First Circuit Agrees that Research Time Properly Excluded from IME FTE Count

On November 17, 2008, the First Circuit held that the Secretary of Health and Human Services was not arbitrary or capricious in his determination that the full-time equivalent (FTE) regulation excludes from a hospital’s indirect medical education (IME) FTE count the time residents spend performing research unrelated to patient care. Rhode Island Hospital v. Leavitt, 1st Cir., No. 07-2673.

In 1996, Rhode Island Hospital appealed the decision of its fiscal intermediary that reduced the hospital's IME FTE count, resulting in the reduction of the hospital's IME adjustment by approximately $1 million. The Provider Reimbursement Review Board (PRRB) reversed the decision of the FI. However, the Secretary, exercising his right to review the decision of the PRRB, thereafter determined that (1) IME payment was only intended to reimburse teaching hospitals for the costs of increased patient care and (2) residents performing educational research were not assigned to an eligible area of the hospital as contemplated by the IME FTE regulation. Therefore, the Secretary found that the time residents spent performing research could not be included in a hospital’s IME FTE count. The Hospital appealed the decision of the Secretary to the United States District Court in Rhode Island, and the District Court, in granting the hospital's motion for summary judgment and denying that of the Secretary, concluded that the Secretary had misread the plain language of the FTE regulation.

On appeal by the Secretary, the First Circuit reversed the decision of the lower court. Noting that the FTE regulation is ambiguous, the Court of Appeals held that the decision of the Secretary was not arbitrary or capricious. The Court found it reasonable to conclude that residents assigned to perform purely educational research unrelated to patient care are not, as required by the IME FTE regulation, assigned to an area or portion of the hospital subject to the prospective payment system (PPS) and therefore, that research time should be excluded from a hospital's IME FTE count. The Court found that to be "assigned" to an "area" of the hospital subject to PPS billing, a resident must be integrated into a hospital unit dedicated to a form of patient care subject to PPS billing. The Court reasoned that such areas did not include locations where residents performed purely educational research.