The U.S. Court of Appeals for the 7th Circuit created a circuit split by ruling that Medicare should reimburse the University of Chicago Medical Center $2.8 million for medical residents’ research work not related to Medicare patients.

On Aug. 25, a unanimous panel upheld a Northern District of Illinois ruling in The University of Chicago Medical Center v. Sebelius.

The lower court held that the medical center is eligible for Medicare reimbursements for “indirect medical education” expenses, such as research. In affirming, the 7th Circuit specifically ruled that the hospital could include the time medical residents spent on pure research in fiscal year 1996 in determining how many full-time-equivalent medical workers it employed for Medicare reimbursement purposes.

The 7th Circuit ruling stands in opposition to a 1st Circuit 2008 holding in Rhode Island Hospital v. Leavitt. But the 7th Circuit ruled that the federal health care reform bill signed into law on March 30 “resolves this case.”

“We hold…that the hospital should have received reimbursement as part of its [indirect medical education] adjustment for pure research in 1996,” wrote Judge Richard Cudahy. “We note that this position is contrary to the First Circuit’s opinion, but the First Circuit did not have the opportunity to consider Congress’s health-care legislation, and we believe that legislation is dispositive.” Judges Terence Evans and Diane Sykes joined Cudahy on the opinion.

Cudahy wrote that Congress specified in the health-care reform legislation — formally the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 — that, starting in 1983, the indirect medical education, full-time-equivalent count includes a resident’s or intern’s time spent on nonpatient care activities, such as conferences and seminars, that are held in the hospital. “To us, in ordinary parlance, research activities are clearly a subset of non-patient care activities,” Cudahy wrote.

Cudahy also noted that Congress explained that the rule applies from Jan. 1, 1983 to Oct. 1, 2001, because of a regulation specifying that medical residents’ research activities are not eligible for reimbursement after the 2001 date.

The 1st Circuit’s unanimous Nov. 17, 2008, ruling reversed a Rhode Island district court decision that governing statutes allowed the Health and Human Services secretary to exclude from a hospital’s full-time-equivalent count the time residents spent on research unrelated to patient care.

The U.S. Department of Health and Human Services referred questions to the Centers for Medicare & Medicaid Services.

Ellen Griffith, a spokeswoman for the Centers, said the agency is “reviewing the decision but we have no comment at this time.”

Randall Samborn, a spokesman for the Chicago U.S. Attorney’s Office, which tried the case, also declined to comment.

Mary Susan Philp, a principal at Washington’s Powers Pyles Sutter & Verville who helped work on the case for the University of Chicago Medical Center, said the 7th Circuit’s reliance on the health care reform act “kind of removes the conflict that might have existed with the 1st Circuit’s decision in Rhode Island.”

Ronald Connolly, another principal at that firm, who tried the case for the University of Chicago Medical Center, said it’s an important victory for Medicare teaching hospitals. “Those hospitals who have claimed this time are now entitled to have it included in the calculation,” Connolly said.

The 7th circuit ruling is an important one for hospitals involved in research involving medical residents, said Larry Vernaglia, a Boston lawyer who chairs Foley & Lardner’s health care industry team. Vernaglia wasn’t involved in the 7th Circuit case, but he helped represent Rhode Island Hospital in the 1st Circuit case.

“For providers with active appeals in process, the 7th Circuit decision should make you more confident that your residents’ time spent in research really should be included in the count of full time equivalents,” Vernaglia said. “The decision also recognizes that Congress wanted residents to become well skilled in research because it’s important to their training.”

Sheri Qualters can be contacted at squalters@alm.com.