Medicare funding for medical education: a waste of money?

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

The talked-about modifications would eliminate the ability of HMOs to divert medical education funds away from medical education. Moreover, under existing Medicare payment policy, the more residents hospitals train, the more money they get. Therefore, there is a disincentive to reduce residency training slots and an incentive to hire more residents. Hospital executives admit that the current scheme distorts the residency labor market. The pooling idea, though, neutralizes the financial disincentives that penalize teaching hospitals for shrinking the number of medical residents they train.

Worrisome to some residency directors is a Clinton Administration plan to incorporate into the proposal an incentive for hospitals that train more primary care residents. Residency directors, particularly medical specialists, worry that this will distort the free flow of residents into those specialties where there is the greatest need or the greatest interest.

If government continues to see the need to subsidize medical education, another idea would be to offer graduating medical students vouchers they can apply to the residency program of their choice. This would have the additional effect of forcing residency programs to compete for medical graduates. Those that offered inefficient, shoddy training would have a difficult time attracting medical students. In effect, vouchers would return the residency selection process to a free market for labor. It would force programs to offer good training opportunities at competitive terms or close down.

Moreover, under any reform plan, resident pay should be linked to what the market will bear in a competitive environment, akin to what residents earn when they moonlight. Pay should be tied closer to what the residents bring in by performing billable services and less on what it costs to educate them. This means fourth-year residents would earn considerably more than their first-year counterparts, which is the way it is in any other profession, where junior associates receive less than their more senior colleagues. Although most people believe doctors are paid too much, residents are earning about the same in real terms as they were getting in 1975. The current system makes it profitable for unscrupulous hospitals to hire as many residents as the law will allow. The residents perform the medical services cheaply, while the hospitals are able to bill at full rates.

The plan to roll medical education reimbursements out of Medicare is a step in the right direction. This idea long has been supported by the medical education establishment, including the American Association of Medical Colleges, which lobbies in Washington on behalf of medical schools. AAMC president Jordan Cohen and others involved in medical education argue that the plan promotes "shared responsibility." In other-words, it holds open the possibility that everyone who "benefits from medical education ought to be participating in its financing," he suggests. One could envision that this would include levies on HMOs and other health care providers, and this is precisely what many in the medical education establishment have in mind.