Indirect Medical Education (IME)

Section 1886(d)(5)(B) of the Act provides that prospective payment hospitals that have residents in an approved graduate medical education (GME) program receive an additional payment for a Medicare discharge to reflect the higher patient care costs of teaching hospitals relative to non-teaching hospitals. The regulations regarding the calculation of this additional payment, known as the indirect medical education (IME) adjustment, are located at 42 CFR §412.105. The additional payment is based on the IME adjustment factor. The IME adjustment factor is calculated using a hospital's ratio of residents to beds, which is represented as r, and a multiplier, which is represented as c, in the following equation: c x [(1 + r).405 - 1]. The multiplier c is set by Congress. Thus, the amount of IME payment that a hospital receives is dependent upon the number of residents the hospital trains and the current level of the IME multiplier.

The formula is traditionally described in terms of a certain percentage increase in payment for every 10-percent increase in the resident-to-bed ratio. For discharges occurring during FY 2003 and thereafter, the formula multiplier is 1.35. The formula multiplier of 1.35 represents a 5.5 percent increase in IME payment for every 10 percent increase in the resident-to-bed ratio.

Balanced Budget Act (BBA) of 1997 Reforms: the IME Multiplier -- The BBA reduced the level of the IME multiplier over a 4 year period because of a concern that the IME adjustment overpaid hospitals relative to their additional teaching costs. The BBA revised the IME formula to reduce the IME adjustment factor from 7.7 percent to 7.0 percent in FY 1998, 6.5 percent in FY 1999, 6.0 percent in FY 2000, and 5.5 percent in FY 2001 and subsequent fiscal years.

Balanced Budget Refinement Act (BBRA) of 1999 Reforms: the IME Multiplier -- The BBRA slowed the transition set by the BBA for the IME adjustment factor. For FY 2000, special payments were made to each hospital to maintain the IME factor at 6.5 percent. For FY 2001, the factor increased to 6.25 percent. The implementation of the factor at 5.5 percent was delayed until FY 2002.

Benefits Improvement and Protection Act (BIPA) of 2000 Reforms: the IME Multiplier -- The BIPA changed the IME payment add-on for FY 2001 to 6.25 percent for discharges occurring on October 1, 2000 and before April 1, 2001, and to 6.75 percent for discharges occurring after April 1, 2001 and before October 1, 2001. The IME adjustment would be 6.5 percent in FY 2002 and 5.5 percent in FY 2003 and subsequent years.

View the Direct Graduate Medical Education (DGME) Payments web page to see information regarding the GME Affordable Care Act provisions, under section 5503, “Distribution of Additional Residency Positions,” and under section 5506, “Preservation of Resident Cap Positions from Closed Hospitals.” The DGME web page also includes information regarding the GME Consolidated Appropriations Act,  of 2021, provisions, section 126, “Distribution of Additional Residency Positions,” and section 131 “Adjustment of Low Per Resident Amounts (Direct GME) and Low FTE Resident Caps (Direct GME and IME) for Certain Hospitals.”

Please note many of the Inpatient Prospective Payment System proposed and final rules containing GME payment policies can be found on the IPPS Regulations and Notices page.