Cost-benefit analyses of California family practice residencies

Journal of Family Practice, May, 1989 by Paul G. Barnett, John E. Midtling, William H. Burnett, Franklyn D. Dornfest, J. Edward Hughell, Nornam B. Kahn, Fran S. Larsen

Revenues

The hospital cost reports showed that the study hospitals administered an average of $5,190 per resident in educational grants and received an average of $20,444 per resident in education reimbursement from Medicare (Table 2). The latter figure understates the importance of Medicare education payments to hospital-based family practice residencies. The average California hospital with a family practice residency had more intensive teaching activity and greater utilization by Medicare patients, and would receive a larger Medicare education payment as a result.

Nationally, the Medicare program made $1.381 billion in payments for medical education during fiscal 1985 (excluding New York and New Jersey). [16] This figure represents an average payment of about $25,400 per resident.

The physician services income earned by a residency is not stated in the hospital cost report. All hospital revenue, including that earned by residents and staff physicians, is attributed to patient care departments, and none is attributed to the education cost center. Other hospital financial records may tabulate some of the revenue attributable to services rendered by residents and staff physicians, but revenues attributable to the residency are difficult to identify. For example, Medi-Cal (California's Medicaid program) does not directly pay for inpatient services rendered by residents, but instead pays a higher daily rate to teaching hospitals. Another example of the difficulty in determining revenue earned by the residency is the problem of deciding what share of physician service income earned in specialty services should accrue to the efforts of residents on rotation.

Thus it is difficult to use cost-report data to state the extent to which the study hospitals relied on external subsidy to meet the cost of education. These data do show that grants and Medicare payments met 35.7% of the graduate medical education expenses reported to Medicare. Joint-products cost analysis is a more useful tool to determine the net cost that medical education programs represent to hospitals.

PREVIOUS JOINT-PRODUCTS COST STUDIES

Most studies employing joint-products cost methods have evaluated the pure cost of education. This method has not been used previously to study family practice programs.

In Freymann's classic joint-products cost study, elimination of medical education would have caused a negligible reduction in the net return of a large community teaching hospital. [17] This calculation balanced the savings that result from termination of the education program with the expense of hiring replacement physicians and the loss of educational grants and fees. In this case, the pure cost of education was a small, negative figure.

The pure cost of educating internal medicine residents in a university outpatient clinic was calculated by estimating the cost of providing the same amount of patient care with fully trained internists instead of residents. [18] The study found that there would be a 4.6% reduction in cost, meaning that 4.6% of clinic expenses consisted of the pure cost of teaching.