Graduate Medical Education – Congress Considers Reform Proposals

Financial support for graduate medical education (GME) continues to be a hot topic among policy makers. Widespread concern among Members of Congress that federal GME financing is overly generous and does not promote the appropriate distribution of physician manpower has been the driving force behind efforts to revise the GME funding mechanism. Physician groups like the AANS, Association of American Medical Colleges (AAMC) and others point to the unique social goals fulfilled by academic medical centers as justification for continued federal financing of GME. These social goals include technology diffusion, clinical research, indigent care and improved quality of care through the residency training experience.

How GME Financing Works
The Medicare program, which plays a central role in providing financial support for the nation’s GME system and teaching hospitals, spends approximately $6.5 billion on GME each year. Under the current system, GME support is divided into two components: direct medical education (DME) payments and indirect medical education (IME) payments. DME payments are intended to cover stipends to residents, supervisory personnel, and other associated hospital costs for supporting a residency program. These are payments for each individual, full-time equivalent resident. Full payment is made for residents in their “initial residency period,” which is either the minimum period required for Board eligibility or five years, whichever is less. After the initial residency period, subject to a few exceptions, the payment is reduced. DME payments are approximately $2.2 billion annually.

The IME component is not based on any specifically identified direct costs. Rather, it is intended as general support for teaching hospitals and to compensate for the higher costs that these hospitals incur from uncompensated care, greater severity of illness, more sophisticated technology, etc. IME payments are made through an adjustment to each teaching hospital’s Medicare diagnosis-related group (DRG) payment, and are roughly $4.3 billion annually.

In 1997, Congress capped the number of residents that Medicare will support according to the number of residents in place as of December 31, 1996, thus limiting the growth of DME. Congress also reduced the IME adjustment, thus resulting in lower payments to teaching hospitals.

GME Reform Proposals
Responding to congressional directives, several influential policy bodies have put forward different GME reform proposals. Each recognizes a continued obligation by the federal government to subsidize residency training, but would accomplish this goal through different mechanisms:

• National Bipartisan Commission on the Future of Medicare. Created by the Balanced Budget Act of 1997 (BBA 97), the National Bipartisan Commission on the Future of Medicare was charged with examining the structure of the Medicare program and GME financing policies, and making recommendations for reform. Although the Commission failed to reach consensus and make any final recommendations, Senator Bill Frist, MD, (R-TN), a thoracic surgeon, developed a number of options for future consideration:
  1. Establish a Separate Mandatory GME Trust Fund. Each year, using current Medicare formulas, the appropriate amount of money would be transferred from the Medicare trust funds to the GME trust fund. In addition, general revenues could be appropriated to the trust fund. A variation on this would be to phase-out the transfer of Medicare funds to the GME trust fund, after which all funds would be appropriated through the annual federal budget process.

  2. Establish an All-Payer GME Trust Fund. Medicare funds would be transferred to the GME Trust Fund and a new fee would be levied on all other health care payers. Federal support for GME would likely remain at the same levels, in which case the Medicare share would be reduced.

  3. Carve-out GME From Medicare and Establish a Discretionary GME Program. All GME funding by Medicare would be eliminated. A discretionary program would be set up and funded through the annual appropriations process (similar to most non-entitlement government programs).

  The Frist proposal also included an option for establishing a voucher system for DME funding that could operate under any of the above systems. In this system, DME funds would follow the trainee to the training site(s) he or she selected.

• Medicare Payment Advisory Commission. The BBA 97 also required the Medicare Payment Advisory Commission (MedPAC) to review and make recommendations to Congress on GME, teaching hospital payments and federal health care workforce issues. In August 1999, MedPAC issued its report “Rethinking Medicare’s Payment Policies for Graduate Medical Education and Teaching Hospitals.” The MedPAC recommendations differ vastly from the Frist proposals, calling into question the entire rationale of the federal government’s GME policy and financing structure. The Commission believes that funding for GME should be targeted to account for the increased costs teaching hospitals face due to the enhanced value of their services, and that Medicare reimbursement to teaching hospitals for costs associated with training is an “accounting artifact.” Thus, the Commission recommended combining the separate DME and IME payments into a single payment adjustment to the DRG system to account for higher patient care costs. Specific recommendations to Congress are:
  1. Medicare should pay more for patient care in teaching settings when the enhanced value of that care justifies the cost.

  2. Congress and the Secretary of Health and Human Services (HHS) should improve the DRGs to reflect the relationship between illness severity and the cost of inpatient care, thereby making Medicare payments more consistent with efficient providers’ costs.

  3. Congress should revise Medicare’s payments to recognize the value of patient care services provided in teaching hospitals through an enhanced patient care adjustment.

  4. Congress should phase-in the payment adjustment for enhanced patient care and any related policies that substantially change payments to individual providers.

  5. Congress and the Secretary of HHS should develop payment adjustments for enhanced patient care in all settings where residents and other health care professionals train, when the added value of patient care justifies a higher cost.

  6. Federal policies intended to impact the number, specialty mix, and geographic distribution of health care professionals should be implemented through targeted programs, rather than Medicare.

• The Pew Commission. This commission has a long history of weighing-in on health care policy matters and has issued a series of reports related to physician manpower and GME support. Its most recent report, “Strengthening Federal GME Policy,” contains a number of recommendations to federal policymakers (most of which are a restatement of its past position). The Pew Commission believes current physician workforce trends indicate a need to reform federal GME policy to better align it with market trends and public interest. Therefore, Medicare’s GME financing must be tied to the nation’s workforce requirements (i.e. dramatically reducing the number of specialist residency positions, while maintaining the number of generalist residency positions). The report makes seven key recommendations:
  1. An all-payer GME trust fund should be established and financed via an assessment on health plans and contributions from Medicare and other federal programs that subsidize GME.

  2. Funded residency positions should not exceed 110 percent of the number of U.S. medical graduates in 1997.

  3. Guarantee all-payer reimbursement for U.S. medical graduates who pass appropriate licensure examinations and are admitted to an accredited residency program. Eliminate GME payments for IMG residents who are citizens of other nations.

  4. Establish a uniform per resident payment formula to eliminate regional variation, other than cost-of-living adjustments.

  5. Require teaching institutions to offer the same number, or more, of generalist residency positions as were available at these institutions in 1997.

  6. Create a separate mechanism for payment of IME that is independent of payments for inpatient hospital services.

  7. Establish a new commission to track health care workforce trends and advise federal policy makers on health profession workforce policies and GME financing.

  AANS’ Response
  Given the complexity and political nature of this debate, and due to the fact this is an election year, it is highly unlikely that any major GME reform legislation will be enacted into law in 2000. Each proposal faces its own set of obstacles and opponents, thus limiting the chances for reform. Senator Frist’s proposal to subject GME financing to the annual discretionary spending budget process has been severely criticized because of the instability it could bring to both academic medical centers and residents. The MedPAC proposal has been condemned by many in organized medicine as unworkable and an abdication of the federal government’s responsibility for supporting GME. Finally, recommendations like those of the Pew Commission are viewed by many as too socially liberal and will not likely advance in a Republican-controlled Congress.

  The AANS shares the aforementioned concerns, and will be formulating an official position to enable weigh-in with policy makers as the debate unfolds.

  Clearly, the future of specialty medicine will be impacted by any changes to the GME and federal workforce policies. To that end, you must continue to monitor and participate in this debate.

  For information on the AANS’ position on GME and physician manpower, or the “Quality in Graduate Medical Education Act,” visit www.neurosurgery.org/socioeco/.