American College of Physicians: Internal Medicine — Doctors for Adults ®


At risk: Medicare funding for GME

Why educators are nervous about a proposal to move GME funding

From the March 1999 ACP-ASIM Observer, copyright 1999 by the American College of Physicians-American Society of Internal Medicine.

By Deborah Gesensway

A high stakes tug-of-war is pitting the academic medical community against some legislators intent on "saving" Medicare at all costs, even if it means sacrificing government funding for doctors-in-training.

The latest threat to Medicare funding for medical residents and faculty comes from the National Bipartisan Commission on the Future of Medicare, which has been considering a recommendation to remove much of the funding for graduate medical education (GME) from Medicare. The money would be placed into a discretionary funding account to be approved by Congress every year during budget negotiations. The rationale: Shifting the cost of GME out of Medicare will help extend the solvency of the insurance program for the nation's elderly.

While the thorny issue of who should pay for GME frequently comes up when Medicare is scrutinized, recent proposals to dismantle the funding system are more resolute than ever before. That has medical educators, who face the prospect of losing their Medicare entitlement and having to fight Congress each year for funding for training programs, nervous.

This latest challenge to GME funding comes at a particularly tough time for medical educators. Many training programs are already struggling to cope with recent cutbacks in their federal funding. Some worry that additional changes—particularly those that make programs unsure of how much money will be on hand from year to year—could force programs to make cuts that will hurt residents' education. Others predict that some programs may even close.

Making Medicare solvent

According to the Association of American Medical Colleges (AAMC), Medicare is the largest single financing source for GME, paying about a third of the cost of educating residents.

Medicare pays for GME in two ways. Part of the funding comes through direct medical education (DME) payments to hospitals, which pay part of residents' stipends, faculty salaries and program administration. A larger part of the funding comes through indirect medical education (IME) funding, which is paid to hospitals as an addition to their patient-care prospective payments. In fiscal 1997, DME payments totaled $2.2 billion; IME was $4.6 billion. (The entire Medicare budget is about $215 billion, accounting for about 12% of the federal budget.)

As the National Bipartisan Commission on the Future of Medicare has debated ways of putting Medicare on a firmer fiscal footing, the question of what to do with GME financing has inevitably come up. At its January meeting, the commission began debating a recommendation from its chairman to completely cut out the $2.2 billion DME payment.

The commission has not voted to endorse the idea, and any recommendations from the commission would be subject to an intense debate in Congress. Nonetheless, the proposal has many powerful backers including co-chairs Rep. Bill Thomas (R-Calif.) and Sen. William Frist (R-Tenn). At press time, however, opposition to the proposal appeared to be growing, and it appeared unlikely that the bipartisan commission would be able to reach consensus by March 1, its deadline for recommendations.

Getting GME funding out of Medicare's budget would help make the program solvent, explained David Blumenthal, ACP-ASIM Member, director of the Institute for Health Policy at Massachusetts General Hospital/Partners HealthCare System Inc. in Boston. "It's not an inconsequential amount of money over five years, so it has been a target for reduction for a long time," said Dr. Blumenthal, who has written extensively on issues affecting academic health centers.

The current debate, he said, is compounded by the power shift in Congress that has put Republicans in charge of Medicare. Many of these legislators are rankled by the idea of a federal entitlement to train doctors, who will someday earn among the highest salaries in the nation.

Fighting back

Interestingly, some of the fiercest advocates of the status quo say that if they were to redesign Medicare from the bottom up, they would probably change the way that GME is funded. Some educators admit that Medicare may not be the best funding source for GME and acknowledge that the current system has shortcomings.

But because Medicare currently appears to be the only way to guarantee GME funding, medical educators are nervous about any proposal to move GME financing to some sort of appropriations pool—protected or not. "First of all, [the congressional appropriations process] is quite unpredictable," explained AAMC President Jordan J. Cohen, MACP. "If we are going to continue to provide quality GME, where residents are enrolled in programs that are at a minimum three years in length and very often much longer than that, you just can't have the unpredictability and fluctuations in money that inevitably come from the process that is embedded in the appropriations arena."

That's why medical organizations, which view preserving Medicare's GME funding as a top priority, have strengthened their efforts to save the entitlement. The College, the AAMC and other medical groups remain committed to the position that providing adequate support for training future physicians is the obligation of all payers of health care, but that it should start with Medicare.

The Association of Professors of Medicine (APM) has recently drafted a statement explaining why GME funding should remain in Medicare. The APM hopes to have this statement endorsed by all organizations within the internal medicine community, including ACP-ASIM, academic medical societies, subspecialty societies and geriatric societies. The College prepared a similar paper, "The Case for Graduate Medical Education as a Public Good," (available at www.acponline. org), which it has shared with members of the commission and other members of Congress. The College and groups like the AAMC have redoubled their efforts to convince legislators and the public of the importance of protecting teaching hospitals as national treasures. They also believe that training doctors is an essential way to improve the quality of care provided to Medicare beneficiaries and all other patients. Alarmed by the very idea of making even some GME funding subject to the often politically contentious Congressional appropriations process, ACP-ASIM wrote a letter to the bipartisan commission saying that the proposal "would jeopardize the adequacy and the stability of federal funding for GME." When coupled with reduced income from the private sector, further destabilization of Medicare GME funding may "imperil one of our country's most important treasures, its medical teaching institutions," the College's letter continued.

Federal funding is essential, the College stated, because "irreparable harm to the educational process could result from replacing this stable source of funding for residency education and training with a process that would be subject to political pressures and the vagaries of the appropriations process." (The full text of the letter can be found online at in the "Where We Stand" section.) The College has also signed onto a letter the AAMC sent the Commission last month expressing dismay with the GME proposal.

But not everyone sees it that way. Sen. Phil Gramm (R-Texas)—a member of both the bipartisan commission and the Senate Finance Committee, which has jurisdiction over Medicare—is among many who have said that federal funding for GME should be subject to debate during the annual appropriations process rather than existing as an entitlement.

In an attempt to find a compromise between those on both sides of the debate, the bipartisan commission may recommend that "federal support for DME would continue through either a mandatory or discretionary appropriations program." Mandatory appropriations programs are rare in the federal budget. One possible model, explained one legislative aide, would be the Black Lung programs, which have to be funded every year.

Tough timing

Medical educators say that a proposal to move GME funding could not come at a worse time. They are already reeling from the effects of the Balanced Budget Act of 1997, which reduced IME by $5.6 billion over four years and cut DME by $700 million over five years.

The balanced budget legislation also put a cap on the number of residents Medicare will support. These reductions were supposed to be made up in part by shifting a $4 billion portion of Medicare's premiums previously paid to managed care organizations to teaching hospitals over five years.

The full impact of these and several other Balanced Budget Act reform measures affecting Medicare payments for educating doctors is not yet known, but the medical community is convinced that they will "significantly reduce Medicare funding for GME," as ACP-ASIM wrote this winter in a letter to a federal commission studying Medicare.

Think of it this way: Because of the cutbacks in IME funding called for by the Balanced Budget Act, which are starting to take effect now, teaching-hospital administrators this year are already scrutinizing GME budgets more closely than ever before. In the past, having a teaching program in your hospital cost money, but it also brought a fair amount of money into the hospital because Medicare compensated you for each resident.

With the new cutbacks, that is starting to change. "From a purely fiscal point of view, the cost benefit of having residents is now more of an open question than it was in the past," explained Thomas G. Cooney, FACP, chair of the Federated Council of Internal Medicine and vice chair of the Department of Medicine at Oregon Health Sciences University. "The declining IME is certainly changing the attitudes of senior administrators, particularly non-academic administrators, about the whole enterprise."

The threat to remove DME funds from Medicare altogether, Dr. Cooney explained, is exacerbating the tension between hospital administrators and residency program directors. "Academic medical centers really have to work very hard to keep their heads above water, and if [their finance people] see a major programmatic commitment suddenly being funded by unreliable, unstable forces, they question exposing the rest of your organization's mission to that risk," he said. "The prudent and responsible thing may be to reduce your exposure by cutting out the residency program."

While similar conversations have occurred in the past, "they've gotten more acute this year," added Lisa B. Wallenstein, FACP, internal medicine chair and program director at Albert Einstein Health Care Network in Philadelphia.

Take the situation in Dayton, Ohio, where the community hospitals that contract with Wright State University's Department of Medicine to train its internal medicine residents are each reacting to the news from Washington differently. "The majority of community hospitals in my area remain committed to medical education, but they are saying they've got to start watching the dollars," said Barbara Schuster, MACP, Wright State's chair of medicine. Some are questioning how much money they may lose if residency programs send trainees to ambulatory rotations instead of the hospital, bringing the education/service dilemma to the forefront. Still others are asking about whether they should be getting out the training business altogether.

"But then there is usually someone in the institution who understands that that's not going to cut your costs significantly," Dr. Schuster said. "Residents are still a less expensive source of care than any alternative. If you cut the residency in internal medicine, how would you take care of that practice, which is now essentially all Medicare and indigent patients? What will it cost to make your private attending physicians take care of the housestaff service? These conversations are occurring this year."

Too many cutbacks?

For some educators, however, the bigger concern is not that programs will close, but that they will instead have to make so many cutbacks that resident education will suffer.

"There is a fair amount of pressure on residency programs to do a residency program at the least possible expense," Einstein's Dr. Wallenstein said. "If you have one less nurse, then you've saved $40,000. If you have one less resident, you've saved $40,000, but you've lost $100,000 in reimbursement. So the idea is not to get rid of the resident; it's to try to educate him as inexpensively as possible, which is a very difficult situation, because the rest of the hospital is not about the business of education, but about the business of patient care."

Dr. Wallenstein wondered, for instance, whether programs will have enough money for book allowances, funds for housestaff to attend conferences and do research, and money for enough nurses and ancillary support staff so residents don't have to spend all their time doing scut work like transporting patients to X-ray and putting in IVs.

Educators argue that training programs that don't have those kinds of resources will not fulfill Medicare's rationale for paying for GME: to produce top-quality physicians who provide service to the elderly while they are learning. "In a sense, it's part of R&D," Wright State's Dr. Schuster said. Medicare should continue to support GME because "it is part of keeping the patient care system for the elderly of high quality." In fact, several recent articles in the New England Journal of Medicine concluded that the quality of care provided to patients in several large teaching hospitals was superior to that provided in hospitals without residents.

"We need to stress that our teaching hospitals are national treasures, and to make sure that they have reasonable, fair, consistent funding from year to year," added ACP-ASIM President Harold C. Sox, FACP. Without that guarantee, he said, not only will many Medicare patients suffer short-term, with reduced access to level of care, but long-range the amount of research into new ways of providing care will only be reduced.

"It's an obligation of the financing mechanism to ensure that we have available for future generations the same high quality physicians that we've had in the past," AAMC's Dr. Cohen said.

The Medicare commission's initial proposal targeted only DME. To date, its proposal would leave IME as part of Medicare, with the insurance program continuing to pay for differences in costs between teaching and non-teaching hospitals. The commission's draft proposal did say however, that the IME formula may need to be realigned to reflect actual cost differentials.

Regardless of what happens this spring with the bipartisan commission's recommendation, the question of continued federal funding for GME is not likely to go away. Medical educators are also gearing up for a report due this summer from Congress's Medicare Payment Advisory Commission (MedPAC), which was ordered by the Balanced Budget Act to develop recommendations on whether and to what extent Medicare payment policies regarding teaching hospitals should be changed. MedPAC's deadline for making its recommendations to Congress is Aug. 5.

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