Medicare funding for medical education: a waste of money?

USA Today (Society for the Advancement of Education), Nov, 1997 by Scott Gottlieb

By picking up the tab for training doctors, the government is making taxpayers pay instead of private industry having to bear the expense, as it should.

Medicare, the government's medical plan for senior citizens, is an ongoing political hot potato. Nevertheless, the calculus of Washington makes it certain that most Americans never will get close to learning anything useful about the workings of the program which, in many respects, is wasteful of the taxpayers' money.

Take, for example, one aspect of the behemoth health insurance program that is not publicized widely. Presently, the Federal government, through Medicare, explicitly subsidizes the cost of graduate medical education. In fact, almost $7,000,000,000 was spent on education in 1996, according to Congressional Budget Office estimates. This money is intended to cover the direct and indirect costs of medical education, including such things as salaries for residents and the extra time a surgeon takes as he or she goes slow to teach a procedure.

The money comes from two pots. The first is direct medical education (DME) payments, which cover Medicare's calculated share of the costs associated with the salaries and benefits of residents and the cost of teaching physicians. This includes money for conference and classroom space, additional equipment and supplies, and allocated overhead.

The second funding mechanism is through a so-called indirect medical education (IME) adjust meet. Recognizing that the additional missions of teaching hospitals raise their costs, Congress established in 1983 the IME adjustment as an add-on factor to Medicare in-patient payments. This was intended to compensate teaching hospitals for certain intangible and difficult to quantify expenses associated with graduate medical education programs. According to the original bill, this included such expenses as in creased diagnostic tests, more aggressive use of diagnostic services, higher staffing ratios, additional record-keeping, research, and the fact that teaching hospitals generally attract a more acute patient case mix.

Since these governmental payments are calculated to cover the teaching costs associated only with publicly insured patients, some portion of the expenses of medical education has been passed on through the higher charges that academic medical centers typically have collected from private payers. Though the precise amount they contribute from their own clinical revenues remains to be measured carefully, one estimate placed this figure at $1,700,000,000, of which about $1,000,000,000 goes to undergraduate medical education--the four years of medical school--and $700,000,000 to graduate medical education or residency training.

By all accounts, medical training is an expensive enterprise. Yet, exactly how much medical education costs academic medical centers is not clear. When financial officers at academic medical centers are asked the amount they actually spend on education, they admit that their estimates--when they have them--are imprecise.

This is because of difficulty in gauging just how much it costs the hospital when a senior physician on the medical center's staff takes extra time to teach a new procedure or how much billable time is diverted when physicians give lectures to undergraduate medical students. What is clear is that the medical education process provides the hospitals with clear benefits to go along with any expenses. Residents, who work long schedules--sometimes eclipsing 90 hours a week--staff hospitals at odd hours and provide valuable on-site supervision when more senior physicians are off. For this, they derive a salary of about $3040,000 a year.

Residents, in many respects, are a financial windfall to some hospitals, not a liability. The money that Medicare pays teaching hospitals to subsidize their training, therefore, amounts to another Federal subsidy to prop up bloated urban medical centers. It should be noted that the amount of money academic medical centers claim medical education costs them each year varies widely among academic hospitals, from a low of $7,500 per resident to more than $200,000 per resident, with most reporting that their direct costs per resident were in the $20-80,000 range, according to a re port published in the Journal of the American Medical Association. This gap--which persists each year--has been the subject of intense debate and scrutiny. All studies, even those commissioned by the government, indicate that the variation is due to accounting differences.

At issue as well is the frequent expenditure of education money on items other than the training of physicians. For instance, under the medical education payment system, money is being diverted from Medicare to fund teaching at health maintenance organizations. The trouble with this practice is that just a select few HMOs offer any medical education programs, and even those that do are seen by most residents as being ancillary to their medical education.

When HMOs take on Medicare patients, they automatically receive the extra education money calculated into the reimbursement, even in cases where they are not participating in medical education. These payments to managed care companies are a major inducement for going after a Medicare patient load. Rep. Nancy Johnson (R.-Conn.), a member of the House Ways and Means Health Subcommittee, said this is where the establishment of a separate trust fund for medical education makes sense. "With the trust fund, the hospitals are assured of getting the money they need and they're not dependent on choking it out of HMOs."