Graduate medical education funding crisis - Health Policy Update

Physician Executive, Nov-Dec, 1999 by Georges C. Benjamin

There are more than 1,000 teaching hospitals in the United States. These hospitals have an important role in the health care system, providing the vast majority of clinical research, ensuring care for 44 percent of the poor, and training more than 75 percent of the nation's physicians and numerous other health care professionals.' They are frequently cited as being responsible for maintaining both high quality of care and technological innovation.

Since 1965 Medicare has explicitly contributed to the costs of graduate medical education (GME). Initially, these payments were included under a costbased system, which paid extra for the higher costs of teaching, research, covering the uninsured, a sicker case mix, and special care units such as trauma, transplant, and critical care.

In 1984 the system was changed and payments were based on diagnostic-related groups (DRGs). This created two distinct funding streams: (1) direct medical education (DME), which paid for the costs of running training programs, such as resident and staff salaries, teaching expenses, and office space, and (2) indirect medical education (IME), which covered the cost differential of caring for a sicker patient population. In 1999 teaching hospitals were paid almost $6 billion through the DME ($2.2 billion) and IME ($3.7 billion). (2)

Funding academic medicine

Some U.S. policymakers question the appropriateness of Medicare paying for GME and believe the system needs to change. In the Balanced Budget Act of 1997, Congress approved a series of funding cuts to teaching hospitals by reducing prospective payments. The Association of American Medical Colleges estimates that 40 percent of teaching hospitals stand to loose up to $15 billion by 2002. (3) This change in funding represents the biggest threat to the GME system.

Commercial payers have historically paid more than the actual health care delivery costs at teaching hospitals to help pay for teaching, as well as the disproportionately higher rates of uncompensated care. Recently, these insurers have started to reduce their participation for social goods such as uncompensated care and GME as a component of their premium costs, This is particularly true of managed care programs. In addition, managed care has dramatically reduced costs in non-teaching hospitals, making teaching hospitals a less competitive option for many nonspecialized services and may result in fewer patient visits. These reductions are threatening the viability of the U.S. teaching hospital system.

Medicaid programs have historically contributed more than $2.3 billion for GME. Another $200 million of state tax dollars supports these programs. As states move to managed care contracts, the full value of these dollars is often not passed on to the teaching hospitals, further straining funding. Some state Medicaid programs are looking at the portion of dollars that they contributed to OME and have begun to carve them out of the capitated payments to managed care organizations. These funds are then paid to teaching hospitals directly. (4)

Some teaching hospitals receive federal funds for uncompensated care, paid through the 'disproportionate share hospital funding" (DSH). It, like the other funding sources, is under scrutiny and may be reduced. Additional funding support comes from research grants and gifts, but these are not enough to offset planned cuts.

Policy options

The first Balanced Budget Act passed by Congress In 1995 and later vetoed by President Clinton included language to allow for a trust fund or GME pool-this was an early attempt to address Congress' concerns. In 1996, the U.S. House of Representatives' Ways and Means Committee asked the Institute of Medicine (IOM) of the National Academy of Sciences to look "for a new model to preserve the missions of these institutions and revamp Medicare's role in funding." (5) Congress wanted the IOM to develop a methodology to create a GME trust fund--the IOM made its recommendations on how such a fund could be constructed and financed.

In 1997, Congress asked the Medicare Payment Advisory Commission (MedPAC) to study how Medicare funded GME and could better address workforce issues, as well as ways to change the system. This summer MedPAC presented their proposal to combine the indirect and direct medical payments and to pay only for direct patient care, not teaching. Payments would be made under a DRG per case system and adjusted for severity of illness. MedPAC also suggested that Medicare funding should not be used to address workforce issues--historically, it has been used to manage the scope and size of GME programs. (6)

This shift in ideology changes the debate from funding teaching to paying for services. The American Medical Association and the Association of American Medical Colleges disagree with this approach because it changes Medicare's explicit role in paying for GME. (2) There is also the fear that other payers would more rapidly follow Medicare's lead, resulting in the collapse of funding support.