42 CFR §415.160

1. (a)Scope. A teaching hospital may elect to receive payment on a reasonable cost basis for the direct medical and surgical services of its physicians in lieu of fee schedule payments that might otherwise be made for these services.
2. (b)Conditions. A teaching hospital may elect to receive these payments only if—
   1. (1)The hospital notifies its intermediary in writing of the election and meets the conditions of either paragraph (b)(2) or paragraph (b)(3) of this section;
   2. (2)All physicians who furnish services to Medicare beneficiaries in the hospital agree not to bill charges for these services; or
   3. (3)All physicians who furnish services to Medicare beneficiaries in the hospital are employees of the hospital and, as a condition of employment, are precluded from billing for these services.
3. (c)Effect of election. If a teaching hospital elects to receive reasonable cost payment for physician direct medical and surgical services furnished to beneficiaries—
   1. (1)Those services and the supervision of interns and residents furnishing care to individual beneficiaries are covered as hospital services, and
   2. (2)The intermediary pays the hospital for those services on a reasonable cost basis under the rules in § 415.162. (Payment for other physician compensation costs related to approved GME programs is made as described in § 413.78 of this chapter.)
4. (d)Election declined. If the teaching hospital does not make this election, payment is made—
   1. (1)For physician services furnished to beneficiaries on a fee schedule basis as described in part 414 subject to the rules in this subpart, and
   2. (2)For the supervision of interns and residents as described in §§ 413.75 through 413.83.