ww. This policy is further clarified in the Federal regulations at 42 C.F.R. '412.105(f)(1)(ii) and 42 C.F.R. '413.86(f). In addition, DHHS recently issued final rules (See 68 Fed. Reg. 45434) which amends the Federal GME regulations in 42 C.F.R. 413.86 to address CMS concerns regarding non-hospital provider affiliations which CMS believes involve the inappropriate redistributions of costs or other community support to GME. In light of these regulatory amendments, it is advisable to review the particular history of a training program at the non-hospital FQHC site to ensure the continued eligibility of training costs incurred at that site to be defined as GME costs (regardless of whether the teaching hospital or the non-hospital FQHC site is the direct GME recipient). 8

approved program, may be included by the hospital in its FTE count if: (i) the resident spends his/her time in patient care activities; and (ii) the hospital and non-hospital site have a written agreement providing that the hospital will incur all or substantially all of the costs of training incurred at the non-hospital site, including resident salaries and fringe benefits, and will provide reasonable compensation for such costs to the non-hospital site. In cases where the non-hospital site is a FQHC, the agreement should also contain an acknowledgment that the FQHC will include any teaching costs it incurs (and for which it is reimbursed by the hospital) in a nonreimbursable cost center on its Medicare cost report. Accordingly, in situations where the hospital receives DME (which is the case in the vast majority of health center-residency program collaborations), the hospital must incur all or substantially all of the direct costs of the residency program, including at the health center site. This should be memorialized in the written agreement between the hospital and health center (i.e., the hospital must agree to reimburse the FQHC for all direct training costs incurred by the FQHC). 13 In 1998, FQHCs were added to the list of institutions eligible to receive DME reimbursement, regardless of whether or not the FQHC is the sponsoring institution of the residency program, provided that the FQHC incurs all or substantially all of the direct training costs at the FQHC site(s). 14 IME reimbursement (which represents the far greater portion of Medicare s GME support) is meant to reimburse a hospital for the generally higher operating costs experienced by hospitals that sponsor/house residency training programs. These higher operating costs typically arise from increased resource utilization and clinical inefficiency due to the inclusion of an additional layer of less experienced staff involved in the delivery of patient care. IME is typically paid through a boosted inflated inpatient visit rate for applicable teaching hospitals through a complex formula based on the number resident FTEs and other site-specific factors. 15 It should be understood that, although eligible to receive DME directly under the revised regulations, FQHCs are not eligible to receive IME. Moreover, under the Federal regulations, a hospital that receives IME is not legally obligated to reimburse a health center for its indirect costs (e.g., higher marginal costs due to lost productivity, inappropriate utilization or overutilization of equipment and supplies, inappropriate ordering of laboratory services) associated with the training program even if the FQHC can document such costs (i.e., that residents order more tests and lab services, etc). However, many health centers require hospital sponsors to cover some or all of these indirect costs as a condition of the health center serving as a rotation site. 13 For this reason, the hospital usually employs the residents (and pays for the their salaries, benefits, professional insurance, etc.), as well as most of the preceptors. 14 In arrangements where the FQHC receives DME reimbursement directly, the hospital s GME payments would be reduced accordingly. 15 42 C.F.R. 412.90(g), 412.105. 9

B. Reimbursement Options for Resident Activities In accordance with the Federal regulations governing the Medicare program, the patient care activities of residents furnished in non-hospital settings (e.g., FQHCs) are payable in one of two ways: (1) through GME payments to the teaching hospital (i.e., the time spent by residents in patient care activities in a non-hospital setting is counted towards the hospital s resident FTE count if the criteria set forth in 42 C.F.R. '413.86(f) are met), as discussed in subsection IV.A above; or (2) through the Medicare physician fee schedule, subject to the following requirements: (i) (ii) The resident is fully licensed to practice medicine (or osteopathy, dentistry or podiatry, as applicable) in the State where the service is performed; the time spent in the non-hospital site is not included in the hospital s resident FTE count for GME payment purposes; and (iii) payment is not made for services of the precepting physician. 16 Because GME payments (which will include both DME 17 and IME reimbursement (for teaching hospitals)) will typically be substantially greater than that collected by billing for the residents services (to Medicare beneficiaries) under the Medicare fee schedule, the substantial majority of teaching hospitals choose to receive payment under option (1). Moreover, because GME payments are intended to cover teaching costs, rather than substitute as payment for clinical services to the non-hospital provider, the non-hospital provider may bill for the services of the precepting physician (provided, of course, that the costs associated with the provision of direct patient care by the precepting physicians at the non-hospital are not included in the hospital s DME cost report (i.e., there is no double billing ). Accordingly, in the majority of residency rotations at non-hospital sites, including FQHCs, where the teaching hospital is receiving payment for the resident s services under the GME reimbursement option, the clinical activities of residents are excluded from being paid as physician services. C. Precepting as Clinical Cost As discussed in Section II above, given the lack of clear guidance from DHHS as to whether precepting should be properly treated as a teaching or a clinical activity, and the fact that most health centers intend to bill for direct clinical services provided to health center patients by residents 16 See 42 C.F.R. 415.206. 17 As noted in Section IV.A, resident salaries and benefits are an expressly recognized GME cost. 10

under the supervision of the preceptors, we believe the reasonable interpretation is to treat precepting as a clinical activity (and, therefore, a clinical cost as opposed to a teaching cost). 18 Accordingly, the costs associated with the preceptors (i.e., the appropriate proportion of the preceptors salary and benefits attributable to their supervision of residents while delivering primary care) should not be included by the hospital in its calculation as direct GME costs 19 incurred at the health center site. In addition, in order for a health center to properly bill for the clinical services of preceptors who are not health center employees, it is important that the health center would purchase the services of the hospital s physician faculty, typically through a standard, armslength, fair market value arrangement. 20 Non-hospital providers, including FQHCs, typically bill for the services rendered by residents under the direct supervision of the precepting physician. The key requirement for billing is that the teaching physician must: (i) be physically present during the key portion (i.e., the portion 18 Depending on actual preceptor practices and the ability of a health center to accurately document the actual time spent by precepting physicians in providing direct patient care with the involvement of residents, versus the time spent by precepting physicians discussing a patient s treatment with a resident for training purposes after the key portion of the visit has occurred, it would seem justifiable and appropriate to treat this latter allocation of time as a teaching activity and allocate the costs associated with such time to the hospital as a DME expense. 19 As explained in Section IV.A, teaching hospitals receive GME reimbursement in the form of enhanced Medicare payments for certain allowable costs (including resident stipends) incurred in conducting an accredited residency training program. Conversely, a health center bills patients, private insurance, Medicare and Medicaid and, in the case of Section 330 health center grantees, Federal grant funds for all clinical services provided within its scope of project. Accordingly, it is critical that teaching versus clinical responsibilities are appropriately allocated so as to avoid potential allegations of double billing of Medicare and Medicaid, i.e., on a theory that (1) GME reimbursement for residency training is paying for clinical services already paid for by Medicare, Medicaid and/or Federal grant funds; or (2) Section 330 grant funding, Medicaid and Medicare clinical service revenues are being inappropriately utilized to pay for teaching activities. 20 The health center s right to bill for such services is dependent upon such an arrangement. This structure is also important to ensure that the parties minimize any legal exposure under the Federal anti-kickback statute (42 U.S.C. 1320a-7b(b)) by avoiding a claim that the health center is receiving remuneration in the form of free physician services for which it bills third parties. In this respect, the agreement should be structured to qualify for the applicable safe harbor for personal service agreements set forth at 42 C.F.R. 1001.952(d), which includes the following key requirements: (1) a signed, written contract with a term of not less than one year; (2) the contract must specify the services to be provided; (3) the aggregate compensation is set in advance, consistent with fair market value in arms-length transaction and does not vary based on volume or value of referrals or business generated; and (4) the aggregate services contracted for cannot exceed the reasonably necessary to accomplish a commercially reasonable business purpose. In this regard, we note that a new statutory safe harbor for FQHCs was enacted in December 2003 (Sec. 431, Pub. L. 108-173) which would allow FQHCs to receive free physician (or other) services from a collaborating partner under certain circumstances. NACHC has been informally advised by an official in DHHS Office of Inspector General that she believes the FQHC safe harbor is presently effective (although this belief is not binding on DHHS), notwithstanding that final regulatory standards for this safe harbor are not required to be issued until December 2004. Given the fact that specific regulatory standards have not been issued, at a minimum, any agreement which may attempt to take advantage of this safe harbor should: (1) be made subject to revision based on the final regulations which will be issued by DHHS; and (2) consistent with statutory language, contain terms which (i) do not restrict or limit patient freedom of choice (of provider), and (2) protect the parties respective health care professional s independent medical judgment regarding medically appropriate treatment. 11

that determines the level of service billed 21 ) of the services provided; (ii) participate in the three key components of the primary care service (i.e., history, examination and medical decisionmaking); and (iii) personally document such presence in the medical records. 22 Federal regulations do provide for a primary care exception to the physical presence requirement for certain evaluation and management services of lower and mid-level complexity furnished in outpatient, ambulatory center settings (such as a FQHC) by residents. See 42 C.F.R. 415.174. For this exception to apply, all of the following conditions must be met: (1) The services must be furnished in a center that is located in an outpatient department of a hospital or another ambulatory care entity in which the time spent by residents in patient care activities is included in determining intermediary payments to a hospital under Sec. 413.86. [i.e., GME payments] (2) Any resident furnishing the service without the presence of a teaching physician must have completed more than 6 months of an approved residency program. (3) The teaching physician must not direct the care of more than four residents at any given time and must direct the care from such proximity as to constitute immediate availability. The teaching physician must (i) (ii) (iii) (iii) (v) Have no other responsibilities at the time; Assume management responsibility for those beneficiaries seen by the residents; Ensure that the services furnished are appropriate; Review with each resident during or immediately after each visit, the beneficiary's medical history, physical examination, diagnosis, and record of tests and therapies; and Document the extent of the teaching physician's participation in the review and direction of the services furnished to each beneficiary. (4) The range of services furnished by residents in the center includes all of the following: (i) Acute care for undifferentiated problems or chronic care for ongoing conditions. 21 In the primary care setting, the standard for determining the appropriate level of evaluation and management services is the Documentation Guidelines for Evaluation and Management Services developed by the American Medical Association and CMS. See Medicare Carriers Manual 15016 22 See 42 C.F.R. 415.172(b); Medicare Carriers manual, Section 15016. 12

(ii) (iii) Coordination of care furnished by other physicians and providers. Comprehensive care not limited by organ system, or diagnosis. (5) The patients seen must be an identifiable group of individuals who consider the center to be the continuing source of their health care and in which services are furnished by residents under the medical direction of teaching physicians.23. Note that FQHCs which directly receive direct GME reimbursement (see discussion in Section IV.A above) may not avail themselves of this exception, because the first condition is not met. As a practical matter, this issue has not surfaced often, because very few FQHCs are actually receiving direct GME. V. CONCLUSION In light of the increasing number of FQHCs who are now serving as rotation sites for residency training programs, it is important that FQHCs have: (1) an understanding of the complex regulatory framework for reimbursement to the sponsors of such programs as well as accreditation program implications; (2) guidance regarding the kinds of agreements and key provisions that will need to be developed with a teaching institution; (3) a sense of the recurring issues that arise in structuring these collaborative arrangements; and (4) strategies for addressing such issues. 23 See 42 C.F.R. 415.174. 13