Financing Graduate

Medical Education in a

Changing Health Care

Environment

COUNCIL ON GRADUATE MEDICAL EDUCATION

Fifteenth Report

D E C E M B E R 2 0 0 0

COUNCIL ON GRADUATE MEDICAL EDUCATION

Fifteenth Report

Financing Graduate

Medical Education in a

Changing Health Care

Environment

December 2000

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration
FIFTEENTH REPORT OF COGME ii

The views expressed in this document are solely those of the

Council on Graduate Medical Education and do not

necessarily represent the views of the

Health Resources and Services Administration

nor the U.S. Government.
FIFTEENTH REPORT OF COGME iii

List of Tables and Figures ..................................................................................................... v

The Council on Graduate Medical Education .................................................................. vii

Acknowledgements ............................................................................................................... xi

Preface ................................................................................................................................. xiii

Executive Summary ............................................................................................................... 1

Overview ......................................................................................................................................................1

The Changing Health Care Environment ....................................................................................................2

Current Financing of Graduate Medical Education ....................................................................................3

Residency Training in Community-Based Settings ....................................................................................5

Alternative Models for GME Financing Reform ........................................................................................6

Recommendations for GME Financing Reform..........................................................................................8

Introduction.......................................................................................................................... 17

Background ............................................................................................................................................... 17

Purpose ..................................................................................................................................................... 17

Methodology ............................................................................................................................................. 17

Organization of Report.............................................................................................................................. 18

The Changing Health Care Environment .......................................................................... 19

Current Financing of Graduate Medical Education ........................................................ 23

Overview ................................................................................................................................................... 23

Medicare Payments ................................................................................................................................... 23

Medicaid Support for GME ...................................................................................................................... 34

Health Resources and Services Administration Programs ....................................................................... 36

Other Direct Funding Sources .................................................................................................................. 38

Residency Training in Community Settings ...................................................................... 39

Current Training in Ambulatory/Community Settings ............................................................................. 39

Accreditation Requirements ..................................................................................................................... 40

Potential Financial Barriers to Training in Ambulatory Settings ............................................................. 41

Site Visit Findings ..................................................................................................................................... 42

GME Reform Proposals ...................................................................................................... 49

All-Payer Proposals ................................................................................................................................... 49

Commission on the Future of Medicare ................................................................................................... 51

MEDPAC Proposal ..................................................................................................................................... 51

Alternative Models for GME Funding ............................................................................... 53

Policy Goals for GME Funding ................................................................................................................ 53

Policy Considerations for Community-Based Training ........................................................................... 53

Health Care Provider Model ..................................................................................................................... 54

Education Model ....................................................................................................................................... 55

Planning Model ......................................................................................................................................... 56

Performance Model ................................................................................................................................... 57

Table of Contents
FIFTEENTH REPORT OF COGME iv

Recommendations for GME Financing Reform ............................................................... 58

Bibliography and Footnotes ................................................................................................ 67

APPENDICES

A. Explicit Medicaid GME Payments, FY1998 ............................................................... 73

B. Program Requirements for Residency Education

in Ambulatory/Community-Based Settings................................................................. 75

C. Site Visits and Interviews .............................................................................................. 77
FIFTEENTH REPORT OF COGME v

LIST OF TABLES AND FIGURES

Table 1: Medicare GME Payments to Hospitals .................................................................................. 23

Table 2: Hospital Per Resident Teaching Physician Costs, FY1997 ................................................... 26

Table 3: Distribution of Hospitals by Teaching Intensity and Low-Income Patients ......................... 29

Table 4: Ambulatory/Community-Based Rotations for Program Year 1 Residents ............................ 39

Figure 1: Hospital Total Margin by Teaching Status, 1994-1998 ......................................................... 20

Figure 2: Hospital Medicare Inpatient Margin (Excluding

Graduate Medical Education) by Hospital Group, 1994-1998 ............................................. 20

Figure 3: Comparison of FY 1997 Per Resident Amounts and GME Costs ......................................... 24

Figure 4: Components of FY 1997 GME Cost Per Resident ................................................................ 25

Figure 5: Distribution of FY1997 Medicare Per Resident Payments ................................................... 27

Figure 6: GME Costs and Per Resident Amounts by Proportion of Primary Care

Residents, 1997 ...................................................................................................................... 28

Figure 7: Proportion of Clinical Experience in Ambulatory Settings

for Categorical Internal Medicine Residency Programs ....................................................... 40

Figure 8: Internal Medicine Ambulatory Care Sites Used for Continuity Experiences ....................... 40
FIFTEENTH REPORT OF COGME vi
FIFTEENTH REPORT OF COGME vii

The Council on Graduate Medical Education

(COGME) was authorized by Congress in

1986 to provide an ongoing assessment of

physician workforce trends, training issues and

financing policies, and to recommend appropriate

Federal and private sector efforts to address identified needs. The legislation calls for COGME to

advise and make recommendations to the Secretary of the Department of Health and Human Services (DHHS), the Senate Committee on Health, Education, Labor and Pensions, and the House of

Representatives Committee on Commerce. The Health

Professions Education Partnerships Act of 1998 reauthorized the Council through September 30, 2002.

The legislation specifies 17 members for the

Council. Appointed individuals are to include representatives of practicing primary care physicians,

national and specialty physician organizations, international medical graduates, medical student and

house staff associations, schools of medicine and

osteopathy, public and private teaching hospitals,

health insurers, business, and labor. Federal representation includes the Assistant Secretary for

Health, DHHS; the Administrator of the Health Care

Financing Administration, DHHS; and the Chief

Medical Director of the Veterans Administration.

Charge to the Council

The charge to COGME is broader than the name

would imply. Title VII of the Public Health Service

Act, as amended, requires COGME to provide advice and recommendations to the Secretary and

Congress on the following issues:

1. The supply and distribution of physicians in

the United States.

2. Current and future shortages or excesses of

physicians in medical and surgical specialties

and subspecialties.

3. Issues relating to international medical school

graduates.

4. Appropriate Federal policies with respect to

the matters specified in items 1-3, including

policies concerning changes in the financing

of undergraduate and graduate medical education (GME) programs and changes in the

types of medical education training in GME

programs.

5. Appropriate efforts to be carried out by hospitals, schools of medicine, schools of osteopaThe Council on Graduate Medical Education

thy, and accrediting bodies with respect to the

matters specified in items 1-3, including efforts for changes in undergraduate and GME

programs.

6. Deficiencies and needs for improvements in

data bases concerning the supply and distribution of, and postgraduate training programs

for, physicians in the United States and steps

that should be taken to eliminate those deficiencies.

In addition, the Council is to encourage entities providing graduate medical education to conduct activities to voluntarily achieve the recommendations of the Council specified in item 5.

COGME Reports

Since its establishment, COGME has submitted the following reports to the DHHS Secretary

and Congress:

• First Report of the Council (1988)

• Second Report: The Financial Status of Teaching Hospitals and the Underrepresentation of

Minorities in Medicine (1990)

• Scholar in Residence Report: Reform in Medical Education and Medical Education in the

Ambulatory Setting (1991)

• Third Report: Improving Access to Health

Care Through Physician Workforce Reform:

Directions for the 21st Century (1992)

• Fourth Report: Recommendations to Improve

Access to Health Care Through Physician

Workforce Reform (1994)

• Fifth Report: Women and Medicine (1995)

• Sixth Report: Managed Health Care: Implications for the Physician Workforce and Medical Education (1995)

• Seventh Report: Physician Workforce Funding Recommendations for Department of

Health and Human Services’ Programs (1995)

• Eighth Report: Patient Care Physician Supply

and Requirements: Testing COGME Recommendations (1996)

• Ninth Report: Graduate Medical Education

Consortia: Changing the Governance of

Graduate Medical Education to Achieve Physician Workforce Objectives (1997)
FIFTEENTH REPORT OF COGME viii

• Tenth Report: Physician Distribution and

Health Care Challenges in Rural and

Inner-City Areas (1998)

• Eleventh Report: International Medical Graduates, The Physician Workforce and GME Payment Reform (1998)

• Twelfth Report: Minorities in Medicine (1998)

• Thirteenth Report: Physician Education for a

Changing Health Care Environment (1999)

• Fourteenth Report: COGME Physician

Workforce Policies: Recent Developments and

Remaining Challenges in Meeting National

Goals (1999)

COGME Resource Papers

• Process by which International Medical

Graduates are Licensed to Practice in the

United States (1995)

• Preparing Learners for Practice in a Managed

Care Environment (1997)

• International Medical Graduates: Immigration

Law and Policy and the U.S. Physician

Workforce (1998)

• The Effects of the Balanced Budget Act of

1997 on Graduate Medical Education (2000)

• Update on the Physician Workforce (2000)

• Evaluation of Specialty Physician Workforce

Methodologies (2000)

Other COGME Publications

• Council on Graduate Medical Education: What

is it? What has it done? Where is it going?

(2000)
FIFTEENTH REPORT OF COGME ix

Members

Chair

David N. Sundwall, M.D.

President

American Clinical Laboratory Association

Washington, D.C.

Macaran A. Baird, M.D.

Medical Director

Mayo Management Services, Inc.

Rochester, Minnesota

Regina M. Benjamin, M.D., M.B.A.

Family Practice

Spanish Fort, Alabama

F. Marian Bishop, Ph.D., M.S.P.H.

Professor and Chairman Emerita

Department of Family and Preventive Medicine

University of Utah School of Medicine

Salt Lake City, Utah

Jo Ivey Boufford, M.D.

Dean, Robert F. Wagner Graduate School of

Public Service, New York University

New York, New York

William Ching

Medical Student

New York University School of Medicine

New York, New York

Ezra C. Davidson, Jr., M.D.

Associate Dean, Primary Care and Professor

Department of Obstetrics and Gynecology

King/Drew Medical Center

Los Angeles, California

Vice Chair

Carl J. Getto, M.D.

Dean and Provost, Southern

Illinois University School of Medicine

Springfield, Illinois

Kylanne Green

Vice President

Inova Health Systems

Fairfax, Virginia

Ann Kempski

Assistant Director Health Policy

American Federation of State, County and

Municipal Employees

Washington, D.C.

Members, Council on Graduate Medical Education

Lucy Montalvo-Hicks, M.D, M.P.H.

State of California Department of Social Services

San Diego, California

Susan Schooley, M.D.

Chair, Department of Family Practice

Henry Ford Health System

Detroit, Michigan

Donald C. Thomas III, M.D.

Consultant

Northridge, California

Douglas L. Wood, D.O., Ph.D.

President, American Association of Colleges of

Osteopathic Medicine

Chevy Chase, Maryland

Designee of the Assistant Secretary for Health

Nicole Lurie, M.D., M.S.P.H.

Principal Deputy Assistant Secretary for Health

U.S. Department of Health and Human Services

Washington, D.C.

Designee of the Health Care Financing

Administration

Tzvi M. Hefter

Director, Division of Acute Care

Center for Health Plans and Providers

Health Care Financing Administration

U.S. Department of Health and Human Services

Baltimore, Maryland

Designee of the Department of Veterans Affairs

Gloria Holland, Ph.D.

U.S. Department of Veterans Affairs

Washington, D.C.

Statutory Members

David Satcher, M.D.

Assistant Secretary for Health and Surgeon

General

U.S. Department of Health and Human Services

Washington, D.C.

Nancy-Ann Min DeParle

Administrator, Health Care Financing

Administration

U.S. Department of Health and Human Services

Baltimore, Maryland
FIFTEENTH REPORT OF COGME x

Thomas L. Garthwaite, M.D.

Undersecretary for Health

Veterans Health Administration

U.S. Department of Veterans Affairs

Washington, D.C.

COGME Staff

Carol Bazell, M.D., M.P.H.

Director

Division of Medicine and Dentistry

Stanford M. Bastacky, D.M.D., M.H.S.A.

Acting Executive Secretary

Chief, Policy and Special Projects Branch

Division of Medicine and Dentistry

Jerilyn K. Glass, M.D., M.P.H.

Acting Deputy Executive Secretary

P. Hannah Davis, M.S.

Staff Liaison, Graduate Medical Education

Financing and Policy Workgroup

John Rodak, Jr., M.S. (Hyg.), M.S.(H.S.A.)

Staff Liaison, Physician Workforce Workgroup

C. Howard Davis, Ph.D.

Staff Liaison

Richard Diamond, M.D., M.P.A.

Staff Liaison

Jerald M. Katzoff

Staff Liaison

Helen K. Lotsikas, M.A.

Staff Liaison

Anne Patterson

Secretary

Eva M. Stone

Program Analyst and Committee Management

Specialist

Velma Proctor

Secretary

COGME Workgroup on Ambulatory

Programs and Financing

COGME MEMBERS

Carl J. Getto, M.D., Chair

Macaran A. Baird, M.D.

Kylanne Green

Tzvi M. Hefter

Ann Kempski

Nicole Lurie, M.D., M.S.P.H.

Lucy Montalvo-Hicks, M.D., M.P.H.

Donald C. Thomas III, M.D.

Douglas L. Wood, D.O., Ph.D.

COGME STAFF

P. Hannah Davis, M.S., Staff Lead

Jerald M. Katzoff
FIFTEENTH REPORT OF COGME xi

The Council wishes to acknowledge the efforts of the many people who contributed to

the preparation of this report. Barbara Wynn,

of RAND Health Corporation assiduously studied

and analyzed the complex issues of GME financing and wrote the basis of the report under contract, with assistance from Kimberly Gavin and

Jennifer Kawata. Representatives at sites studied

for alternative GME financing programs generously

contributed their time and openly shared helpful

information. Members of an expert panel contributed many helpful insights during an all-day meeting in Washington D.C. and reviewed an early draft

of the report. The expert panel members are John

Coombs, M.D., Associate Dean, University of

Washington School of Medicine; Ronald D. Franks,

M.D., Dean of Medicine and Vice President for

Health Affairs, East Tennessee University College

of Medicine; Larry Greene, M.D., Director, Center

for Policy Studies in Family Practice and Primary

Care, American Academy of Family Physicians;

Tim Henderson, M.S.P.H., Director, Primary Care

Resource Center, National Conference of State Legislatures; Denise Holmes, Director, Plan Administration Bureau, Michigan Department of Community Health; Robert J. Mossad, M.D., Professor

Emeritus, Montefiore; Gordon T. Moore, M.D.,

Associate Professor, Harvard Medical School/

Harvard Pilgrim Health Care; and Michael Opipari,

D.O., Executive Vice President and Chief Medical

Officer, Horizon Health System.

The Council wishes to acknowledge the guidance and leadership of P. Hannah Davis, M.S., who

was Project Officer and chief staff liaison for this

study, and Jerald M. Katzoff who assisted her in

this endeavor. The Council expresses its gratitude

to F. Lawrence Clare, M.D., senior advisor, Division of Medicine and Dentistry for his expertise in

GME financing. The Council also appreciates the

commitment from Carol Bazell, M.D., M.P.H, Director, Division of Medicine and Dentistry, and

Stanford M. Bastacky, D.M.D., M.H.S.A., COGME

Acting Executive Secretary in bringing this report forward and to fruition.

Acknowledgements
FIFTEENTH REPORT OF COGME xii
FIFTEENTH REPORT OF COGME xiii

The purpose of this report of the Council on

Graduate Medical Education (COGME) is

to examine current funding mechanisms for

graduate medical education and to evaluate alternative Federal financing policies within the context of the Council’s recommendation for a stable

financing mechanism that would provide adequate

support for ambulatory training. COGME’s 13th

Report, Physician Education for a Changing Health

Care Environment, explored the educational

changes needed to train physicians who are wellequipped to provide high-quality, effective and efficient care and emphasized the need for an appropriate balance of traditional and community-based

training experiences. The 14th Report, COGME

Physician Workforce Policies: Recent Developments

and Remaining Challenges in Meeting National

Goals, called for a stable all-payer financing mechanism for graduate medical education that would

provide adequate support for ambulatory training.

The current report builds on the earlier COGME

reports and does not revisit the earlier analyses leading to the recommendations for expanded community-based training opportunities and all-payer financing. Rather, the report analyzes alternative

financing policies within the context of those recommendations. Readers are referred to the earlier

Preface

reports for findings and recommendations dealing

with medical education curriculum and quality and

physician workforce issues.

This report focuses on graduate medical education financing issues. There is a close connection between GME and issues related to undergraduate medical education and nursing and allied

health education. While the latter issues are extremely important, they are not within the scope of

this report.

COGME considers this report to be a valuable

contribution to the discourse on GME financing.

While the report’s recommendations may be controversial, they provide the foundation for further

discussion of these complex issues. Development

of these concepts is an iterative process. COGME

believes this report is beneficial in stating past positions and new ideas all together in one place, with

a thorough explanation of their basis. This is also

the only report that documents the results of selected site visits of successful residency programs

with community-based training. COGME intends

to use this report as a basis for further discussion of

GME financing in a national forum of stakeholders that it plans to hold in 2001.
FIFTEENTH REPORT OF COGME xiv
FIFTEENTH REPORT OF COGME 1

Executive Summary

This report, Financing Graduate Medical Education in a Changing Health Care Environment, reviews current funding mechanisms

for graduate medical education (GME) and recommends actions that should be taken to respond to

the changing health care environment. Care is increasingly provided within the context of managed

systems of care that require clinical learning experiences across the continuum of care. The current

system of financing GME has inherent limitations

and disincentives for expanding training in community-based sites. Stable all-payer financing is

needed that will provide adequate support for training in community settings.

OVERVIEW

As used in this report, GME is clinical training

in an approved residency program following graduation from schools of medicine, osteopathy, dentistry and podiatry. The training is required for certification in a specialty and is approved by a

non-governmental accrediting organization for the

specialty. The residency program varies in length

depending on the specialty. Most residency programs are sponsored by a hospital, medical school,

or educational consortium. There are about 100,000

residents in 8,000 different residency programs. The

residents, who are serving a form of apprenticeship,

provide patient care under the supervision of a

teaching physician. Teaching hospitals serve as the

primary training sites for most residency programs.

Training occurs in both the inpatient setting and in

the ambulatory-clinics of the teaching hospital. In

addition, community hospitals and other community-based sites provide training opportunities.

Residency training should be relevant to current daily physician practice and address the care

of the individual patient in their cultural and social

context. With the growth of managed systems of

care and the movement of services to outpatient

settings, residency programs have expanded training opportunities in community settings. As used

in this report, the term “community settings” describes settings that are representative of the environment in which most residents will eventually

practice. Under this definition, the processes of care

and educational outcomes are the determining factors in identifying a community setting rather than

its location per se. A comprehensive range of experiences is necessary in order to provide opportunities to follow the patient across each component

of an integrated delivery system. Community-based

settings such as health centers and clinics, physician offices, schools and workplaces, nursing

homes, hospices and home care, community hospitals, and managed care organizations can offer

essential experiences to complement those at academic health centers. For some specialties, community training will occur in hospital-based ambulatory sites since this is where the specialty

commonly practices.

The costs of GME are difficult to determine

because teaching occurs in tandem with patient care

and research. There are direct GME costs, which

include the resident’s stipend, payments to teaching physicians, program administration costs and

other costs directly attributable to educational activities. In addition, there are indirect GME costs.

These are higher patient care costs associated with

teaching hospitals, such as treating sicker patients,

using more diagnostic tests, and longer patient visits or hospital stays. Direct GME costs for a single

residency program are typically incurred by multiple entities: the program sponsor, the faculty practice plan affiliated with the sponsoring institution,

and the hospitals and ambulatory sites that provide

training. Each site’s direct costs for GME depend

on its negotiations and arrangements with other

entities involved in the training program over issues such as which party will assume the costs of

the resident’s salary and teaching physician compensation.

Patient care revenues provide most of the support for GME. However, Medicare and, in some

States, Medicaid, make explicit payments to teaching hospitals for their GME costs. These payments

recognize that equipping future physicians with the

competencies to provide high quality care is in the

public interest. Private payers have also traditionally paid higher amounts to teaching hospitals to

support the costs of training residents, and to some

extent, the charity care provided by teaching hospitals. In 1998, uncompensated care represented

revenue losses of 7.8 percent and 5.4 percent of the

total costs of academic health centers and other

major teaching hospitals, respectively (MedPAC,

2000b).

Faculty practice plan revenues are another

source of support for clinical faculty time spent in

academic activities. Faculty practice plan revenues
FIFTEENTH REPORT OF COGME 2

may also provide direct support to medical school

or department funds that are used to support graduate as well as undergraduate medical education.

State-support for GME typically occurs through

appropriations to State-operated medical schools

or residency training grants (about $185 million).

In addition, Federal appropriations under the Public Health Service Act support primary care residency programs and other health professional education ($300 million) and children’s teaching

hospitals ($40 million). Other sources of funding

include research grants, endowments, and foundation grants. The Department of Veterans Affairs

(DVA) and the Department of Defense (DoD) support about 15 percent of residency positions. Thus,

the flow of funds among the participants in GME

activities is complex and frequently involves crosssubsidies between medical schools, teaching hospitals, and other training sites.

Competitive pressures associated with the move

to managed care (capitated financing arrangements)

have eroded the private payer subsidies for teaching and charity care. Medicare and Medicaid payment reductions in the Balanced Budget Act of 1997

(BBA) also added to the financial pressures on

teaching institutions. The Council on Graduate

Medical Education’s (COGME) 13th Report, Physician Education for a Changing Health Care Environment (1999a), concluded that the current system of funding GME through teaching hospitals has

inherent limitations and disincentives for developing ambulatory clinical training experiences and

community-based educational programs. The financial and service needs of teaching hospitals compete with the educational need to expand training

opportunities in community settings. The uncertainties and financial pressures inherent in the changing health care environment suggest changes are

needed in the way GME is financed. In its 14th

Report, COGME Physician Workforce Policies:

Recent Developments and Remaining Challenges

in Meeting National Goals (1999b), COGME called

for a stable, all-payer financing mechanism for

GME that would provide adequate funding for training in ambulatory settings.

The current report builds on COGME’s earlier

reports by examining current funding mechanisms

for GME and assessing their implications for developing community-based educational programs.

It evaluates alternative Federal financing policies

within the context of the Council’s recommendation for a stable financing mechanism that would

provide adequate support for ambulatory training.

(Readers are referred to the earlier reports for findings and recommendations dealing with medical

education curriculum and physician workforce issues.)

This report recommends the creation of a GME

fund that would supplement current Federal funding for GME with funds from third-party payers.

Total GME funding would be sufficient to support

high-quality and efficient training of an appropriately sized and balanced physician workforce. The

recommended fund allocation policies are designed

to encourage an appropriate balance between traditional and community training in all hospitalsponsored specialty programs. Payments for direct

GME costs would be made to program sponsors

who would be held accountable for educational and

workforce objectives. Separate payments would be

made to clinical training sites to support their higher

patient care costs attributable to teaching activities.

The report recommends a separate GME account

for funding special projects and programs directed

at building high-quality community-based training

capacity and achieving specific workforce priorities. In addition to the recommendations on GME

funding , the report recommends increased support

for “safety net “ hospitals and community providers that serve a disproportionate share of low-income patients and have high uncompensated care

costs. It is important that refinements in the GME

allocation methodologies not adversely affect hospitals that provide significant charity care. Any reductions in GME payments to these hospitals

should be offset by higher support for uncompensated care until specific funding for such services

is provided.

THE CHANGING HEALTH CARE

ENVIRONMENT

Recent trends in the health care delivery system have major implications for how GME programs are operated and how they are financed. The

most significant financing changes are associated

with the growth of managed systems of care and

increased competition within health care markets.

Teaching hospitals tend to have higher costs that

put them at a competitive disadvantage with community hospitals in competing for managed care

contracts. In the past, private payers have subsidized

the educational and other missions of teaching

hospitals through higher payments. Competitive

pressures have eroded these subsidies for public

missions. The competitive pressures are evidenced

in a decline in the private payer payment-to-cost

ratio for teaching hospitals from 1.25 in 1989

(ProPAC, 1992) to 1.15 and 1.05, respectively, for

academic health centers and other major teaching

hospitals by 1998 (MedPAC, 2000b).

Recent changes in Medicare and Medicaid

funding for GME have added to the financial pres-
FIFTEENTH REPORT OF COGME 3

sures on teaching institutions. Medicaid managed

care growth has reduced Medicaid revenues and

payments for serving a disproportionate share of

low income patients that public and other safety

net teaching hospitals rely on to support their charity care missions. For major teaching hospitals that

serve low-income patients, the reduction in Medicaid revenues has been accompanied by an increase

in uncompensated care losses (IOM, 2000). In addition, the Balanced Budget Act of 1997 (BBA)

reduced Medicaid payments for hospitals serving

a disproportionate share of low-income patients

$10.4 billion over five years (CBO, 1997). The BBA

provisions affecting the Medicare indirect teaching adjustment and the disproportionate share adjustment were estimated to reduce payments to

teaching hospitals $5.6 billion and hospitals serving low income patients by $0.6 billion over five

years (CBO, 1997). Other Medicare provisions,

such as reductions in the annual updates for inflation and the implementation of prospective payment

systems for hospital outpatient services and postacute care providers will also affect teaching hospital revenues. The Balanced Budget Refinement

Act of 1999 (BBRA) restored an estimated $700

million of the Medicare cuts and added $100 million in direct GME payments (CBO, 1999), a relatively modest amount compared to the total BBA

cuts.

The issue of whether Medicare’s support should

continue at its current levels was debated during

consideration of the BBA. The debate centered on

concerns over the solvency of the Medicare Part A

trust fund and the impact of continued Medicare

spending cuts in the face of a competitive health

care market. The uncertainties of continued reliance on Medicare, Medicaid and private pay revenues to fund GME have reinforced the conclusions

held by COGME and others that major changes are

needed in the way GME is financed. The Council’s

14th Report (1999b) reiterated COGME’s long

standing recommendation for an all-payer financing system that would spread the costs of preparing a well-qualified physician workforce equitably

across all payers. COGME believes there continues to be value in exploring alternative financing

policies that would enhance support for training an

appropriate number and balance of physicians who

are well-equipped to provide high quality, effective and efficient care.

CURRENT FINANCING OF

GRADUATE MEDICAL EDUCATION

As noted above, GME is currently funded

through a variety of mechanisms. Medicare and, in

most States, Medicaid make explicit payments to

teaching hospitals for the costs of GME. An understanding of the GME payment policies used by these

programs is fundamental to any discussion regarding

how all-payer GME funds should be allocated.

MEDICARE PAYMENTS

In FY2000, Medicare will pay an estimated $2.7

billion (including $200 million for managed care

enrollees) in direct GME payments and $5.1 billion (including about $700 million for managed care

enrollees) in indirect payments (HCFA, 2000). Payments are linked to services provided to Medicare

beneficiaries. There are three overarching concerns

that suggest broader based funding is preferable to

relying heavily on Medicare payments for patient

care services as the only Federal financing mechanism. These issues are:

• Restricting payments to teaching hospitals for

educational costs impedes the development of

residency programs in non-hospital ambulatory and managed care settings.

• Linking educational payments to services furnished to Medicare patients concentrates Federal support on providers with high Medicare

utilization and offers little support to providers with low Medicare utilization such as

children’s hospitals and Federally qualified

health centers (FQHCs). It provides little support for preventive medicine and other residency programs that do not involve direct patient care services.

• Paying for educational costs through patient

care payments alone is not an effective mechanism for achieving specific workforce priorities such as improving the specialty and geographic distribution of the physician

workforce.

Recent changes in national policy have begun

to address these concerns, but COGME believes

further changes are in order.

DIRECT GME PAYMENTS

Medicare’s payments for direct GME costs are

based on the number of residents at the hospital

(and ambulatory settings if the hospital assumes

substantially all of the training costs), a hospitalspecific per resident amount based on 1984 costs

updated for inflation, and Medicare’s share of hospital inpatient days. Medicare’s average per resident payment was $22,350 in FY1997 (HCFA/

HCRIS, 1997). Until the BBA, the Medicare law

authorized direct GME payments only to hospitals.

Beginning January 1, 1998, Medicare may make
FIFTEENTH REPORT OF COGME 4

direct GME payments to other provider entities. The

hospital-specific per resident amounts vary widely

based on historical accounting practices and financial arrangements between the program sponsor and

the teaching sites. The differences do not appear to

be related to factors such as cost of living or the

quality of the residency programs (Anderson, 1996).

The Balanced Budget Refinement Act of 1999 made

a modest change to reduce disparities in the Medicare per resident amounts. The provision raises the

minimum payment to 70 percent of a national wageadjusted per resident amount. The annual inflation

updates for per resident amounts that are above 140

percent of the wage-adjusted national average are

reduced for FY2001-FY2005.

IME PAYMENTS

Medicare pays acute care hospitals for inpatient

services based on a prospectively determined rate

that takes into account average resources required

to treat Medicare beneficiaries in the same diagnosis-related group. Medicare makes an indirect teaching adjustment to the standard rate to pay for additional patient care costs attributable to teaching

activity that are not captured as direct GME costs.

Although based on the hospital’s ratio of residentsto-beds, the adjustment also compensates the hospital for higher patient care costs typically associated with other activities provided in conjunction

with GME, i.e., clinical research, specialized care

for complex patients, and charity care. However,

the level of involvement in the other public missions varies across teaching hospitals and teaching

intensity is not a good measure to use to support

these other public missions.

IME payments are about $1.5 billion higher

than the costs attributable to teaching intensity

alone (MedPAC, 2000b). The difference between

current IME payment levels and the analytically

justified levels represents amounts that could be

redirected to support educational activities to increase community-based training capacity or to

increase support for uncompensated care. It is important that refinements in the IME payment methodology not adversely affect hospitals that provide

charity care. Major teaching hospitals with high

uncompensated care costs rely on IME payments

to support their charity care. Any refinements in

the IME allocation methodology that reduces payments to these hospitals should be offset by higher

support for uncompensated care until specific funding for such services is provided.

LIMITATIONS ON THE NUMBER OF RESIDENTS

RECOGNIZED BY MEDICARE

The Balanced Budget Act of 1997 limits the

number of residents that are counted for Medicare

payment purposes to the number working at the

hospital during its cost reporting period ending in

1996. The limits are in line with COGME’s goal to

reduce the number of residents (COGME, 1999b).

However, hospital-specific limits impede the ability of program directors to shift residents for educational reasons. The limit is also problematic in

population growth areas where expanding residency

programs would improve the geographic distribution of physicians. The Balanced Budget Refinement Act of 1999 allows a 30 percent expansion in

rural residency programs and recognizes that urban hospitals may operate a rural residency track.

Although it is too early to assess its overall impact,

the 30 percent tolerance allows for only negligible

expansions in relatively small residency programs.

PAYMENTS FOR RESIDENCY TRAINING IN NONHOSPITAL BASED SETTINGS

The Balanced Budget Act of 1997 made several significant changes in Medicare payment for

residency training in ambulatory settings. First, the

legislation authorized direct payments to be made

to entities other than hospitals. Medicare-participating Federally qualified community health centers, rural health clinics, Medicare+Choice organizations, and other entities designated by Medicare

may be paid for direct GME if the provider incurs

all or substantially all of the costs of training at the

site. It is too early to determine the effect these provisions may have on support for community-based

training.

Second, the law allows the hospital to include

in their IME resident count (as well as direct GME

resident count) the time residents spend in patient

care activities at non-hospital settings if the hospital incurs all or substantially all of the training costs

at the ambulatory site. Since the time residents spent

in non-hospital settings could not be included in

the hospital’s resident count prior to the BBA, the

residents who were training at ambulatory sites in

1996 are not represented in the hospital’s resident

limit for IME payments. Hospitals that had already

developed community-based training sites by 1996

receive no benefit from the change unless there are

reductions in other residency programs at the hospital. By contrast, hospitals that developed community-based training sites after the BBA was enacted, could include those residents in their IME

count after moving them into community-based

settings.

TEACHING PHYSICIAN SERVICES

The direct GME payment is intended to cover

the hospital’s compensation to teaching physicians

for time spent on GME program administration and
FIFTEENTH REPORT OF COGME 5

general teaching and supervision of residents. In

addition, payment may be made under the Medicare physician fee schedule for professional services

furnished by the physician or by a resident under

the medical direction of the teaching physician. To

avoid paying for the same service twice, Medicare

rules were revised in 1996 to require that the teaching physician be present during the key portion of

a billable service. For evaluation and management

services and minor procedures, the teaching

physician’s presence must be the same as it would

be had the teaching physician personally performed

the entire visit or procedure. Some teaching institutions believe the policy is inconsistent with the

educational goal of encouraging progressively independent decision-making. Additional documentation requirements and heightened attention to

compliance has resulted in more time spent on

documentation and less time on teaching.

MEDICAID PAYMENTS

Under the Medicaid law, States have considerable flexibility to determine what services will be

covered and the payment methodologies that will

be used to pay for covered services. Federal matching funds apply to the State’s expenditures. States

spent about $2.3 billion through Medicaid patient

funds in 1998, or approximately 7 percent of Medicaid inpatient hospital expenditures, to support

GME (Henderson, 1999). Most Medicaid programs

support GME in their payments for inpatient hospital services following Medicare-like methodologies. However, some States have approval from

HCFA to link some or all of Medicaid GME payments to specific State workforce objectives. These

programs provide funding models that should be

considered within the context of GME financing

reform. For example:

• Michigan and New York have established separate incentive pools to achieve specific

workforce objectives.

• Tennessee and Oklahoma make GME payments to medical schools.

• In Minnesota, advanced nursing, pharmacy,

dental and physician assistant training programs as well as medical and dental schools

are eligible for medical education payments.

• Utah is seeking a State plan amendment for

Medicaid GME funds to flow to a consortium

consisting of the State, the single university

medical school in the State, hospitals and community-based providers, and private payers. A

waiver request is also under development for

Medicare funds to flow to the consortium.

RESIDENCY TRAINING IN

COMMUNITY-BASED SETTINGS

The growth of managed care has been accompanied by reductions in hospital utilization and a

shift of services from inpatient to ambulatory settings (U.S. Congress, 1999). The shift to ambulatory settings makes it increasingly important for

residency programs to provide training opportunities in community settings that are representative

of the environment in which residents will eventually practice (COGME, 1999a). To practice effectively in the changing health care environment, residents in all specialties need a comprehensive range

of experiences that include opportunities to follow

the patient across each component of an integrated

delivery system. Community-based settings such

as health centers and clinics, physician offices,

schools and workplaces, nursing homes, hospices

and home care, community hospitals, and managed care organizations can offer essential experiences to complement those at academic health

centers.

There is general agreement that training experiences in the community are important and should

be expanded. However, as evidenced by the lack of

specific requirements for community training by

the accrediting organizations for most specialties,

there is no consensus on what constitutes the appropriate balance between traditional and community-based experiences. For most specialties, training opportunities will be expanded as needed to

maintain an adequate patient base for teaching.

However, without the impetus from the accrediting

organizations to move training into the community

settings, financial and other considerations at the

hospital as well as the community site may

outweigh the educational goal of providing community-based training experiences.

FINANCIAL BARRIERS TO COMMUNITYBASED TRAINING

There are several financial barriers to expanding community-based training. Ambulatory training tends to be less efficient and more faculty-intensive than inpatient training. In the inpatient

setting, faculty can teach students at different educational levels during patient rounds. In the ambulatory setting, patients are available generally only

for a short period of time. Space constraints and

the focus on clinical productivity limit opportunities for teaching multiple students at the same time

(Lave, 1989; Boex, 1997; Philibert, 1999). In addition, physician revenues for ambulatory services

tend to be lower than revenues for services furnished

in the inpatient setting. Thus, patient care revenues
FIFTEENTH REPORT OF COGME 6

generated when residents are involved in ambulatory care are generally less than when the care is in

inpatient settings. Further, there is a distinction

between revenues generated by a hospital-based

clinic, which include Medicare (and in many States

Medicaid) GME payments, and revenues generated

by community clinics. The latter do not receive

Medicare payments directly (unless they qualify

under the BBA provision) and, in the case of community health centers, have few privately insured

patients and high uncompensated costs.

Some studies have tried to measure the effect

of teaching on the ambulatory site’s productivity

and net revenues. These studies are directed at the

question of whether there are GME costs in ambulatory settings that are not recovered through patient care revenues. The findings suggest net costs

are site-dependent and reflect factors such as the

amount of time spent on teaching relative to patient care, patient flow and the efficiency of the practice, payer mix, the physicians’ incomes and residents’ salaries. The studies support a widespread

belief that residency programs “break even.” First

year residents generate productivity losses. Second

year residents generally have no effect on productivity. Net increases in productivity and revenues

by the third year of residency training in ambulatory sites offset the first-year losses (Diamond,

1993; Flannagan, 1995; Lave, 1989).

Another potential barrier is the impact resident

rotations to community-based settings have on the

primary training site and its teaching faculty. Many

residents have significant teaching responsibilities

for medical students that may make communitybased rotations more difficult. It is possible this issue may diminish as medical students increasingly

receive training in community settings. Residents

also provide coverage for teaching physicians and

contribute to the services billed by teaching physicians. Resident replacement costs can be a significant factor in decisions to rotate residents to nonhospital settings. The cost of replacing residents

will depend on the relative cost of the staff that are

replacing them, their productivity, and their ability

to generate revenue.

SITE VISIT FINDINGS

As part of this study, site visits or telephone

interviews were conducted with individuals involved with selected residency programs with community-based training sites. The interviews included both programs with long-standing

community-based training sites and relatively new

programs that are developing collaborative arrangements with managed care organizations or community providers in medically underserved areas. The

interviews focused on the funding sources and arrangements used to support ambulatory training.

The findings reflect the circumstances of the programs where the interviews were conducted. However, similar themes emerged from the interviews

with different sites that are also consistent with

other information on GME financing issues.

Key findings from the site visits are that financing arrangements for community-based training

vary, reflect local circumstances, and frequently

involve other interrelationships as well. An individual program may have arrangements for teaching with hospital-based clinics, hospital-operated

and hospital-affiliated physician practices, community health centers, and individual clinician-physicians in private practice. The financing arrangements differ for each site depending on a number

of factors, including payer mix and the intensity of

the teaching effort. The financing issues for hospital-based clinics are quite different than those for

community clinics and physician practices. The

variety of arrangements suggests that decisions on

how GME funds should be allocated among the

various participants in a given program are best

made at the local level. A single national policy

that allocates funds between hospital and community-based sites using a pre-determined formula

does not acknowledge the myriad of existing arrangements for community-based training that

could be disrupted.

Most teaching in community-based sites occurs

through volunteer faculty. During the interviews,

some concern was expressed that clinician-educators in the community are becoming less willing to

teach without compensation. Commonly cited reasons are competitive pressures for clinical productivity and the Medicare teaching physician rules.

Specific policies may be needed to assure community physicians receive appropriate compensation

for their teaching activities.

ALTERNATIVE MODELS FOR GME

FINANCING REFORM

The changing health care environment and the

uncertainties of continued reliance on Medicare,

Medicaid and private pay revenues to fund GME

have led COGME and others to conclude significant changes are needed in the way GME is financed. In addition to COGME, advocates of an

all-payer fund include the Pew Health Professions

Commission, the Commonwealth Fund’s Taskforce

on Academic Health Centers, and the 1997 Consensus Statement on the Physician Workforce by
FIFTEENTH REPORT OF COGME 7

associations representing physicians and teaching

institutions. Two bills (H.R. 1224 and S.210) were

introduced in the 106th Congress that would provide all-payer funding for GME. Underlying the

all-payer proposals is an assumption that GME is a

public good that merits broad support. An alternative assumption made by the Medicare Payment

Advisory Commission is that GME results in enhanced patient care that should be recognized in

health care service-related payments to teaching

hospitals.

POLICY CONSIDERATIONS FOR GME

FUNDING

GME funding policies should meet the following objectives:

• Provide a stable funding mechanism that is

responsive to the community yet consistent

with the national workforce objectives;

• Enable health care institutions to compete on

price and quality by subsidizing higher costs

attributable to educational activities and uncompensated care without supporting inefficiencies;

• Create adequate support and appropriate incentives for developing community-based educational programs;

• Encourage effective and efficient educational

models that promote improved ways to meet

health care needs;

• Foster mechanisms that will stabilize the total

number of physicians while improving the

specialty and geographic distribution of the

future physician workforce; and,

• Hold recipients of Federal and State funds accountable for producing needed public goods.

Educating physicians in the environment in

which they will eventually practice requires expansion of residency training in community settings

for most specialties. The BBA eliminated some disincentives for a hospital to rotate residents to nonhospital settings by paying IME for the resident’s

time in the non-hospital setting. However, the BBA

limits on FTE resident counts do not benefit those

hospitals that were already training residents in

community-based settings. A modification in the

law to count the residents who were in non-hospital settings in the 1996 base year would remedy

this problem. The remaining disincentives to rotate residents to community-based settings are more

difficult to resolve:

• As the recipient of the funds, the hospital is in

the stronger bargaining position regarding who

should bear the direct costs of training in the

ambulatory setting.

• Hospital service demands compete with educational needs to rotate residents to community-based settings.

• The hospital’s patient care needs and financial interests rather than physician workforce

needs may determine the numbers and specialty mix of residents and residency programs.

• Accountability is difficult to establish because

the program sponsor, rather than the hospital

has the ultimate responsibility for the conduct

of the educational program. In hospital-sponsored programs, this problem arises with respect to resident rotations to other hospitals.

Fundamental issues to consider in evaluating

alternative models for distributing all-payer GME

funds are:

• Who should receive payments directly from

the fund;

• How the funds should be allocated among the

receiving entities; and,

• How to establish accountability for the funds.

There are four basic models that potentially

could be used to distribute GME funds. The differences between three models are based on which

entities would receive payments directly from the

fund: health care providers, educational institutions,

or GME planning bodies. The fourth model would

link payment to specific performance measures. The

models are not mutually exclusive and a combination is needed to achieve the policy objectives for

the GME fund.

HEALTH CARE PROVIDER MODEL

The health care provider model links payments

for clinical training to patient care activities. This

is the approach Medicare uses. It treats clinical

training costs as patient care costs as opposed to

educational costs. It is the most appropriate model

for the indirect costs of clinical training since these

costs reflect the impact of the teaching activity on

the patient care costs of the site where the training

takes place. The health care provider model provides no support for training that does not occur in

patient care settings. Residency programs in preventive medicine would typically receive little funding through this model.

There are several options regarding which entity should receive direct GME payments for training in community-based settings:
FIFTEENTH REPORT OF COGME 8

• Consistent with Medicare’s current rules, payment could flow to the hospital or the community training site depending on which entity bears substantially all the training costs

for the resident’s time at the site, i.e. pays the

resident’s salary and reasonable compensation

for teaching.

• An alternative would be for funding to follow

the resident to the community site regardless

of which entity bears the cost.

• Another option would be to pay pro rata

amounts to the hospitals and the communitybased ambulatory sites participating in the residency program based on their relative shares

of GME program costs. One approach would

require the affiliated hospitals and communitybased training sites to agree on their relative

shares of program costs. A variation would be

to designate a fixed percentage of the payment

to hospitals for training in community settings.

EDUCATION MODEL

The education model treats direct GME costs

as an educational cost as opposed to a patient care

cost. It should give educational needs more weight

in deciding what and where residency training occurs. The model is appropriate for direct GME costs

only. Payment would flow to a single entity that

would be accountable for how the funds were expended. This could be to a medical school or program sponsor. There is potential to introduce other

elements into the allocation formula, such as program quality or meeting specific educational objectives or workforce priorities. Making direct GME

payments to medical schools would emphasize most

strongly that Federal GME funds are to support education rather than patient care. However, funding

through the medical schools for residency programs

that are sponsored by community-based hospitals

would require a major shift in program accountability and funding. Another alternative, giving

vouchers to residents, adds value only if there is a

regulatory apparatus to determine the number of

positions to be funded and which residents should

receive funding.

PLANNING MODEL

Under the planning model, the GME funds

would flow through a GME planning and coordinating body. This is an entity whose primary functions would be to assess the health care needs of

the community and allocate funds based on local

workforce considerations. Funding allocation decisions could support local health care needs more

readily than distributions directly to health care

providers or program sponsors based on national

allocation formulae.

The funds could be distributed to GME consortia or to the States. Payment to consortia could

be either a natural outgrowth of paying the program

sponsor or could result from deliberate policies to

encourage consortia. Experience to date suggests

that providing payment only to consortia would be

premature. Many States have established commissions or task forces related to GME and physician

workforce. Some are permanent groups with the

structure and expertise that could become physician workforce planning bodies in their State

(COGME, 1999b).

PERFORMANCE MODEL

The performance model would link payment to

achieving specific performance measures or objectives. Payment could be formula-driven based on

meeting specific educational or workforce objectives. These objectives could be in the area of curriculum content and quality, training opportunities,

or workforce objectives. Alternatively, there could

be support for specific projects or demonstrations

needed to support infrastructure development or

workforce goals. Examples of the types of programs

that could be funded include the targeted Public

Health Service grants for primary care residency

programs, support for developing academic-community partnerships to serve medically underserved

populations, consortia development, and faculty development programs for clinician-educators in the

community.

The performance model is more suitable as a

mechanism for making supplemental payments than

as a primary payment mechanism. Educational

quality measures and workforce priorities are not

sufficiently defined to be used to determine all fund

allocations. Also, if all funding were predicated on

meeting specific performance measures, significant

year-to-year fluctuations in funding could occur that

would be inconsistent with the need for stable GME

funding.

RECOMMENDATIONS FOR GME

FINANCING REFORM

COGME’s 14th Report called for a stable, allpayer financing mechanism for graduate medical

education (GME) that would provide adequate

funding for training in ambulatory settings. This

report builds on the 14th Report by recommending

how the all-payer GME funds should be distrib-
FIFTEENTH REPORT OF COGME 9

uted. The recommendations are based on COGME’s

policy goals for GME funding.

RECOMMENDATION 1

CREATE A GME FUND THAT COMBINES

FEDERAL FUNDING TO SUPPORT GRADUATE

MEDICAL EDUCATION WITH ALL-PAYER

FUNDS.

To assure financing policies are consistent

across Federal programs and reflect national

workforce priorities, the various Federal funding

streams for GME that is provided by non-Federal

institutions (i.e., excluding DoD and DVA) should

be combined into a single fund and supplemented

with all-payer funds obtained through a modest surcharge of private insurance premiums. The GME

fund would include amounts that would otherwise

be paid under current formulae for Medicare for

direct GME and indirect payments to teaching hospitals, the Federal portion of Medicaid payments

that are implicitly GME payments, and the

Children’s Hospital GME fund. In addition, the

HRSA Title VII grants for GME, e.g., primary care

residency training grants, would be included in a

set-aside fund for specific workforce goals.

Within the general GME fund, five separate

accounts should be established for:

• Medicare direct GME payments;

• non-Medicare direct GME payments;

• Medicare IME payments;

• non-Medicare IME payments; and,

• targeted payments to support specific

workforce and educational objectives.

The separate Medicare and non-Medicare accounts are needed as a transitional measure. They

would assure full funding on behalf of Medicare

patients if contributions from other payers are not

sufficient. Also, since the Medicare funds are currently being paid, changes in the allocation of the

Medicare funds should be phased-in or offset by

additional funding from the non-Medicare accounts. A transition may not be needed for the nonMedicare funds. To the extent they represent new

funding streams, funds in the non-Medicare accounts should be allocated consistent with preferred

policies from the outset.

While the GME fund would not include funding for residency training in DoD and DVA sponsored programs, the Federal budget for those programs should be consistent with the policy

objectives for the GME fund. Residency training

in these programs has significant impact on the size

and specialty composition of the physician

workforce.

a. GME should be broadly supported by allpayers.

Explicit funding for GME should be spread

more broadly across all sectors of society. A

permanent and stable funding source, such as

premium contributions from all health insurance plans, should supplement current Federal funding for GME. In the long run, Medicare and Medicaid’s contribution to the GME

fund should be proportionate to the percentage of insured population represented by their

enrollees.

b. Funding from all sources should be sufficient

to support high-quality, efficient training of

an appropriately sized physician workforce.

Total aggregate funding should be sufficient

to support the efficient training of an appropriately sized physician workforce. Together

with payments from other sources (primarily

patient care revenues and State funds), GME

funding should be adequate to train the number of physicians required to meet current and

future national health care needs. Additional

funding would not be in the public interest

since it could contribute to a continuing surplus of physicians.

In the past, COGME has recommended that

the total number of physicians entering first

year residency should not exceed the number

of U.S. medical school graduates in 1993 plus

10 percent (COGME, 1994). The Council’s 14th

Report found that a reduction of 3,386 first year

positions in 1997-1998 was needed to meet the

110 goal. In view of recent changes in the health

care delivery system since its initial recommendations were issued, COGME plans to review

the 110 goal and its target of a 50/50 mix of primary care and other specialists.

Most of the increase in the total number of

residents in recent years is attributable to an

increase in the number of graduates from medical schools outside the United States. Support should be discontinued for new exchange

visitors (J-1 visa) residents. As COGME has

previously recommended (1997), exchange

visitor residents should be funded by alternative sources, such as home country financing

or foreign aid.

A conceptual framework should be used to establish an appropriate level of Federal support

for funded residency positions. Because GME

is a joint product with patient care services,

patient care revenues cover some direct GME
FIFTEENTH REPORT OF COGME 10

costs. Consideration also needs to be given to

issues such as maintenance of effort for current State funding through the Medicaid program and grant programs and whether all resident activities required for accreditation in an

approved program should be funded. Under

Medicare, only resident time spent in patient

care activities is supported.

RECOMMENDATION 2

IME ACCOUNTS SHOULD PAY HOSPITALS

AND OTHER CLINICAL TRAINING SITES AS

APPROPRIATE FOR THE INDIRECT COSTS OF

EDUCATIONAL ACTIVITIES.

IME accounts should be created to subsidize

higher patient care costs associated with residency

training. The funds should be allocated to hospitals and, to the extent it is empirically supported,

to other clinical training sites that incur indirect

teaching costs, including hospital outpatient clinics and community-based settings. Initially there

should be separate accounts for Medicare and nonMedicare patients in order to assure the indirect

costs for Medicare patients are fully funded. In the

long run, a single account would be appropriate.

a. IME payments should be set at no more than

the analytically justified level for teaching

activities.

Paying more than the analytically justified

amount would subsidize inefficient providers

and give teaching institutions a competitive

edge over non-teaching institutions. For Medicare inpatient services, MedPAC’s (2000b)

current estimate is a 3.1 percent adjustment

for each 0.1 increment in the resident-to-bed

ratio after other refinements are made to the

Medicare prospective payment system. Based

on this estimate, Medicare IME payments would

be $1.5 billion lower than the 5.5 percent adjustment provided by the BBA. The difference could

be targeted toward achieving specific workforce

and educational goals (see Recommendations

4 and 6) or toward supporting uncompensated

care (see Recommendation 8). A transition

would be needed to the extent reductions in

Medicare IME payments are not offset by increases in non-Medicare IME funding.

b. Research is needed to determine the appropriate IME payment formulae.

Research is needed to refine the Medicare IME

adjustment and to determine the appropriate

IME teaching adjustment for non-Medicare

hospital inpatients. Medicare’s adjustment

should be based on the higher costs attributable to teaching activities. For non- Medicare

patients, the adjustment should be directed at

“leveling the playing field” between teaching

and non-teaching hospitals. It does not need

to cover the full indirect teaching costs if

teaching hospitals are able to command a premium for quality or specialized services.

Ideally, the IME payment formula should not

reflect higher costs indirectly attributable to

other teaching hospital missions, e.g. specialized services, uncompensated care, and research. Subsidies for those public goods

should be directed toward the hospitals producing them through separate funding streams.

Reducing the adjustment to an analytically

justified level for teaching would reduce incentives to train more physicians than necessary. It would also eliminate confusion between funding for the teaching mission and

funding to support charity care. Higher costs

attributable to serving low-income patients

and uncompensated care costs should be recognized through a separate funding mechanism (which would also distribute payments

to non-teaching institutions serving low-income patients. See Recommendation 8). Refinements in the IME payment methodology

should not reduce the total level of support

for hospitals with significant uncompensated

care until specific funding for such services is

provided. Reductions in the IME payment formula should be accompanied by refinements

in the prospective payment system to incorporate better case-mix and severity measurements.

An additional adjustment for research-intensive hospitals may also be appropriate.

Additional research is also needed to determine the extent to which there is an indirect

teaching effect on costs when resident training takes place in hospital outpatient and nonhospital settings. If empirical research finds

there is an indirect teaching effect on the costs

of services provided in ambulatory/community settings, the IME account should pay for

these services as well as inpatient hospital

services.

RECOMMENDATION 3

DIRECT GME ACCOUNTS SHOULD PAY

PROGRAM SPONSORS OR THEIR DESIGNEES

FOR THE DIRECT COSTS OF GRADUATE

MEDICAL EDUCATION.

Direct GME costs are educational costs that

should be supported through payments to the sponsoring institution ultimately responsible for the
FIFTEENTH REPORT OF COGME 11

graduate medical education program. Payment allocation decisions should be made at the local level

because the tremendous variety of existing arrangements cannot be accommodated at the national

level. By making payments to either the sponsoring institution or its designees, the sponsor can determine the most appropriate recipient of the funds

based on local circumstances for a particular program. For example, a sponsoring institution may

decide to retain maximum control over the funds

and receive them directly, elect to continue historical arrangements having the funds flow through the

teaching hospital, or may choose to have a consortium distribute the funds. The same election would

not need to apply to each program sponsored by

the institution. Regardless of which entity received

the funding, the sponsoring institution would be accountable for the funds being expended to support

a high quality training program with the appropriate balance of hospital and community-based training experiences.

a. There should be written agreements between

the program sponsor and training sites indicating the sponsor is assuming substantially

all of the training costs and describing how

GME payments will be allocated.

The program sponsor or its designee must assume all or substantially all of the direct costs

of operating the residency program as a condition of receiving direct GME payments.

Written agreements should be required between the sponsoring institution and clinical

training sites to formalize the negotiation process and to increase accountability for the

funds. The agreements should detail how the

direct GME funds will be allocated between

the sponsor and the training site, identify

which entity will pay resident salaries and

fringe benefits, and specify teaching physician

compensation arrangements for supervising

residents. The goal is to strengthen the negotiating position of community–based sites

without jeopardizing long-standing relationships between academic institutions and community training sites. A sponsoring hospital

may have a disincentive to rotate residents to

community-based training sites if all direct

GME funds automatically follow the resident

to a community-based training site through

direct payments from the GME fund or a

voucher system.

b. Model agreements and information on direct

GME costs should be made available to facilitate equitable agreements between the

sponsor and the sites.

Local circumstances should determine how direct GME payments are allocated to teaching

sites. However, benchmarking information

should be provided to facilitate the negotiation process, including:

• breakdown of GME payments into three

components based on average direct GME

costs: resident salaries and related costs,

teaching physician compensation, and an

administrative and overhead cost component.

• benchmarks for teaching physician compensation and the added time per teaching session when residents are present in community-based practices on short-term rotations

and on an on-going basis; and,

• model agreements between institutional

sponsors and community-based sites.

c. Require separate reporting of resident time

spent in inpatient hospital, hospital outpatient and community settings.

At present, there is no formal accounting for

the time residents spend in each type of training site. Standard definitions should be developed to distinguish hospital outpatient settings

from community settings. Community settings

should be broadly defined to include both hospital-operated and community-based sites that

are representative of the environment in which

residents will eventually practice. The determining characteristics are the processes of care

rather than proximity to the hospital or provider ownership. Community settings address

the care of the individual patient in the context of the population of which the patient is a

member. They teach residents to deliver

culturally effective care to an ethnically and

racially diverse population.

RECOMMENDATION 4

ESTABLISH A NATIONAL AVERAGE PER

RESIDENT PAYMENT FOR DIRECT GME

COSTS.

The base payment for direct GME costs should

vary only for differences in the cost of living across

geographic areas. For Medicare payments, there

should be a transition from the hospital-specific per

resident amounts to the national per resident payment. The length of the transition will depend on

additional payments for non-Medicare patients.

These can help compensate for any reductions in

Medicare payments. At the end of the transition,

separate Medicare and non-Medicare accounts

would no longer be necessary. Higher payments

may be appropriate for training in community-based

settings. In addition, there should be an incentive
FIFTEENTH REPORT OF COGME 12

payment for programs that meet specific workforce

or educational objectives.

a. Base total direct GME payments on the net

costs of supporting an appropriately sized

workforce.

Ultimately, total direct GME funding should

be based on the net costs of educating an appropriately sized physician workforce. Establishing a fixed payment per resident should

provide incentives for efficiency in the educational process. However, the costs of efficiently delivering high quality GME and the

extent to which these costs are offset by patient care revenues has not been determined.

As an interim policy, either the average per

resident amounts or average GME costs per

resident could be assumed to represent the

total costs of an efficient program. Total costs

based on the FY1997 average per resident

amount updated for inflation and the 110 percent target are estimated at $6 billion for

FY2000.1* A lower funding amount would be

appropriate since the per resident amounts do

not take into account patient care revenues attributable to GME.

b. Provide higher payments for training in community settings.

When training occurs in a community setting,

the sponsoring institution continues to incur

some supervisory physician and overhead

costs. The community setting incurs some direct GME costs as well (for example, to compensate the community physician for teaching) even if the sponsoring institution

continues to pay resident salaries and fringe

benefits. As a result, total GME costs may be

higher when residents rotate to communitybased settings than when they remain in hospital-based settings. A higher payment for

training in community-based settings would

be appropriate if the net total costs (after taking any additional patient care revenue into

account) are higher in the community-based

settings. Research is needed to determine

whether this is the case. To counter any disincentive that might currently exist for community-based rotations, a temporary policy might

be to increase the component of the per resident amount attributable to teaching physician

compensation by a fixed percentage, e.g. 25

percent. The higher payment could apply in

all community settings even though the rationale for the payment is primarily applicable

to settings off the hospital premises. This

would provide an incentive for hospitals to

turn training in ambulatory clinics into experiences that are more representative of community physician practices.

c. Provide incentive payment for meeting specific workforce and educational objectives.

In addition to the base per resident payment,

there should be an incentive payment for meeting specific workforce and educational objectives. Programs that meet one or more of the

objectives would be eligible for a bonus on

the national average base payment. The incentive payment should be established as a fixed

payment rather than a pool so that the benefits do not erode as additional programs meet

the objectives and qualify for payment. The

bonus payment could be awarded based on:

• Participation in a broad-based consortia of

the sponsoring institution(s) for residency

programs in an area, hospitals and community providers participating in GME activities,

and community representatives. The consortia would have to be designated by the sponsoring institutions to receive all direct GME

funds. Bonus payments would be made if the

consortia has a formal process to identify the

health care needs of the community, engage

in workforce planning, and promote community-based training opportunities;

• Number of graduates that provide significant amounts of care to medically

underserved populations;

• Percentage of time residents spend providing care to medically underserved populations; and,

• Quality of the residency program.

d. Research is needed to understand variation

in direct GME costs by specialty and setting.

Most research regarding residency training

costs was conducted at a limited number of

sites and before the growth of managed systems of care. A better understanding of differences in the net costs of training across residency programs and training sites is needed

to refine the payment allocation methodology.

A generic financial model should be used to

examine systematically issues such as:

• Whether there are significant differences in

the amount of teaching physician involvement between primary care and non-primary care residency programs and between

initial residencies and fellowships; * Numbered footnotes are listed on pages 71-72 in the “Bibliography and Footnotes” section.
FIFTEENTH REPORT OF COGME 13

• Whether there are significant differences in

impact on clinical productivity and net physician practice revenue when teaching occurs in ambulatory settings relative to inpatient settings and between initial residencies

and fellowships;

• How direct GME costs are affected by the

presence of students in other health professions at the training site and by residents

teaching medical students; and,

• Factors that affect the efficiency and quality of the educational process.

RECOMMENDATION 5

CONTINUE THE BALANCED BUDGET ACT

OF 1997 LIMITS ON THE NUMBER OF RESIDENTS WITH MODIFICATIONS.

In concept, the Balanced Budget Act of 1997

limits on the residents that will be recognized by

Medicare are consistent with the goal of reducing

the future physician workforce and should be carried over to eligibility for payments under the GME

fund. However, hospital-specific limits are not an

appropriate long-term way to deal with physician

supply issues. The limits hamper a program

director’s ability to move residents among hospital

programs for educational reasons. In geographic

areas with physician shortages, the limits preclude

expansions in needed residency programs.

a. Modify the caps to apply to sponsoring institutions rather than hospitals.

The sponsoring institution is to be held accountable for educational outcomes and

workforce objectives. Therefore, the limits

should apply to the number of residents in the

programs sponsored by the institution rather

than the hospitals serving as training sites for

the program. This will provide the flexibility

to move residents between hospitals and other

settings. Consortia that meet certain workforce

planning objectives should be able to work

under an aggregate limit for multiple sponsoring institutions.

Applying the limit to sponsoring institutions

is consistent with making direct GME payments to sponsoring institutions. However, it

complicates IME payments to individual hospitals. One option would be to apply no limit

for IME as long as the sponsoring institutions

whose residents are training at the hospital are

under their caps. An adjustment would be

needed only if the total number of residents

in programs at the sponsoring institution(s) exceeded an aggregate cap. The three-year rolling average and the one-year cap on the resident-to-bed ratio should continue to apply. The

rolling average provides a form of transition

payments to hospitals that reduce the number

of residents and slows the recognition of new

residents in the IME count.

b. Include residents in non-hospital settings

regardless of who paid the resident’s salary

in the 1996 base year count.

Residents who were working in non-hospital

settings were not included in a hospital’s 1996

base year count for Medicare IME payments.

They were included in the direct GME count

only if the hospital incurred substantially all

of the training costs. The limit applicable to a

sponsoring institution should be adjusted to include all resident time in non-hospital settings

regardless of who paid the resident’s salary.

c. Allow adjustments in the Balanced Budget

Act of 1997 limits to improve the distribution

of physician workforce.

Further research is needed to understand the

impact of the Balanced Budget Act of 1997

limits and to develop policies that will result

in a better geographic balance in the physician workforce while encouraging an overall

reduction in the number of physicians. Appropriate indicators of adequate distribution by

specialty are needed. As an interim measure,

the limits should not apply to rural residency

training tracks if their graduates practice predominately in rural areas. In addition, the limits should not apply to primary care residency

programs whose graduates practice predominately in those States with low physician-topopulation ratios.

RECOMMENDATION 6

ESTABLISH AN ACCOUNT FOR FUNDING

SPECIAL PROJECTS AND PROGRAMS DIRECTED AT BUILDING HIGH-QUALITY COMMUNITY-BASED TRAINING CAPACITY OR

ACHIEVING SPECIFIC WORKFORCE GOALS.

At least 10 percent of the GME fund should be

set aside to support specific projects and programs

directed at building high-quality community-based

training or achieving specific workforce priorities.

The types of projects and programs that should be

funded include:

• Primary care residency program grants;

• Faculty development grants to support training of community clinician teachers;
FIFTEENTH REPORT OF COGME 14

• Information technology infrastructure development to link patient care records at teaching hospitals and community sites within organized systems of care;

• Incentive programs to reward residents that focus their practice on medically underserved

populations;

• Transition funds to cover residency replacement costs in hospitals with high uncompensated care patient loads; and,

• Demonstration projects involving development of broad-based consortia.

RECOMMENDATION 7

MODIFY THE MEDICARE RULES RELATED

TO TEACHING PHYSICIANS TO EMPHASIZE

THE TEACHING PHYSICIAN’S OVERALL RESPONSIBILITY FOR THE MANAGEMENT OF

THE PATIENT’S CARE AND TO REDUCE THE

IMPORTANCE OF DOCUMENTATION.

The Medicare rules pose two challenges to

graduate medical education: 1) the supervision rules

make it more difficult for residents to become progressively independent, and 2) the documentation

requirements detract from the amount of time available for teaching and resident supervision. There

is some evidence that the rules may adversely affect the willingness of community physicians to

participate in teaching programs. The rules should

be revised to address these concerns.

a. Establish different rules for residents in fellowship programs.

HCFA’s rationale for its teaching physician

rules rests on: 1) making payment only when

there is an identifiable physician service to an

individual patient and 2) avoiding duplicate

payment for the physician’s supervisory time.

Duplicate payment should not be an issue with

residents who are beyond their initial residency period. These residents count as only

.5 FTE and resident salaries and fringe benefits comprise only 43 percent of the per resident amount.

The rules on teaching physician supervision

should be revised for residents who are beyond their initial residency program to permit

Medicare billing if:

• the teaching physician is immediately available;

• reviews with each resident during or immediately after the visit the patient’s medical

history and care; and,

• documents his or her participation in the

review and direction of services.

Accreditation standards for the residency program should be relied upon to determine issues

regarding supervision requirements for specific services and resident-to-preceptor ratios.

An alternative would be to allow residents beyond their initial residency period to bill for

services furnished in the hospital if an election is made to forego a direct GME payment

for the resident’s time.

b. Evaluate the impact of the teaching physician rules.

The issue of when physician billing is appropriate for care provided by residents is not limited to the Medicare program. It will remain

relevant under an all-payer fund. There is a

need to evaluate formally the administrative

and teaching burden associated with the current Medicare rules and their impact on the

quality of clinical training and patient care.

Particular attention should be paid to the effect in hospital ambulatory clinics and community-based settings where there is a low

resident-to-preceptor ratio.

c. Develop clear and reasonable documentation

requirements.

There is need for additional guidance and common understanding of what constitutes adequate documentation of a teaching

physician’s participation in the care of patients

involving residents. HCFA should work with

the academic physician community and the

Office of Inspector General to develop reasonable standards that do not compromise high

quality clinical education. The standards

should provide a reasonable means for

documenting the teaching physician’s involvement in the care of the patient and assuring

appropriate payments without imposing undue administrative burden. They should be

tested in a variety of teaching settings and specialty programs before implementation.

RECOMMENDATION 8

PROVIDE ADDITIONAL SUPPORT FOR

HOSPITALS AND COMMUNITY-BASED TRAINING SITES THAT SERVE A DISPROPORTIONATE SHARE OF LOW INCOME PATIENTS.

In the absence of national health insurance,

“safety net” providers should be provided with additional funding to cover uncompensated care costs.
FIFTEENTH REPORT OF COGME 15

Major teaching hospitals provide substantial uncompensated care. Faculty practice plans also furnish charity care. Uncompensated care is not an

educational cost. However, it affects the training

site’s ability to provide high quality educational

experiences. More importantly, teaching institutions

that furnish high amounts of uncompensated care

rely on current GME funding to support their charity care. As changes are made in the IME payment

methodology, the current level and distribution of

DSH payments should be examined to assure the

funds are well targeted to subsidize uncompensated

care. The subsidies should apply to hospitals for

both inpatient and outpatient services and to community-based providers. Without additional support, GME is not sustainable in community-based

training sites with a high volume of uncompensated

care. These sites cannot generate the patient care revenues needed to support their educational activities.
FIFTEENTH REPORT OF COGME 16
FIFTEENTH REPORT OF COGME 17

BACKGROUND

The 13th Report of the Council on Graduate

Medical Education (COGME), Physician Education for a Changing Health Care Environment, emphasized that the comprehensive preparation of all

modern physicians requires training experience in

both traditional and community settings. Noting

that care is increasingly provided in the context of

integrated delivery systems, the Council concluded

that effective medical practice requires an understanding of the characteristics of the population

served and the attributes of the delivery system in

which care is provided. COGME recommended that

educational programs address the care of the individual in the context of the patient’s community

and include clinical learning experiences across the

continuum of care. Training should include opportunities to participate in a multi-disciplinary team

approach to patient care. The Council advocated

the development of high quality, community-based

clinical teaching opportunities with a faculty incorporating community clinician-teachers.

COGME found that the current system of funding graduate medical education (GME) through

teaching hospitals has inherent limitations and disincentives for developing ambulatory clinical training experiences and community-based educational

programs. In its 14th Report, COGME Physician

Workforce Policies: Recent Developments and Remaining Challenges in Meeting National Goals,

COGME called for a stable, all-payer financing

mechanism for GME that would provide adequate

funding for training in ambulatory settings. The

Council noted recent developments to support ambulatory training, including actions by residency

review committees, medical schools, foundations,

States, and changes in Medicare financing policies.

However, the Council also expressed concern over

whether the changes are adequate to support a sufficient shift to ambulatory settings and suggested

that further revisions in financing policies may be

necessary.

PURPOSE

The purpose of this report is to create a policy

framework and set of recommendations for changes

in GME financing policies. The recommended

changes are intended to provide appropriate incentives for high quality residency training in both traditional and community settings. As used in this

Introduction

report, the term “community settings” describes

settings that are representative of the environment

in which residents will eventually practice. Under

this definition, the processes of care and educational

outcomes are the determining factors in identifying a community setting rather than its location per

se. Both hospital-based clinics and communitybased ambulatory care providers may serve as community training sites.

The report builds on COGME’s 13th and 14th

Reports by examining current funding mechanisms

for GME and assessing their implications for expanding training in community settings. It evaluates alternative Federal financing policies within

the context of the Council’s recommendation for a

stable financing mechanism that would provide

adequate support for ambulatory training. Consideration is also given to the implications of the alternative policies on other COGME goals. These

goals include:

• Reduce the rate of growth in the supply of U.S.

physicians;

• Increase the number of generalists;

• Increase the diversity of the physician

workforce;

• Promote a rational system of physician

workforce planning; and,

• Preserve safety net providers.

METHODOLOGY

The report’s findings and recommendations

were developed through analysis and synthesis of

information derived from a variety of sources: review of the literature and recent GME reform proposals, primary and secondary data analyses, consultation with an expert panel and interviews. The

literature review provided background information

on current GME financing policies and issues. Particular attention was given to issues related to training in community-based settings. The review of

recent GME proposals provided an inventory of financing policies that have been advanced by others and provided the foundation for developing alternative payment models.

The data analyses were directed at several questions, including the amount and type of ambulatory training that is occurring, the financial status

of teaching hospitals, and variations in the level of
FIFTEENTH REPORT OF COGME 18

GME costs and Medicare support across teaching

hospitals. The analyses drew from secondary data

sources as well as Medicare cost reports and other

data files. The results have relevance to recommendations regarding the appropriate level of public

support for GME and allocation of the funds.

On-site and telephone interviews and input from

an expert panel were used to determine the basic

models used for clinical training experiences in

ambulatory settings. The interviews focused on the

flow of funds to support GME and the financial arrangements between program sponsors, hospitals and

community-based training sites. Attention was given

to identifying barriers to community-based training and the characteristics of programs that have

substantial community-based training. The interviews were with individuals involved in both programs

with long-standing community-based training sites

and relatively new programs that are developing collaborative arrangements with managed care organizations or community providers in medically

underserved areas. Where possible, the residency

program director and individuals at the sponsoring

hospital and the community sites were interviewed.

The report’s findings reflect the circumstances of

the programs where the interviews were conducted.

However, similar themes emerged from the interviews with different sites that are also consistent

with other information on GME financing issues.

The analyses of alternate financing mechanisms are

a synthesis of the information obtained during the

interviews, from the data analyses and literature

review, and consultation with the expert panel.

ORGANIZATION OF REPORT

“The Changing Health Care Environment” section, beginning on page 19, provides an overview

of changes in the health care environment that have

major implications for how GME programs are

operated and financed. Concerns over the solvency

of the Medicare trust fund, the impact of continued

Medicare spending cuts in the face of a competitive health care market, and the weak linkage between Medicare GME funding and physician

workforce goals have led COGME and others to

support alternative funding mechanisms for GME.

The “Current Financing of Graduate Medical

Education” section, beginning on page 23, reviews

current GME funding sources. It begins with a detailed analysis of Medicare payments and policies

with particular attention to policies that may affect

residency training in community-settings. It then

summarizes other major sources of GME funding,

including Medicaid and other State programs and

programs funded under the Public Health Service

Act.

The “Residency Training in Community Settings” section, beginning on page 39, contains background information on residency training in community-based settings. Drawing on information

gathered from the site visits and the literature review, it begins with information on the amount and

type of ambulatory training that is currently taking

place and the requirements of the Residency Review Committees that pertain to ambulatory training. A literature review on the barriers to training

in community-based training sites follows. The section concludes with the findings from the site visits. The visits highlighted the wide variety of current financial arrangements between teaching

hospitals and community-based training sites and

the impact of Medicare payment provisions on residency training in ambulatory settings.

The “GME Reform Proposals” section, beginning on page 49, summarizes recent proposals for

GME reform, including proposals for an all-payer

fund.

The “Alternative Models for GME Funding”

section, beginning on page 53, follows with an

analysis of alternative models for allocating GME

funds. The discussion addresses the fundamental

issues: who should receive payments directly from

the fund; how should funds be allocated among

the receiving entities; and, how to establish accountability among the recipients for the funds.

The “Recommendations for GME Financing

Reform” section, beginning on page 59, contains

recommendations for GME financing reform within

the context of a stable, broad-based financing

mechanism. The recommendations address the level

and sources of funding and issues related to allocation of the funds.
FIFTEENTH REPORT OF COGME 19

Recent trends in the health care delivery system have major implications for how GME

 programs are operated and how they are financed. These trends affect the settings in which

patient care is delivered and in which residency

training should occur. They also have import for

the continued reliance on patient care revenues as

the main source of funding for GME. This section

provides an overview of the uncertainties and financial pressures inherent in the changing health

care environment that suggest stable broad-based

funding through an all-payer fund is needed to support GME.

The most significant changes in the health care

delivery system are associated with the growth of

managed systems of care and increased competition within health care markets. Managed care

growth has been rapid. In 1990, 71 percent of individuals covered under employer group health plans

were enrolled in a conventional fee-for-service plan.

By 1998, only 14 percent were enrolled in conventional fee-for-service and 86 percent were in some

form of managed care: traditional health maintenance organizations (30 percent), HMO point of

service plans (22 percent), and preferred provider

organizations (34 percent) (U.S. Congress, 1999).

Over the same period, Medicare enrollment in managed care plans grew from 3.3 to 15.4 percent (U.S.

Congress, 1999) while 54 percent of the Medicaid

population was enrolled in managed care by 1998

(HCFA, 1998). Since 1998, Medicare managed care

enrollment has declined (HCFA, 2000).

Managed care activities such as rate negotiation, selective contracting, and utilization management affect patient care revenues generated by academic health centers and other providers involved

in GME. The impact on specific institutions is affected by the managed care penetration rate in the

health care market, the presence of other teaching

hospitals, and the nature of the contractual arrangements with the health plan. Currently, health plans

commonly offer multiple products involving diverse

contracting arrangements with a broad provider

network. HMO contracts are commonly with hospital systems and physician networks that manage

utilization and may assume financial risk. HMO

point-of-service products expand consumer choice

by allowing coverage of non-network services. Preferred provider organization products typically involve contracts with individual physicians on a discounted fee-for-service basis with limited

utilization management (Lake, 2000; Robinson,

1999).

Faculty practice plan revenues that traditionally support GME have been affected by the Medicare physician fee schedule as well as competitive

pressures associated with the move to managed care.

The 1998 Medical Group Management Association

and Association of American Medical Colleges’

Faculty Salary Survey found overall inflation-adjusted growth in clinical faculty salaries over the

preceding five years was essentially flat. Consistent with the impact of the Medicare fee schedule,

there was greater downward pressure on faculty

salaries in the procedurally oriented departments

relative to faculty in departments with a high concentration of generalists (AAMC, 1999a). At the

same time, medical school departments have become increasingly dependent on faculty practice

plans. The survey indicated patient care revenues

provided 60 percent of all medical school departmental revenue in 1997 (AAMC, 1999b).

Reductions in hospital inpatient utilization and

a shift of services from inpatient to ambulatory settings have accompanied the growth of managed

systems of care. Between 1990 and 1998, hospital

inpatient days declined 15 percent while outpatient

visits increased 50 percent (U.S. Congress, 1999).

Efforts to increase operating efficiencies and improve negotiating power with managed care plans

has led to hospital consolidations into regional and

national systems (Levit et al., 2000) and expansion

of hospital-owned or affiliated physician practices

(Retchin, 2000). The competitive pressures are evidenced in a decline in the average hospital paymentto-cost ratio for services covered by private payers

from 1.27 in 1990 to 1.14 in 1998 (MedPAC,

2000b). In many areas, health care markets are

continuing to evolve change as unsuccessful hospital mergers are dissolved and unprofitable hospital-owned physician practices are sold, frequently

at a loss.

Teaching hospitals tend to have higher costs that

put them at a competitive disadvantage with community hospitals in competing for managed care

contracts for non-specialized care.2

 Private payers

subsidize the educational and other missions of

teaching hospitals through higher payments. However, competitive pressures are eroding the subsidies for public missions. The private payer paymentto-cost ratio for teaching hospitals was 1.25 in 1989

(ProPAC, 1992). By 1998, it had fallen to 1.15 and

The Changing Health Care Environment
FIFTEENTH REPORT OF COGME 20

❖ ❖

FIGURE 2

Hospital Medicare Inpatient Margin (Excluding Graduate

Medical Education) by Hospital Group, 1994-1998

35%

30%

25%

20%

15%

10%

5%

0%

Percent Margin

❖

❖ ❖

Source: MEDPAC, 2000a.

Year

1994 1995 1996 1997 1998

All Hospitals

Academic Medical

Center

Major Teaching

(non-AMC)

Other Teaching

❖ Nonteaching

percent, respectively, relative to an average 4.6 percent margin for non-teaching hospitals. However,

Medicare margins are higher for teaching hospitals than non-teaching hospitals (see Figure 2). The

higher Medicare margins are largely attributable to

Medicare’s support for the public missions of teaching hospitals through GME and DSH payments. In

1998, academic medical centers and other major

teaching hospitals had Medicare inpatients margins

of 24.6 and 26.2 percent, respectively, relative to

average Medicare inpatient margins of 13.8 percent

for other teaching hospitals and 9.3 percent for nonteaching hospitals. The issue of whether Medicare’s

support should continue at its current levels was

debated during consideration of the BBA. The debate centered on concerns over the solvency of the

Medicare Part A trust fund and the impact of continued Medicare spending cuts in the face of a competitive health care market.

Medicaid and Medicare payment reductions in the BBA (Public Law 105-33)

have added to the financial pressures on

health care providers. Hospitals serving a

disproportionate share of low-income

(DSH) patients are most affected by the

Medicaid reductions. Medicaid payments

to these hospitals were reduced $10.4 billion over five years. Medicare provisions

in the BBA that affect all hospitals were

estimated to reduce payments by $33.6 billion over five years. In addition, Medicare

payments to hospitals for indirect medical

education costs and for serving a disproportionate share of low-income patients

were reduced over five years by $5.6 billion and $0.5 billion, respectively. The legislation also carved out an estimated $4

billion in implicit GME payments to Medicare +Choice organizations that will be

paid directly to teaching hospitals for GME

(CBO, 1997). Other BBA provisions, such

as implementation of prospective payment

systems for hospital outpatient services,

home health services, and skilled nursing

facility services, will also affect hospital

revenues.4

 The Balanced Budget Refinement Act of 1999 (BBRA) restored an estimated $700 million of the teaching and disproportionate share cuts and added $100

million in direct GME payments (CBO,

1999), a relatively modest amount when

compared to the total BBA cuts.

The BBA contained provisions intended to align Medicare payments for

GME more closely with workforce policy.

These provisions included:

1.05, respectively, for academic health centers and

other major teaching hospitals (MedPAC, 2000b).

In addition, Medicaid managed care growth has

reduced the Medicaid revenues and payments for

serving a disproportionate share of low income

patients (DSH) that public and other safety net

teaching hospitals rely on to support their charity

care missions. For safety net hospitals, Medicaid

revenue losses have been accompanied by an increase in uncompensated care (IOM, 2000). In

1998, uncompensated care represented losses of 7.8

percent and 5.4 percent of the total costs of academic health centers and other major teaching hospitals, respectively (MedPAC, 2000b).

Hospital margins are a common measure of financial performance.3

 Teaching hospitals tend to

have lower total margins than non-teaching hospitals (see Figure 1). In 1998, major and minor teaching hospitals had average margins of 2.3 and 4.1

❖ ❖

FIGURE 1

Hospital Total Margin by Teaching Status

1994-1998

8%

7%

6%

5%

4%

3%

2%

1%

0%

Percent Margin

❖ ❖

❖

Source: MEDPAC, 2000a.

Year

1994 1995 1996 1997 1998

All Hospitals

Major Teaching

Other Teaching

❖ Nonteaching
FIFTEENTH REPORT OF COGME 21

• A hospital-specific cap on the number of residents that will be recognized for Medicare payment and use of a rolling average to determine

resident counts;

• Modification to the indirect medical education

adjustment paid to hospitals when the hospital bears substantially all training costs to recognize resident time in non-hospital settings;

• Authority to pay certain non-hospital entities

(Federally qualified health centers, rural health

clinics, and Medicare +Choice organizations)

for direct costs of GME if they incur substantially all training costs;

• Transition payments to hospitals electing to

participate in a voluntary resident reduction

plan; and,

• Authority for GME consortia demonstration.

In addition, the BBRA included a provision to

reduce the variation in the per resident amounts used

to determine Medicare payments for direct GME

costs. Even with these changes, however, the linkage between Medicare payments for patient care

services and workforce priorities remains weak.

The uncertainties of continued reliance on

Medicare, Medicaid and private pay revenues to

fund GME have led COGME and others to conclude major changes are needed in the way GME is

financed. The Council’s 14th Report (1999b) reiterated its long standing recommendation for the development of an all-payer financing system that

would spread the costs of preparing a well-qualified physician workforce equitably across all payers. An all-payer fund would also afford an opportunity to strengthen the relationship between GME

funding and physician workforce priorities. Ideally,

it would provide stable, broad-based funding to

support the training of an appropriate number and

specialty mix of physicians who are well-equipped

to provide high quality, effective and efficient care.
FIFTEENTH REPORT OF COGME 22
FIFTEENTH REPORT OF COGME 23

OVERVIEW

There are both direct and indirect costs associated with operating residency training programs.

Direct costs include resident salaries and fringe

benefits, teaching physician compensation, program

administration costs, and allocated institutional

overhead costs. These costs are typically incurred

by program sponsors and/or participating training

sites. Indirect costs are the higher patient care costs

incurred by clinical teaching sites that are attributable to their educational activities. Total costs for

GME are difficult to estimate because of the joint

production of patient care, education and research.

A Lewin Group study estimated the higher costs of

education-related activities at teaching hospitals to

be $18.1 billion in 1997 (Commonwealth, 1997).

The estimate does not include costs assumed by

medical schools, faculty practice plans, and community-based sites or the imputed value of teaching by volunteer faculty.

Most GME financing occurs through patient

care revenues. Medicare and, in most States, Medicaid make explicit payments to teaching hospitals

for the costs of GME. Other payers implicitly support GME through higher payments for patient care.

In addition, faculty practice plan revenues are another source of support for clinical faculty time

spent in academic activities. Plan revenues may also

Current Financing of Graduate Medical Education

provide direct support to medical school or department funds that are used to support graduate as well

as undergraduate medical education. State-support

for GME typically occurs through appropriations

to State-operated medical schools or residency

training grants. In addition, Federal appropriations

under Title VII and VIII of the Public Health Service Act support primary care residency programs

and other health professional education. According to AAMC estimates, the major funding sources

in FY1995 for direct GME costs incurred by nonFederal hospitals were Medicare (34%), Medicaid

and private payers (57%), and other sources such

as State and local government appropriations, philanthropy, and revenues from faculty practice plans

(9%) (Fishman, 1996). The flow of funds among

the participants in GME activities is complex and

frequently involves cross-subsidies between medical schools, teaching hospitals, and other training

sites.

MEDICARE PAYMENTS

The Medicare program recognizes the higher

costs associated with teaching activities through

explicit payments for GME. In FY2000, Medicare

will pay an estimated $2.7 billion (including $200

million for managed care enrollees) in direct GME

payments and $5.1 billion (including about $700

million for managed care enrollees) for IME

(HCFA/OACT, 2000). Medicare’s payments for

earlier years’ GME costs are shown in Table 1. Total payments increased 48 percent between 1990

and 1998 (U.S. Congress, 1999).

Medicare has supported GME as a public good

since its inception in 1966. Although the payment

methodologies have changed over the years,

Medicare’s support has always been linked to the

provision of patient care services to Medicare beneficiaries. The committee report accompanying the

original Medicare law indicated that the costs of

medical education should be borne by the community. However, until the community assumed the

costs, the report specified Medicare would share in

the costs because educational activities contribute

to quality of care within the institution. The report

further noted that the intent was to support activities traditionally carried on by providers and that

Medicare would not share in increased costs resulting from a redistribution of costs from educational

institutions to providers (U.S. Congress, 1965).

TABLE 1

Medicare GME Payments

to Hospitals

($ BILLIONS)

IME PAYMENTS DIRECT GME

PAYMENTS

1990 .................................. 2.91 1.76

1991 .................................. 3.21 1.89

1992 .................................. 3.67 2.36

1993 .................................. 4.09 2.55

1994 .................................. 4.50 2.61

1995 .................................. 5.10 2.74

1996 .................................. 5.55 2.86

1997 .................................. 5.16 2.43

1998 .................................. 4.99 2.10

Source: U.S. Congress (1999).

Payments include GME amounts implicit

in managed care capitation rates.
FIFTEENTH REPORT OF COGME 24

FIGURE 3

Comparison of FY1997 Per

Resident Amounts and GME Costs

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Low

Source: FY1997 HCRIS cost reports.

Hospital Quartiles by Per Resident Amount

36,738

65,622

Med-Low Med-High High Average

54,236

82,445

70,839

99,466 104,687

123,857

71,468

97,066

PRA GME Costs

The subsections that follow provide a general

overview of current Medicare payments associated

with GME. Specific issues are noted for each funding stream that have implications for reforming

Federal GME financing policies. There are also

three overarching concerns that suggest broaderbased funding is preferable to relying heavily on

Medicare payments for patient care services as the

only Federal funding mechanism. They will be discussed more fully in the context of an evaluation of

potential changes in GME financing mechanisms.

These issues are:

• Restricting payments to teaching hospitals for

educational costs impedes the development of

residency programs in non-hospital ambulatory and managed care settings.

• Linking educational payments to services furnished to Medicare patients concentrates Federal support on providers with high Medicare

utilization. It offers little support to providers

with low Medicare utilization such as

children’s hospitals and Federally qualified

health centers (FQHCs).

• Paying for educational costs through patient

care payments alone is not an effective mechanism for achieving specific workforce priorities such as improving the specialty and geographic distribution of the physician

workforce.

Recent changes in national policy have begun

to address these concerns, but COGME believes

further changes are in order.

DIRECT GME PAYMENTS TO HOSPITALS

Medicare’s direct GME payments are intended

to cover the program’s share of expenses that are

directly attributable to GME: the resident salaries,

teaching physician compensation for supervising

residents, and associated overhead costs. Payment

is based on the number of residents at the hospital

(and ambulatory settings if the hospital assumes

substantially all of the training costs), a hospitalspecific per resident amount based on 1984 costs

updated for inflation, and Medicare’s share of hospital inpatient days. Until the BBA, the Medicare

law authorized direct GME payments only to hospitals. Beginning January 1, 1998, Medicare may

make direct GME payments to other provider entities. Policy issues concerning Medicare’s direct

GME payments to hospitals are discussed below.

Medicare GME financing issues related to community-based training are treated later in this section

as a separate discussion.

PAYMENTS REFLECT HISTORIC COSTS

Medicare’s total payments for direct GME costs

for 1990-1998 are shown in Table 1. Payments are

a function of the hospital’s per resident amount, the

number of residents, and the ratio of Medicare inpatient days to total inpatient days.5

 A hospital’s

per resident amount is based on its 1984 GME costs.

It has been adjusted for inflation annually based on

the rate of increase in the Consumer Price Index

for Urban Consumers (CPI-U).6

 On average, Medicare pays about 30 percent of the per resident

amount. Actual increases in

Medicare direct GME payments exceeded the increase

in the CPI-U until 1997. Payments started to decline in

1997 with reductions in resident counts and increases in

Medicare managed care enrollments.

Direct GME costs per

resident have increased more

rapidly than the per resident

amounts. Figure 3 compares

the per resident amounts applicable to cost reporting

periods beginning in Federal

fiscal year (FY) 1997 to direct GME costs per resident

incurred by hospitals for the

same period. Hospitals have

been divided into quartiles

based on their per resident

amounts. Direct GME costs
FIFTEENTH REPORT OF COGME 25

FIGURE 4

Components of FY1997 GME Cost Per Resident

Source: FY1997 HCRIS cost reports.

GME Cost Quartiles

$180,000

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Low

11,786

14,012

26,065

Med Low

21,764

21,521

39,348

Med High

28,876

32,083

46,830

High

47,921

55,566

59,580

Average

26,087

28,942

41,724

Overhead

Other Costs

Res. Salaries

per resident were 36 percent higher than the average per resident amount. The rate of increase for

hospitals with low per resident amounts has been

higher relative to hospitals with high per resident

amounts. As a result, hospitals with low per resident amounts received 56 percent of Medicare’s

share of their FY1997 GME costs while hospitals

with a high per resident amount received 85 percent of Medicare’s share.

THERE IS WIDE VARIATION IN PER RESIDENT

AMOUNTS

The hospital-specific per resident amounts vary

widely based on historical accounting practices and

financial arrangements between program sponsors

and teaching sites in 1984. The resident-weighted

mean of the high per resident amount group is 2.8

times the resident-weighted mean of the low per

resident amount group. Even within the same geographic area, the variation can be substantial. Earlier studies have found that the per resident amounts

do not vary systematically by factors such as cost

of living, mix of program specialties, or quality

(Anderson, 1996).

Analysis of cost reports beginning in FY1997

indicates the differences in resident salary levels

account for a relatively small amount of the variation in direct GME costs. Figure 4 compares the

components of direct GME costs by per resident

cost groups.7

 The analysis includes 787 hospitals

that reported having ten or more residents. Most

cost variation is attributable to differences in the

other direct program costs (including teaching physician compensation) and in allocated overhead

costs. The components for other direct costs and

allocated overhead costs per resident in the high

cost group are about four times those costs in the

low cost group.

HCFA recently began to collect compensation

data on teaching physicians in connection with refinements to the hospital wage index. These data

afford a more direct measure of differences in teaching physician compensation. The reported amounts

should reflect wage-related payments to teaching

physicians who are either employed or under contract to provide teaching or administrative services

related to the hospital’s GME programs. The analysis used data for teaching hospitals with ten or more

residents and at least $10,000 in GME costs. Not

all teaching hospitals reported their teaching salaries. After removing statistical outliers, 352 hospitals reporting teaching compensation remained in

the analysis. Table 2 compares teaching physician

compensation per resident to the average GME cost

per resident for those hospitals. The average teaching physician compensation per resident is $24,695.

The average for hospitals in the low per resident

GME cost quartile is $11,459 while the average for

hospitals in the high cost quartile is $42,983. The

difference is largely attributable to the number of

compensated teaching physician hours per resident:

178 in the low cost group compared to 614 in the

high cost quartile. Standardizing for differences in

the cost of living across geographic

areas does not significantly change

the results.

One might expect teaching physician compensation per resident to

be higher in hospitals that sponsor

relatively few residents since administrative costs associated with operating residency programs are spread

over fewer residents. Table 2 compares teaching physician compensation amounts across hospitals

grouped by total number of residents.

The per resident average teaching

physician compensation and hours

decline as the size of the residency

program increases. However, they are

fairly comparable across hospitals

with fewer than 200 residents.8

The question of whether primary

care residency programs have higher

teaching physician costs is closely

related to the issue of whether there

should be specialty-differentials in
FIFTEENTH REPORT OF COGME 26

Total .............. 352 34,133 $24,695 364 $68

Low ................. 58 7,425 $11,459 178 $64

Med Low......... 92 10,814 $19,524 284 $69

Med High ...... 102 9,093 $27,972 423 $66

High .............. 100 6,801 $42,983 614 $70

<=50 ........... 173 4,464 $31,013 488 $64

<=100 ............. 65 4,582 $30,210 435 $69

<=200 ............. 62 8,593 $28,390 409 $69

<=300 ............. 31 7,589 $23,057 339 $68

<=400 ............. 11 3,640 $18,373 288 $64

>400 ............. 10 5,265 $15,238 210 $73

100% .......... 73 1,942 $31,832 534 $60

76-99% .......... 76 3,547 $32,108 434 $74

51-75% ........ 102 10,564 $29,243 416 $70

26-50% .......... 77 16,900 $19,124 292 $65

0-25% .......... 24 1,180 $29,729 425 $70

Source: FY2001 Hospital Wage Index Survey (HCFA website). FY 1997 HCRIS cost reports used

to establish groupings. Based on 352 hospitals, with at least 10 residents and $10,000 in GME

aggregate approved amounts, reporting teaching physician compensation.

TABLE 2

Hospital Per Resident Teaching Physician Costs, FY1997

Number of

Hospitals

Total

Number of

Residents

Average

Teaching

Physician

Compensation

Average

Teaching

Physician

Hours

Average

Hourly Rate

HOSPITAL GROUPING

GME COST

QUARTILE

NUMBER OF

RESIDENTS PER

HOSPITAL

PROPORTION OF

RESIDENTS IN

PRIMARY CARE

aaaaaaaaaaaaaaaaaaaaaaaaaaa aaaaaaaa

the per resident amounts. Primary care specialties

are more dependent on hospital support because

their revenues for physician services typically provide less faculty support relative to those generated by non-primary care specialties (IOM, 1989).

Also, primary care residency programs are often

the only programs offered by minor teaching hospitals. As a result, overhead is spread over fewer

residents. This suggests that teaching compensation per resident might be higher in primary care

residency programs relative to other programs.

Table 2 compares the teaching physician compensation costs per resident in hospitals with only primary care/OB-GYN residency programs to those

costs in hospitals that train residents in other residency programs. Hospitals offering other programs

are grouped based on the proportion of residents

that are in residency programs other than primary

care/OB-GYN. There is no consistent pattern across

hospitals.

The BBRA made a modest change in the Medicare payment methodology to reduce disparities in

per resident amounts. The provision raises the minimum payment to 70 percent of a national wageadjusted average per resident amount. The per resident amounts for hospitals that are above 140

percent of the wage-adjusted national average are

frozen for FY2001-FY2002 and limited to inflation increases of CPI-U minus 2 percentage points

for FY2003 through FY2005. HCFA estimates 27.3

percent of teaching hospitals will benefit from the

70 percent floor and receive $33.2 million in additional payments during FY2001. The agency estimates 14.6 percent will be affected by the ceiling

and will receive $16 million less in GME payments

(DHHS, 2000b).9

PAYMENTS DEPEND ON MEDICARE PATIENT

LOAD

Medicare’s share of a hospital’s aggregate payment amount (the product of the per resident

amounts and number of FTE residents) is based on

its ratio of Medicare inpatient days to total days.

On average, Medicare’s share is approximately 30

percent of the aggregate

payment amount. There are

no substantial differences in

the average Medicare share

across the payment groups.

However, individual hospitals can have significantly

different Medicare shares. In

particular, hospitals with

low Medicare utilization

levels, such as children’s

hospitals and certain hospitals with high charity care

caseloads receive little

Medicare support. The distribution of Medicare per

resident payments (Medicare’s share of the per resident amount) is shown in

Figure 5. The average resident-weighted Medicare

payment was $22,350 in

FY1997.

PAYMENTS DO NOT

REFLECT SPECIALTY

DIFFERENCES IN

RESIDENCY PROGRAM

COSTS

There are two hospitalspecific per resident

amounts under Medicare.

One amount applies to residency programs in primary
FIFTEENTH REPORT OF COGME 27

on the proportion of their residents that are in primary care and OB-GYN residency programs. Hospitals with a higher percentage of their residents in

primary care and OB-GYN training programs appear to have higher per resident amounts and costs

than hospitals with a relatively smaller proportion

of primary care and OB-GYN residents. There is a

marked difference between hospitals with more than

50 percent primary care and OB-GYN residents and

those with less than 50 percent primary care and

OB-GYN residents.11

In determining appropriate levels of Federal

support, specialty differences in direct GME costs

are less important than the impact of teaching on

the training sites net costs (total costs minus patient care revenues). Faculty supervising residents

in subspecialty programs tend to have higher clinical revenues although the differences are lessening

as a result of the Medicare physician fee schedule.

The Medicare rules count residents who are beyond

their initial residency period as 0.5 FTE for purposes of determining direct GME payments. The

initial residency period is defined as the minimum

number of years needed for initial board certification. It is based on the first residency program a

resident enters and is not modified or extended if a

resident switches to another residency program.

Approximately 12 percent of first-year residency

programs are filled by residents with prior U.S. residency training (COGME, 1999b). Further research

is needed to understand whether the 0.5 FTE

weighting reasonably approximates specialty

care (family medicine, general internal medicine,

general pediatrics, osteopathic general practice),

preventive medicine, geriatric medicine and obstetrics-gynecology. The other per resident amount

applies to all other residency programs. The average per resident amount for primary care and OB/

GYN programs is 5.6 percent higher than the per

resident amounts for other programs at a particular

teaching hospital. The difference stems from a twoyear freeze imposed by the Omnibus Budget Reconciliation Act of 1993 on the inflation updates in

per resident amounts for all programs other than

primary care and OB-GYN. The difference does not

reflect actual variations in direct GME costs between primary care and other residency programs.10

In teaching hospitals with multiple residency

programs, primary care residency programs are

sometimes subsidized by other residency programs

that generate relatively higher clinical revenues.

However, based on the FY1997 cost reports, 393

hospitals with 6,124 residents only participate in

primary care residency training and have no crosssubsidization potential. This could become an issue if hospital-specific per resident amounts are replaced by a national average per resident amount.

If GME costs are higher in programs with substantial community-based training needs and little opportunity for cross-subsidization, adequate support

for these programs may require per resident payment amounts by specialty or groups of specialties. Figure 6 compares the per resident amounts

and the FY1997 direct GME costs in hospitals based

FIGURE 5

Distribution of FY1997 Medicare Per Resident Payments

Source: FY1997 HCRIS cost reports.

Number of Hospitals

40

35

30

25

20

15

10

5

0

Medicare Payment Per Resident ($000)

13579

1113151719212325272931333537394143454749515355575961636567697173757779

81+
FIFTEENTH REPORT OF COGME 28

differences in net program costs. The BBRA requires the Medicare Payment Advisory Commission to make recommendations in its May 2001

report regarding the appropriateness of using the

initial residency period distinction in determining

direct GME payment.

INDIRECT MEDICAL EDUCATION

PAYMENTS TO HOSPITALS

Medicare pays acute care hospitals for inpatient

services based on a prospectively determined rate

that takes into account average resources required

to treat Medicare beneficiaries in the same diagnosis-related group. An indirect teaching adjustment

is added to the standard rate to pay for additional

patient care costs attributable to teaching activity

that are not captured as direct GME costs. Although

based on the hospital’s ratio of residents-to-beds,

the adjustment also compensates the hospital for

higher patient care costs typically associated with

other activities provided in conjunction with GME,

i.e., clinical research, specialized care for complex

patients, and charity care. Payments exceed the

empirically justified level based on teaching intensity alone.

Medicare costs per case have grown more

slowly than increases in IME payments. Changes

in cost per case reflect changes in practice patterns

such as a decline in the average length of stay in

addition to price inflation and case mix changes

(which also affect IME payments per case). The

differential growth rates are largely accountable for

the high average Medicare

margins for teaching hospitals shown in Figure 2.

The remainder of this

subsection explores several policy issues involving IME payments that

have import for GME financing reform.

INTENDED PURPOSE OF

THE IME ADJUSTMENT

The IME adjustment

was established at the outset of the Medicare prospective payment system

to account for the higher

inpatient costs per discharge incurred by teaching hospitals. The committee reports accompanying

the legislation noted that

the adjustment was being provided “as a proxy to

account for a number of factors which may legitimately increase costs in teaching hospitals.” The

conferees expressed concern about the ability of

the prospective payment system to account fully

for factors such as severity of illness and additional

costs associated with teaching residents (U.S. Congress, 1983). Fearing that teaching hospitals might

be adversely affected, the initial IME adjustment

was double its empirically derived amount.

Medicare IME payments were intended to compensate teaching hospitals for their higher costs.

While the formula is based on the ratio of residentsto-beds, the payments are an important source of

support for other public missions such as charity

care and research. It is on these grounds that reductions in the IME adjustment to the empirically justified amount are generally opposed. However, the

level of involvement in the other public missions

varies across teaching hospitals and teaching intensity is not a good measure to use to support other

public missions.

Teaching hospitals as a group furnish a disproportionate share of charity care. However, not all

teaching hospitals furnish substantial care to low

income patients nor are all hospitals that serve lowincome patients teaching hospitals. Table 3 shows

the distribution of hospitals and residents by teaching intensity and percentage of low-income patients.12 Among hospitals with a low-income patient percentage more than 35 percent, 229 are

teaching hospitals and 661 are non-teaching. This

represents 26 percent of all teaching hospitals and

FIGURE 6

GME Costs and Per Resident Amounts by

Proportion of Primary Care Residents, 1997

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Source: FY1997 HCRIS cost reports.

Percentage of Residents in Primary Care and OB-GYN Specialties

PRA GME Costs

100%

83,075

116,576

75-99%

81,010

112,215

51-75%

79,424

109,909

26-50%

67,686

84,516

0-25%

58,380

79,048

Average

73,486

97,235
FIFTEENTH REPORT OF COGME 29

0 - 15 16 - 25 26 - 35 > 35 Total

Number of Hospitals

All Teaching .................................... 382 292 160 299 1133

<.10 ............................................... 232 158 74 94 558

.11-.25........................................ 103 80 38 56 277

.26-.45........................................ 38 31 18 65 152

>.45 ............................................... 9 23 30 84 146

Non Teaching .................................. 1715 936 571 661 3883

ALL .................................................. 2097 1228 731 960 5016

Source: PPS Proposed FY2001 Impact File. Low-income patients defined as

percentage of Medicare patients who are entitled to SSI plus percentage of all

patients who are non-Medicare patients entitled to Medicaid.

TABLE 3

Distribution of Hospitals by Teaching Intensity

and Low-Income Patients

Low Income Patient Percent

RATIO OF RESIDENTS TO BEDS

17 percent of non-teaching hospitals. However, onethird of all teaching hospitals, including 337 major

teaching institutions, have a low-income patient

percentage of less than 15 percent. This suggests

that support for hospitals serving low-income patients should be addressed through targeted payments for serving a disproportionate share of lowincome patients (DSH) and other subsidies rather

than the IME adjustment. At the same time, it is

important that refinements in the IME payment

methodology not adversely affect hospitals that

provide significant charity care. Reductions in IME

payments to these hospitals should be offset by

higher support for uncompensated care until specific funding for such services is provided.

Similarly, not all teaching hospitals are engaged

in substantial research. Even among the 125 academic health centers, research funding is concentrated on a few institutions. In 1996, 50 percent of

all NIH funds were awarded to 19 academic health

centers (Commonwealth, 1999). Further analysis

is needed to understand whether research-intensive

teaching hospitals have higher costs relative to the

non-research intensive teaching hospitals after controlling for teaching intensity. This analysis has

import for GME financing reform. If there is a research effect on costs, the issues will be whether

the effect should be recognized in GME funding

and whether differential payments should flow to

research-intensive institutions. In this regard,

Medicare’s policy has been that research costs

above usual patient care costs should not be reimbursed.

EMPIRICALLY DERIVED LEVEL IS

LOWER

The IME adjustment is a function

of the hospital’s teaching intensity,

Medicare discharges, case mix index

and wage index. Teaching intensity is

measured by the ratio of the hospital’s

residents-to-beds in the payment formula for operating costs. In FY2000,

the adjustment will increase a teaching hospital’s payments about 6.5 percent for each .10 increment in its ratio

of residents-to-beds. A hospital with a

resident-to-bed ratio of .25 would receive a 14 percent add-on to its prospective payment rate for operating

costs. The per case dollar value of the

adjustment will be higher for hospitals

located in relatively high wage areas

and for hospitals which treat a relatively high proportion of resource-intensive patients. The estimated average

IME adjustment per resident in

FY2000 is $48,300. The BBRA reduces the adjustment to 6.25 percent for each .10 increment in the

hospital’s resident-to-bed ratio in FY2001, and to

5.5 percent in FY2002 and thereafter.13 Additional

IME payments are made for capital-related costs

and for Medicare managed care enrollees.

IME payments in excess of the analytically supported level have been counter-productive to physician workforce goals. The excess represents

“profit” that provides an incentive to hospitals to

increase the number of residents and, until the BBA,

rotate residents primarily to hospital-based clinical training sites. As discussed below, the BBA

moderated these incentives by establishing a cap

on the number of residents and allowing IME payments under certain conditions when residents rotate to non-hospital settings.

Estimates of the teaching effect on Medicare

inpatient operating costs vary and are influenced

by the way the regression formula is specified.14

The Prospective Payment Assessment Commission

estimated the teaching adjustment at 4.1 percent in

1997 (ProPAC, 1997). The Congressional Budget

Office (2000) estimates the Medicare program

would save $5.8 billion over five years if the adjustment were reduced to this level. More recent

MedPAC (2000b) analyses estimate the adjustment at

3.1 percent after other refinements are made to the

payment system. The 3.1 percent adjustment would

result in a $1.5 billion reduction in annual IME payments compared to payments based on the 5.5 percent adjustment provided in the BBRA for FY2002.
FIFTEENTH REPORT OF COGME 30

The difference between current IME payment levels

and the analytically justified levels represents amounts

that could be redirected. One potential use would be

to support educational activities that would increase

community-based training capacity. Another would

be to improve charity care support by making targeted payments to those institutions that actually

provide substantial amounts of charity care.

AMBULATORY RESIDENTS ARE INCLUDED IN

THE IME COUNT

The initial regulations implementing the prospective payment system included only residents

assigned to the inpatient portion of the hospital in

the IME payment formula. The formula was subsequently revised to include all residents working in

either the inpatient or outpatient portions of the

acute care hospital. More recently, the BBA permitted residents working outside the hospital to be

included in the count provided the hospital incurs

substantially all costs of the residency training program. (Implementation of this provision is discussed later in this subsection in the context of

Medicare policies for non-hospital training sites).

The more inclusive resident count protects against

disincentives to rotate residents outside the inpatient area of the hospital. However, it is not as good

a technical measure of the effect of teaching on inpatient costs per case. An alternative would be to

restrict the count to residents in the hospital inpatient area and to provide IME or incentive payments

to train residents in outpatient hospital and community-based settings.15

DIRECT PAYMENTS TO HOSPITALS FOR

MANAGED CARE ENROLLEES

Until the BBA, teaching hospitals lost Medicare support for GME when Medicare beneficiaries enrolled in a managed care plan. The capitation rates paid to managed care plans for Medicare

enrollees were based on fee-for-service payments

and included an implicit amount for GME; however, managed care plans were not required to pass

the funds on to teaching hospitals. Nationally, about

3.2 percent of the average capitated payment

amount represented implicit GME payments (U.S.

Congress, 1999). In areas with high managed care

penetration, the revenue loss could be significant.16

The BBA recognizes teaching hospitals are at

a competitive disadvantage relative to non-teaching hospitals for managed care contracts and may

not be able to command the premium necessary to

support their educational missions. The legislation

provides for a carve-out of the GME amounts implicit in payments to Medicare +Choice plans and

direct payments to teaching hospitals for GME costs

attributable to Medicare +Choice enrollees. The

provision is being phased-in over five years and is

estimated to result in $4.0 billion in additional payments to teaching hospitals over that period (CBO,

1997). Payment is based on the amount of direct

GME and IME payments that would have been paid

to the hospital if the beneficiary had been enrolled

in traditional Medicare fee-for-service.17 Thus, payment is linked to Medicare managed care discharges

at the teaching hospital. If the teaching hospital’s

share of Medicare managed care enrollees is low

relative to its share of fee-for-service enrollees, total Medicare support will still be less than what the

hospital would have received if the beneficiaries

had remained in fee-for-service. A higher proportion of inpatient care is provided to managed care

enrollees at non-teaching hospitals and on an outpatient basis. One implication is that more funds

may be carved out of the capitated payments than

are paid to teaching hospitals on behalf of Medicare+Choice enrollees.

COGME’s 14th Report (1999b) recommended

that a portion of the GME carve-out should be distributed based on performance consistent with national physician workforce goals. The amount could

be based on the difference between the carve-out

from the Medicare+Choice rates and the amounts

paid to teaching hospitals.18 The encounter data

being collected from managed care plans provides

an opportunity to evaluate the relative proportions

of managed care and fee-for-service beneficiaries

receiving inpatient care at teaching hospitals.

The BBA did not provide a similar pass-though

for payments made to hospitals for serving a disproportionate share of low-income patients. About

2.1 percent of the capitated payment to Medicare+

Choice organizations in FY1995 represented implicit DSH payments (U.S. Congress, 1999).

LIMITATIONS ON THE NUMBER OF

RESIDENTS RECOGNIZED BY MEDICARE

The BBA made several changes in how residents are counted for Medicare payment purposes.

The count is now based on a three-year rolling average. The number of allopathic and osteopathic

residents that can be counted is limited to the number reported in the hospital’s cost reporting period

ending in 1996. (The limit does not apply to dental

or podiatric residents). The changes were intended

to temper growth in the number of residents by limiting the number Medicare will pay for. For programs that are reducing their size, the rolling-average provides transition payments to support

residency replacement costs.
FIFTEENTH REPORT OF COGME 31

Medicare’s limit on resident counts is consistent with COGME’s goal to reduce the number of

residents. However, hospital-specific limits impede

the ability of program directors to shift residents

for educational reasons. The receiving hospital may

not be able to absorb the residents under its count.

The rules allow the limit to be applied on an aggregate basis to affiliated hospitals. While this provides

some flexibility, it relies on cooperation among the

parties and adds considerable administrative complexity to the rules. The limit is particularly problematic in population growth areas where expanding residency programs would improve the

geographic distribution of physicians. The BBA

allows an exception for rural hospitals that establish new residency training programs. However, it

does not allow expansion of existing rural programs

or an exception for rural tracks sponsored by urban

hospitals. The BBRA made some revisions in the

law to allow a 30 percent expansion in rural residency programs and to recognize that urban hospitals may operate a rural residency track. The provisions are an improvement over the BBA limits.

However, if the rural hospital’s resident count is

relatively small, the 30 percent tolerance allows for

only minimal expansions in residency programs.

For example, a rural hospital with an established

family medicine program with nine residents (three

per year) would only be allowed to add one resident position for each year. Rural hospitals that are

affiliated with urban teaching hospitals often have

even smaller base year counts that would preclude

any significant increase in the absolute number of

residents.

PAYMENTS FOR RESIDENCY TRAINING IN

NON-HOSPITAL BASED SETTINGS

Prior to the Balanced Budget Act of 1997, the

time a resident spent in hospital outpatient departments counted in the IME adjustment for inpatient

hospital services. The time spent in non-hospital

settings did not count. For direct GME payments,

the time a resident spent in patient care activities

in non-hospital settings counted if the hospital had

a written agreement with the site and incurred all

or substantially all of the costs of the training. Regulatory policies assumed the hospital incurred substantially all training costs if it paid the resident’s

salary and fringe benefits. The teaching physician

rules apply if the resident in the non-hospital setting is counted by the hospital for direct GME payments. However, if the hospital does not include

the resident in its direct GME count, a resident who

is fully licensed to practice medicine may bill for

services under Part B in a non-hospital setting. In

this case, the teaching physician may not bill under Part B for services furnished by the resident

under the physician’s supervision.

Medicare pays certain ambulatory care providers on a reasonable cost basis. Subject to reimbursement limits, Medicare shares in any indirect teaching costs incurred by these providers. Since

payment is based on each provider’s costs rather

than a fixed rate, an explicit payment for indirect

teaching costs is generally not needed. However,

the reimbursement limits are not adjusted for teaching activities. As a result, full sharing in GME costs

does not occur in situations where a provider’s costs

exceed its reimbursement limits (e.g. an urban Federally qualified health center with costs in excess

of its year 2000 per visit limit of $96.02). Prior to

the BBA, providers paid on a reasonable cost basis

included hospitals for most outpatient services,

skilled nursing facilities, home health agencies,

Federally qualified community health centers and

rural health centers. The BBA established prospective payment systems for hospital outpatient services, home health services, and services provided

by skilled nursing facilities. These are settings

where residency training should take place in order to follow patients across the full continuum of

care. As the payment methodologies change, care

must be taken to ensure against erosion in existing

support for residency training in these settings.

Additional study is needed to determine whether

there is an indirect teaching cost that should be recognized through an adjustment to the reimbursement limit or prospective payment for ambulatory

care providers. The evidence to date does not substantiate the need for an IME adjustment. For example, in implementing the hospital outpatient PPS,

HCFA found teaching did not have a significant

effect on hospital outpatient costs (DHHS, 2000a).

Other studies of residency training programs in ambulatory settings support a widely held belief that

over the course of a three-year residency program,

residents have little impact on net costs (Diamond,

1993; Lave, 1989).

The BBA made several significant changes in

Medicare payment for residency training in ambulatory settings. First, the legislation authorized direct payments to entities other than hospitals. Medicare-participating Federally qualified community

health centers, rural health clinics, Medicare +

Choice organizations, and other entities designated

by the Secretary may be paid for direct GME if the

provider incurs all or substantially all of the costs

of training at the site. (Implementing regulations

did not expand the list of eligible entities.) Second,

the law allows hospitals to include in their IME

resident count (as well as direct GME resident

count) the time residents spend in patient care
FIFTEENTH REPORT OF COGME 32

activities at non-hospital settings if the hospital incurs all or substantially all of the training costs at

the ambulatory site. In determining which entity

incurs substantially all of the training costs, implementing regulations look to which entity pays the

resident’s salary and fringe benefits and teaching

physician compensation while the resident is at the

non-hospital site. The rules provide that the following criteria must be met before the hospital may

receive payment:

• There must be a written agreement between

the hospital and the ambulatory site.

• The parties must agree that the hospital bears

the costs for the resident’s salary and fringe

benefits and that the teaching physician compensation is reasonable.

• The resident must be engaged in patient care

activities as part of an approved residency program.

If the hospital bears substantially all of the costs,

any GME costs incurred by the ambulatory site are

not allowable costs for Medicare payment purposes.

On the other hand, if the ambulatory site incurs

substantially all of the costs, Medicare pays its share

of the GME costs incurred by the site. Direct GME

costs are not subject to the productivity standards

and per visit limits applicable to Federally qualified health centers and rural health clinics. Payment

to Medicare+Choice organizations is based on the

percentage of plan enrollees who are Medicare beneficiaries and is limited to the resident’s salary and

reasonable teaching physician compensation.

Payment will be made to either the hospital or

the ambulatory site, but not both. In most cases, it

is advantageous for payment to flow to the hospital:

• The hospital usually has higher Medicare utilization than the ambulatory site.

• The hospital would receive both direct GME

and IME if it bears substantially all of the costs.

The ambulatory site would receive direct GME

in addition to payment for direct patient care

costs or the capitated payment rate. Generally,

the hospital’s payments would be substantially

more than the ambulatory provider’s payments.

However, there is a complicated interaction

between the BBA payments to ambulatory sites and

the limitations on the number of residents that can

be included in a hospital’s resident count. If the

hospital exceeds its 1996 resident limits, it may be

advantageous for an ambulatory site entitled to direct GME payments (i.e., FQHC, RHC or Medicare+Choice program) to assume the residency

training costs and be paid based on Medicare’s share

of the costs. If the hospital does not include the

residents in its count and the residents are fully

licensed, another option would be for the residents to bill for their patient care services under

Part B.

For IME payments, the time residents spent in

non-hospital settings could not be included in a

hospital’s resident count prior to the BBA. The residents who were training in non-hospital settings in

1996 are not represented in the hospital’s resident

limit for IME payments. With the BBA limits, these

residents cannot be included in the hospital’s IME

count unless there are offsetting reductions in other

residency programs at the hospital. In essence, the

BBA removes the disincentive for new shifts in residents from hospital to community-based training

sites. However, hospitals that had already developed

community-based training sites by 1996 are disadvantaged. They receive no benefit from the change

unless there are reductions in other residency programs at the hospital. The provisions disproportionately impact family medicine residency programs.

An estimated 250-350 residents training in nonhospital settings in 1996 were not included in hospitals’ IME count. Forty percent of family medicine programs are the sole residency program in

the hospital and cannot benefit from downsizing in

other programs at the hospital (Davis, 2000).

TEACHING PHYSICIAN SERVICES

The direct GME payment is intended to cover

the hospital’s compensation to teaching physicians

for time spent on GME program administration and

teaching and supervision of residents. Specifically,

the per resident amounts include an average payment for teaching physician supervision of residents

based on 1984 GME costs. In addition, payment

may be made under the Medicare physician fee

schedule for professional services furnished by the

physician or by a resident under the medical direction of the teaching physician. Medicare rules govern when a teaching physician can appropriately

bill Medicare when a resident is involved in the care

of his or her patient. The rules are intended to avoid

paying for the same service twice. They limit Part

B payments to situations involving a teaching

physician’s direct, identifiable service to an individual patient. The teaching physician rules have

been clarified and revised since the per resident

amounts were initially determined. As a result, there

may be inconsistencies between teaching physician

compensation amounts included in the per resident

amounts and what would be considered teaching

physician activities payable through the per resident amounts under current rules.
FIFTEENTH REPORT OF COGME 33

PRESENCE DURING THE KEY PORTION OF THE

VISIT

For many years, HCFA’s payment criteria for

professional billings were based on an attending

physician concept. The attending physician criteria included: reviewing the patient’s history and

physical examination and personally examining the

patient within a reasonable period of admission;

confirming or revising the diagnosis; determining

the course of treatment to be followed; ensuring

that any supervision needed by the interns and residents is furnished; and making frequent reviews of

the patient’s progress throughout the period of care

(BHI, 1969).

The insurance carriers that process Medicare

claims inconsistently applied standards regarding

whether the attending physician needed to be physically present when a billable service was provided

and the documentation required to substantiate the

billing requirements were met (Rabb, 1997). Effective July 1996, the attending physician concept

was replaced by a requirement that a teaching physician be present to perform or observe the resident

perform the “key portion” of each billable service.

For evaluation and management services and minor procedures, the teaching physician must be

present for all portions as if the teaching physician

had personally performed the entire visit or procedure. In the case of surgery or a complex or dangerous procedure, the teaching physician must be

present during all critical portions of the procedure

and must be immediately available to furnish services during the entire procedure or service. For psychiatric services, the physical presence requirement

may be met by observation of the service by use of

a one-way mirror, video equipment, or similar device (HCFA, 1997).

The rules provide a limited exception to the

physician presence rule in hospital outpatient departments or other ambulatory settings that receive

direct GME payments and provide coordinated

comprehensive care not limited to a body system.

Generally, the exception applies to primary care

teaching clinics that provide coordinated comprehensive care. The exception applies only to residents with more than six months training in an approved residency program that furnish evaluation

and management services of low to mid-level complexity. The teaching physician must be immediately available and:

• Direct the care of no more than four residents

at a time;

• Have no other responsibilities (including supervision of other personnel);

• Review with each resident during or immediately after each visit the patient’s medical history and care; and,

• Document his or her participation in the review and direction of the services.

The purpose of the teaching physician rules is

to prevent duplicate payments by the Medicare program and to assure Part B payments are made only

when a teaching physician provides a personal identifiable service to an individual patient. Residents

act more independently as they progress through

the training program. The need for supervision is

more extensive early in the residency program and

is less toward the end. The Medicare rules for Part

B billing require the teaching physician to be

present during the portion of the evaluation and

management visit that determines the level of the

service billed regardless of the program year (PGY).

This creates incentives for an inefficient and inappropriate teaching model. It does not recognize that

the teaching physician’s needed level of involvement decreases as the resident’s proficiency increases.

DOCUMENTATION REQUIREMENTS

For evaluation and management services, a

teaching physician must personally document his/

her presence and participation in the key components that demonstrate the appropriate level of service (e.g., participation in history, examination, and

medical decision-making). Medicare instructions

note that if the resident previously obtained and

documented key elements of the service, the teaching physician need not repeat the documentation

in detail. Instead, the teaching physician’s documentation may be brief summary comments that

confirm or revise the key elements of the service.

The combined teaching physician-resident entries

must be adequate to substantiate the level of service required by the patient and billed to Medicare.

In 1996, the Department of Health and Human

Services’ Office of the Inspector General (OIG) initiated the Physicians at Teaching Hospitals nationwide review for compliance with rules governing

teaching physicians and the level of the services

being billed. The review standards and method of

conducting the audits have been controversial. A

General Accounting Office (GAO) review of the

OIG audits concluded that the OIG’s review standards and audit methodology were reasonable; however, the GAO suggested that a risk-based approach

focusing on the most problem-prone institutions

would be a more efficient use of resources (GAO,

1998). Heightened attention to compliance with

billing requirements and concerns over potential
FIFTEENTH REPORT OF COGME 34

OIG audits under the False Claims Act has led many

teaching institutions to adopt more extensive

documentation requirements than those required by

the Health Care Financing Administration, thereby

decreasing faculty time for teaching.

MEDICAID SUPPORT FOR GME

Under the Medicaid law, States have considerable flexibility to determine what services will be

covered in addition to basic required services and

the payment methodologies that will be used to pay

for covered services. Federal matching funds apply to the State’s expenditures. Nearly all States

and the District of Columbia support GME under

the Medicaid program. Using the results of an

AAMC-sponsored survey, the National Conference

of State Legislatures estimates States spent about

$2.3 billion through Medicaid patient funds in 1998,

or approximately 7 percent of Medicaid inpatient

hospital expenditures, to support GME (Henderson,

1999). Appendix A summarizes the State-level survey findings. Explicit GME payments are identified separately from amounts for GME that are

implicit in payments to managed care plans. The

managed care plans have discretion regarding

whether to pass these amounts on to teaching hospitals through higher payments. Specific findings

were:

• Forty-three States and the District of Columbia make GME payments under their fee-forservice programs. Of these, 23 make both direct GME and IME payments.

• Thirty-three States and the District of Columbia include GME funds in their Medicaid managed care capitated payments. Of these, 16

carve-out the GME payments and make explicit payments to teaching hospitals or other

teaching programs.

• Among those that do not support GME through

Medicaid, only Illinois and Puerto Rico have

a large number of residents. One of the remaining States (South Dakota) has a medical

school; three States (Alaska, Idaho, and Montana) that do not have medical schools have

agreements with the University of Washington for undergraduate education and one or

more affiliated family medicine graduate training programs.

Most Medicaid programs support GME in their

payments for inpatient hospital services following

Medicare-like methodologies. However, some

States have or are in the process of obtaining approval from HCFA to link some or all of Medicaid

GME payments to specific State workforce objectives. For example:

• Michigan and New York have established separate incentive pools to achieve specific

workforce objectives.

• Tennessee and Oklahoma make GME payments to medical schools.

• In Minnesota, advanced nursing, pharmacy,

dental and physician assistant training programs as well as medical and dental schools

are eligible for medical education payments

from the State. The State is seeking approval

to include the Medicaid managed care carveout amounts in the education fund.

• Utah is developing a consortium consisting of

the State, the single university medical school

in the State, hospitals and community-based

providers, and private payers. The State is

seeking a waiver from HCFA to have Medicare and Medicaid GME funds flow to the consortia instead of the teaching hospitals.

Tennessee’s funding for GME was approved as

part of the TennCare waiver process. Other States

with innovative GME funding have used the State

plan amendment process to obtain HCFA approval.

State plans must be consistent with the Medicaid

laws and regulations. In contrast to the Medicare

law, the Medicaid GME provisions are not very

detailed. As a result, States have considerably more

flexibility than the Medicare program to institute

changes in GME funding. In addition, many States

have established commissions or task forces related

to GME and physician workforce. Features of selected State programs that are directed at meeting

specific workforce or GME objectives are summarized below.

MICHIGAN

Since 1997, Medicaid GME-related payments,

including managed care carve out amounts, have

formed three pools. For the State’s FY2000, the

pools are funded as follows: 1) a $164.5 million

historic cost pool that pays teaching hospitals at

1995 levels; 2) a $20 million primary care pool that

pays hospitals based on the number of primary care

residents and its indigent patient load; and, 3) a $3.5

million innovations pool that that awards competitive grants to GME consortia involving a hospital,

a university, and a managed care organization. Hospitals that receive funding must account for how

funds are being used to support the policy goals

and priorities of the Medicaid program. Initial proposed performance measures are the percentage

of graduates practicing in the State and the
FIFTEENTH REPORT OF COGME 35

percentage participating in Medicaid (Salsberg,

1997; Holmes, 2000).

MINNESOTA

Minnesota established the Medical Education

and Research Cost (MERC) Fund in 1997 to support clinical training costs. The fund is supported

with general-fund tax revenue and the State’s tobacco settlement. The 1999 fund was comprised of

$10 million in State appropriated funds and $10.6

million in Federal matching funds. A State plan

amendment to allow a Medicaid managed care

GME carve-out amount ($12 million) is pending

HCFA approval. The fund is intended to “level the

playing field” for teaching hospitals and other providers. Support is for the unrecovered costs of clinical training for medical students and residents, dental students and residents, pharmacists,

chiropractors, advanced practice nurses and physician assistants. Funds are allocated based on the

number of FTE trainees and the average cost for

each eligible program. Institutional sponsors apply

for funds on behalf of their programs. The funds

flow through the sponsors to protect the integrity

of the teaching programs and to obtain complete

information about the programs. Sponsors are required to self-report program costs and to pass funds

through to the sites where the clinical training occurs. Funding is a uniform percentage of each

institution’s program costs (7 percent in 1999 compared to estimated unrecovered costs of 15 percent).

Medical residency programs received 86 percent

of the funds. The payment was $10,661 per resident compared to an estimated cost of $156,631

per resident Accountability is currently limited to

program costs and numbers of trainees. Consideration is being given to other measures, such as percentage of graduates who practice in-State (MDH,

2000; Blewett and Weslowski, 2000).

NEW YORK STATE

New York’s GME Reform Incentive Pool is focused on reducing the number of physician trainees in the State, increasing the number of primary

care physicians, and increasing residency training

in ambulatory settings. In 1999, the $54 million

pool was distributed to 72 hospitals. Hospitals with

non-primary care residency programs had to meet

minimum qualifying criteria of a 2 percent reduction in specialty residency positions before competing for the funds. Distribution is based on performance in meeting State workforce goals. These

include: downsizing residency programs, increasing the percentage of underrepresented minorities,

increasing the percentage of residents training in

underserved areas, maintaining quality training with

continuity of care experiences, and increasing the

number of ambulatory training sites. The priority

of increasing the percentage of primary care residents was dropped as duplicative of the upweighting

formula used to distribute the majority of GME

funds. Funding is set at $31 million in 2000

(NYSDOH, 2000; Calman, 2000; Cunningham,

2000).19

TENNESSEE

When TennCare (the State’s Medicaid managed

care program) was initially implemented in 1995,

all GME funding was eliminated. Funding was restored in 1996 with an agreement to flow funds

through the four medical schools after a transition

period. The agreement was to base funding on the

number of filled residency positions and to provide

financial incentives to encourage primary care training and residency placements in medically

underserved areas. Over a 5-year transition, $48

million in GME funding to teaching hospitals was

replaced by funding to medical schools, with 100

percent of the funds flowing to medical schools

beginning in 2000. In addition, funds are allocated

to support primary care stipends for residents who

agree to practice in an underserved area for at least

one year. By 2000, 50 percent of the aggregate residency positions sponsored by the medical schools

are to be in primary care specialties (Franks, 1999).

The primary care target spawned a cooperative effort among the State’s academic health centers to

meet the 50 percent target jointly instead of individually (Meyer and Blumenthal, 1999). Each

medical school has its own target and will receive

reduced funding if it fails to meet its target.

(Salsberg, 1997; Henderson, 2000) There is no cap

on the number of residency positions but the fixed

funding amounts serve to discourage resident expansions (Meyer and Blumenthal, 1999). Annual

reporting is required concerning the proportion of

residency positions that are in primary care and the

proportion of patients treated by residents that are

in TennCare or medically uninsured.

To date, TennCare’s GME funding policies have

made the State’s academic health centers more accountable and responsive to local community health

needs and priorities (Meyer and Blumenthal, 1999).

It is too early to assess whether paying the medical schools is having a significant effect on

workforce goals. The greatest impact may be felt

by East Tennessee State University which, as a

community-based medical school, did not previously have access to Medicaid GME funds. The

increased funding allowed the medical school to

pay community physicians for teaching (Franks,

1999).
FIFTEENTH REPORT OF COGME 36

UTAH

Utah passed legislation in 1997 establishing an

all-payer GME financing system that would include

private payers/purchasers and, pending HCFA approval, Medicare and Medicaid GME funds. A

Council on Medical Education is charged with determining the number and type of training positions

that will be supported and how the funds will be

allocated. The nine-member Council has representatives from the public, health insurance industry

and institutional sponsors of medical education.

Fund distributions are to be balanced geographically and by training settings, encourage

multidisciplinary training, and provide stable funding for accredited programs. Direct GME funds will

flow to the sponsoring institutions based on the

Council’s assessment of heath care needs (Utah,

2000; Salsberg, 1997).

HEALTH RESOURCES AND

SERVICES ADMINISTRATION

PROGRAMS

NATIONAL HEALTH SERVICE CORPS

Title III of the Public Health Service Act authorizes the National Health Service Corps through

the end of FY2000. The NHSC mission is to increase access to primary health care services in

health professional shortage areas (HPSAs) through

site development and the preparation, recruitment,

and retention of community-responsive, culturally

competent primary care physicians and other health

professionals. The FY1999 appropriation was for

$75 million in scholarship/loan repayment and $37

million in field support. There are four basic programs to assist with the cost of health professions

training:

• Participants in the NHSC scholarship program

have a minimum two-year commitment and

must provide one year of service to the NHSC

for each year of participation in the scholarship program.

• Participants in the NHSC loan repayment program may repay the qualified educational

loans if they choose to provide primary care

services in a priority-designated HPSA for a

minimum of two years.

• Thirty-five States participate in the FederalState Loan Repayment partnership to obtain

services of health professionals by matching

their repayment of educational loans.

• The Federal-State-Community Scholarship

Program supports students in primary care

health professions who are committed to returning to their underserved communities. The

Federal share is 40 percent.

The Student/Resident Experiences and Rotations in Community Health (SEARCH) program is

a NHSC partnership with States to support community-based training experiences. Other than the

SEARCH program, the NHSC has had little direct

involvement in developing academic health centercommunity linkages that would expand community-based training sites for residency programs.

One limiting factor is the authorizing language for

the NHSC, which limits the creditable time of

NHSC scholars and repayers to time spent in the

provision of primary care services. Time spent in

other activities, such as clinical preceptorships, does

not count under current law for repayment purposes.

Periodic reauthorization for the NHSC provides an

opportunity to assess whether there are additional

ways the NHSC program could facilitate residency

training in underserved areas.

TITLE VII

Titles VII and VIII of the Public Health Service

Act are designed to expand the supply of primary

health care providers, improve the geographic distribution of health professionals, and increase access to primary health care services in both urban

and rural underserved areas. Title VII programs include support for educating physicians and other

health professionals while Title VIII programs support nursing education.

Several Title VII programs have been significant sources of support to medical schools and

teaching hospitals in developing community-based

training capacity. Primary care training grants provide support for planning, developing and operating residency programs in general internal medicine and general pediatrics, family medicine, and

preventive medicine programs. Title VII funds also

support geriatric education centers and geriatric

training fellowships for physicians and other health

professionals.

In addition, Title VII grants support the creation

of area health education centers (AHECs) and

health education and training centers. The mission

of the AHEC program is to improve the supply and

distribution of health care professionals through

community/academic educational partnerships

that eventually will become self- or State-supported. Strategies to accomplish the mission include

forming linkages between educational resources and

health care delivery systems in underserved communities and creating collaborative community-based
FIFTEENTH REPORT OF COGME 37

education for primary care residents, health professionals, and students.

Funding for Title VII residency training programs was relatively flat during the period FY1990-

1998 and did not keep pace with inflation. The

range for family medicine grants over the period

was $38-49 million; the average annual appropriation was $44 million compared to an annual appropriation of $40 million during the 1980s. Funding

for general internal medicine/pediatric training has

been constant at about $17 million annually since

1980 (HRSA, 2000).

The Health Professions Education Partnerships

Act of 1998 (P.L. 105-392) made significant

changes in the administration of Title VII funds that

are consistent with COGME goals. The reauthorization clustered the separate training grant programs for general internal medicine and pediatrics,

family medicine, and physician assistants into a

single grant program that also includes general and

pediatric dentistry. The aggregate funding level was

set at $80 million for FY1999. Floors were established for the level of funding for each component.

Priority funding is to be given to residency programs 1) with a high percentage of graduates that

enter and remain in primary care, or 2) train individuals from disadvantaged backgrounds (including racial and ethnic minorities underrepresented

in primary care practice). In addition, special consideration is to be given to programs that prepare

residents to care for underserved populations and

other high risk groups such as the elderly, individuals with HIV/AIDS, substance abuse, homeless, and

victims of domestic violence. Grantees must establish and meet specific performance goals for

workforce objectives. As in past years, the President’s budget request for FY2000 does not include

a Title VII appropriation.

The legislation also established a separate program to foster interdisciplinary, community-based

linkages through support to develop and operate

training programs involving two or more disciplines, model demonstration programs, faculty development, trainee stipends and technical assistance. The AHEC authorization now requires each

center receiving funds specifically to designate a

remote geographic area or medically underserved

population to be served by the center. The center

must:

• Assist in the planning and development of

training programs to meet the health personnel of the area;

• Arrange and support rotations for primary care

residents in a center-operated or affiliated program with at least four first-year positions;

• Conduct and participate in interdisciplinary

training; and,

• Have an advisory board with at least 75 percent of the members being health service providers and consumers from the area served by

the center.

The Title VII funding structure provides a

framework for targeting Federal outlays consistent

with physician workforce and education goals.

However, the level of support is less than one percent of total Federal funding for workforce.

CHILDREN’S TEACHING HOSPITAL FUND

Public Law 106-129 amended the Public Health

Service Act to establish a new program to support

GME activities of freestanding children’s teaching

hospitals. The fund was established through a bipartisan effort in recognition that children’s teaching hospitals have low Medicare utilization rates

and do not receive the same level of Federal support for GME as other teaching hospitals. The provision authorizes payments in FY2000 and FY2001

for both direct GME and IME associated with approved GME programs. The payment methodologies follow the general framework of the Medicare

methodologies. Direct GME payments are based

on a wage-adjusted national average per resident

amount and the number of residents at each institution using Medicare rules for counting residents.

The IME adjustment is to take into account case

mix and the number of residents. Unlike Medicare

GME payments, however, funding is not an entitlement but requires annual appropriations. The

FY2000 appropriation is $40 million, which translates into slightly less than $12,000 per resident.

By contrast, Medicare’s GME payments per resident is about $73,200.20

The payment methodologies for the children’s

teaching fund are established in the authorizing legislation. Payment is not explicitly linked with physician workforce objectives. However, the Government Performance Results Act requires that

performance measures be established for the program. This will provide an opportunity to assess

how each facility performs on specific workforcerelated indicators. The proposed measures are:

maintaining the number of residents, increasing the

proportion of training in rural and underserved areas, and monitoring the hospitals’ financial status

and the proportion of Medicaid and uncompensated

care patients. Data collected for this program could

serve as a template for information that could be gathered from all residency programs. Such information would increase accountability of program sponsors to meet educational and workforce objectives.
FIFTEENTH REPORT OF COGME 38

OTHER DIRECT FUNDING

SOURCES

DEPARTMENT OF VETERANS AFFAIRS

Eleven Veterans Affairs Medical Centers

(VAMCs) sponsor or are the primary clinical site

for residency programs and 97 others are participating institutions in GME programs (JAMA,

1999). The DVA funds 8,900 residency positions,

or about 10 percent of all residency positions. About

32,000 residents annually receive some training at

the DVA. The DVA has made substantial efforts over

the past decade to shift care to ambulatory settings

and to focus on primary care access supported by

specialized care for chronically ill and seriously ill

patients. Residency training has been aligned with

the new health care delivery system by moving more

training into ambulatory settings that use

interprofessional teams and away from traditional

hospital settings (DVA, 1997).

DEPARTMENT OF DEFENSE

Thirty-two Department of Defense facilities

sponsor or are the primary clinical training sites

for residency programs and five others are participating institutions (JAMA, 1999). DoD funds about

3,000 residency positions annually.

STATE AND LOCAL APPROPRIATIONS

In addition to Medicaid funding, States support

GME through funding to State-operated medical

schools, training grants for family medicine residencies, and workforce policy and planning activities that frequently are coordinated with HRSA

funding. For example, Maryland provides about $1

million to support two AHECs, has a loan re-payment program for primary care physicians who

agree to serve in medically underserved areas for

at least two years, and provides incentives to educational institutions training health professionals

in short supply, including family physicians

(Salsberg, 1997). States spend an estimated $185

million to support family medicine residency programs (Henderson, 2000).

FOUNDATION SUPPORT FOR COMMUNITYBASED GRADUATE MEDICAL EDUCATION

PARTNERSHIPS FOR QUALITY EDUCATION

(PQE)

The Partnerships for Quality Education (PQE)

supports the work of primary care residency programs working in partnership with managed care

organizations. During Phase I, (1996-1999) Pew

Charitable Trusts awarded $8.3 million in grants to

66 programs.. Six partnerships received sizable

grants to develop new models of educational collaboration between academic programs and managed care organizations. The remaining grantees

received $10,000 awards.

The Robert Wood Johnson Foundation is funding the second phase of the PQE projects. $8.9 million in grants have been given to 28 residency programs and 25 nurse practitioner programs to

develop new curricula, teaching strategies and sites

(PQE, 2000).

COMMUNITY PARTNERSHIPS IN GRADUATE

MEDICAL AND NURSING EDUCATION

Ending in 2000, W.K. Kellogg Foundation’s

Community Partnerships in Graduate Medical and

Nursing Education initiative emphasized community-based multi-disciplinary health care that meets

the needs of a vulnerable population. Critical design features of the six projects funded through this

initiative were: the governing board is a partnership of health professionals and community representatives, funds flow through the community partner, and there is at least 1:1 matching from

university or State sources (Kellogg, 1999).
FIFTEENTH REPORT OF COGME 39

The growth of managed systems of care and

the shift of service delivery to ambulatory

settings make it increasingly important for

residency programs to provide training opportunities in community settings. As used in this report,

the term “community settings” describes settings

that are representative of the environment in which

residents will eventually practice. Under this definition, the processes of care and educational outcomes are the determining factors in identifying a

community setting rather than its location per se.

Training should be relevant to current daily physician practice and address the care of the individual

patient in the context of the population of which

the patient is a member.

This section focuses on the financial arrangements and issues associated with residency training in community settings. It begins with overviews

of how much training is currently being done in

ambulatory/community-based settings and the relevant accreditation requirements. A discussion of

potential financial barriers to expanding training

opportunities in the community follows. The discussion is based on a literature review. The section

concludes with a summary from the site visits and

interviews conducted with individuals involved

with selected residency programs.

CURRENT TRAINING IN

AMBULATORY/COMMUNITY

SETTINGS

COGME’s 13th Report (COGME, 1999a) identified the following core curricular domains that

physicians need to practice effectively in the changing health care environment:

• Health systems financing and delivery

• Evidence-based medicine

• Ethics and the management of dual responsibilities and conflicts of interest

• Patient-physician communication

• Leadership, teamwork and organizational

change

• Quality measurement and improvement

• Systems-based care

• Medical informatics

• Teaching managed care

Competency in these domains requires learning experiences that are not typically available in

the hospital outpatient departments of academic health

centers. A comprehensive range of experiences is

Residency Training in Community Settings

TABLE 4

Ambulatory/Community-Based Rotations

for Program Year 1 Residents

Average Percent of Training

by Setting

NonHospital

Ambulatory

Care

Hospital

Outpatient

Clinic

Managed

Care

Setting

SPECIALTIES

Family Practice ........................................ 20.5 15.7 12.5

Geriatric Medicine (FP) ........................... 34.7 13.3 23.1

Internal Medicine..................................... 22.6 11.0 10.6

Internal Medicine Subspecialties:

CardioVascular (IM) ............................ 18.4 5.6 11.5

Gastroenterology (IM) ......................... 28.2 10.9 15.4

Geriatric Medicine (IM) ....................... 30.2 15.3 5.5

Hematology (IM) ................................. 37.3 7.5 3.5

Nephrology (IM).................................. 28.3 8.8 11.4

Oncology ................................................. 40.7 6.0 8.8

Rheumatology ......................................... 48.3 4.1 5.2

Pediatrics ................................................ 39.9 11.7 15.4

Dermatology ............................................ 65.6 11.2 16.4

Emergency Medicine ............................... 16.8 2.8 7.7

Neurology ................................................ 26.9 2.8 7.3

Obstetrics and Gynecology ..................... 33.1 11.8 16.7

Ophthalmology ........................................ 74.7 8.7 8.9

Otolaryngology ........................................ 48.3 4.1 5.2

Psychiatry ............................................... 12.4 3.9 9.2

Physical Medicine and Rehabilitation ...... 23.8 4.7 6.2

General Surgery ...................................... 20.0 6.5 7.8

Urology ................................................... 34.2 7.4 12.0

Source: AMA FREIDA, 2000 (categories are not mutually exclusive).
FIFTEENTH REPORT OF COGME 40

FIGURE 7

Proportion of Clinical Experience in Ambulatory Settings for

Categorical Internal Medicine Residency Programs

Source: ABIM, 1998a.

50%

40%

30%

20%

10%

0%

PGY-1

12345678901 12345678901

12345678901

1234567890123 1234567890123

12345678901 12345678901

12345678901

123456789012 123456789012

123456789012

PGY-2 PGY-3

27.3%

36.1%

43.9%

2.3%

2.4%

3.4%

5.3%

10.0%

18.0%

123456789012 123456789012

123456789012

123456789012

1234567890123 1234567890123

1234567890123

Other

VA Clinic

Hospital-Sponsored

Satellite Clinic

Emergency Department

or Trauma Center

Office-Based Practice

Hospital-Based

Ambulatory Clinic

1234 1234

1234

12345 12345

12345

Source: ABIM, 1998b.

FIGURE 8

Internal Medicine Ambulatory Care Sites

Used for Continuity Experiences

100%

80%

60%

40%

20%

0%

27.3%

12345678901234567 12345678901234567

123456789012345678

123456789

123456789

123456789 12345678901234567 12345678901234567

12345678901234567

12345678901234567

12345678901234567

12345678901234567

1234 1234

1234

1234

Urgent Care (2%)

Other (3%)

Closed Panel HMO (4%)

Gov’t Sponsored Clinic (6%)

VA Clinic (11%)

Private Physician Office (14%)

Community-Based Faculty

Practice Site (15%)

Hospital-Based Ambulatory

Clinic (44%)

1234 1234

1234

12345 12345

12345

12

12

needed that includes opportunities to follow the

patient across each component of an integrated delivery system. Community-based settings such as

health centers and clinics, physician offices, schools

and workplaces, nursing homes, hospices and home

care, community hospitals, and managed care organizations can offer essential experiences to

complement those at academic health centers. For

some specialties, community training will occur in

hospital-based ambulatory sites since this is where

the specialty commonly practices.

Table 4 is based on aggregated data from the

annual survey of GME program directors as reported

on the American Medical Association’s on-line Fellowship and Residency Electronic Interactive Database (FREIDA) system. The survey asked the program directors to estimate the amount of time spent

in the first program year in hospital outpatient clinics, non-hospital ambulatory sites,

and managed care settings. The categories are not mutually exclusive.

For example, time spent in an outpatient clinic could also be time spent

in a managed care setting. As expected,

residents in primary care residency programs generally spend more time in

non-hospital clinics than do residents

in other programs. In addition, residents

in obstetrics and gynecology and in

dermatology spent on average more

than 10 percent of their first year in

non-hospital ambulatory care.

More detailed information on internal medicine residency programs

is available from the Internal Medicine Residency Training Survey,

1997-1998. Figure 7 indicates the

percentage of time spent in ambulatory

care increases throughout the residency

program. Overall, the survey showed

that 37 percent of clinical training experiences over

the three years are spent in ambulatory settings. This

represents a significant increase over the past decade. A 1986-1987 survey of internal medicine departments of academic health centers found that 14

percent of residency training occurred in ambulatory settings (Levinsky, 1998). However, the majority of time is spent in hospital outpatient or emergency departments and may not provide the

essential learning opportunities for effective medical practice. Sites for continuity experiences in the

internal medicine residency programs are shown in

Figure 8. The most common continuity sites were

the hospital-based ambulatory clinic (44 percent).

The next two most common sites, community-based

faculty practices (15 percent) and private physician

offices (14 percent) were chosen far less often.

ACCREDITATION REQUIREMENTS

The Accreditation Council for Graduate Medical Education (ACGME) is a non-governmental

body that develops general accreditation standards

for all medical residency programs. Within the

ACGME, there is a Residency Review Committee
FIFTEENTH REPORT OF COGME 41

(RRC) for each specialty that consists of representatives appointed by the American Medical Association, the appropriate specialty board, and in most

cases, the professional college or other professional

association within the specialty. Subject to the

ACGME’s approval, each RRC establishes specific

accreditation standards for its specialty. The RRCs

also review the residency training programs to assess whether each substantially complies with accreditation requirements. Generally, physicians are

eligible for board certification by a member of the

American Board of Medical Specialties (ABMS)

only if they have been trained in an ACGME-accredited program. Also, Medicare support for allopathic medical residency training programs is limited to programs accredited by the ACGME or

certified by the ABMS.

Since accreditation is critical for maintaining

residency programs, RRCs have tremendous potential to influence the development of ambulatory and

community-based training opportunities. However,

with the exception of family medicine, the RRCs

have established at most relatively general requirements for community training. The primary care

specialties, the internal medicine sub-specialties,

obstetrics and gynecology, neurology, and psychiatry have minimum training requirements for an

ambulatory continuity experience. Other specialties do not require an ambulatory continuity experience. Except for family medicine, the requirements do not distinguish between hospital-based

or community-based continuity clinic experiences.

It is not clear the extent to which the hospital-based

continuity clinics provide a community setting comparable to the environment in which the residents will

eventually practice. Both hospital-based and community-based continuity clinics provide the opportunity to follow a panel of patients longitudinally over

the course of the residency. However, the typical

half day per week schedule means that the resident

is frequently not at the clinic when a patient has an

acute condition that requires immediate treatment.

Appendix B summarizes current accreditation requirements for the primary care specialties and selected other specialties with a significant proportion of private practice outside the hospital setting.

Generally, specialties that do not require continuity experience do at least have provisions for

ambulatory training. However, among these specialties, only physical and rehabilitation medicine establishes minimum requirements. For some, such

as surgical specialties, a specific outpatient requirement may be unnecessary in that training will automatically follow the shift of services to ambulatory settings in order to maintain the requisite

patient workload.

Beginning July 1999, all internships and residency programs accredited by the American Osteopathic Association must occur in Osteopathic

Postdoctoral Training Institutions (OPTIs). OPTIs

are training consortia comprised of one or more

colleges of osteopathic medicine and one or more

osteopathic hospitals. The OPTI structure is intended to enhance the quality and efficiency of the

educational programs and to promote partnerships

and collaboration among academic medicine, hospitals, and community based health care facilities

in order to provide broader clinical training opportunities (AOA, 2000).

There is general agreement that training experiences in the community are important and should

be expanded. However, as evidenced by the lack of

specific RRC requirements for community training, there is no consensus on what constitutes the

appropriate balance between traditional and community-based experiences for most specialties. For

most, training opportunities will be expanded as

needed to maintain an adequate patient base for

teaching. However, without the RRC impetus to

move training into the community settings, financial and other considerations at the hospital as well

as the community site may outweigh the educational goal of providing training experiences in settings that are representative of the environment in

which residents will eventually practice.

POTENTIAL FINANCIAL

BARRIERS TO TRAINING IN

AMBULATORY SETTINGS

Quality experiences in ambulatory settings require

a strong and interested faculty, a patient base that is

clinically diverse, and a site that integrates training

and trainees into the daily operation of the practice

(Boex, 1997; COGME, 1999a). A major barrier to

expanding community-based training is the lack of

an academic reward structure for community teaching physicians (COGME, 1999a). Other financial barriers to training in community-settings that are commonly cited in GME literature are discussed below.

IMPACT ON NET EDUCATIONAL COSTS

Ambulatory training tends to be less efficient

and more faculty-intensive than inpatient training.

In the inpatient setting, faculty can teach students

at different educational levels during patient rounds.

In the ambulatory setting, patients are available

generally only for a short period of time. Space constraints and the focus on clinical productivity limit

opportunities for teaching multiple students at the same

time (Lave, 1989; Boex, 1997; Philibert, 1999).
FIFTEENTH REPORT OF COGME 42

In addition, physician revenues for ambulatory

services tend to be lower than revenues for services

furnished in the inpatient setting. Thus, patient care

revenues generated when residents are involved in

ambulatory care are generally less than when the

care is in inpatient settings. Further, there is a distinction between revenues generated by a hospitalbased clinic, which include Medicare (and in many

States Medicaid) GME payments, and revenues

generated by community clinics. The latter do not

receive Medicare payments directly (unless they

qualify under the BBA provision) and, in the case

of community health centers, have few privately

insured patients and high uncompensated costs.

IMPACT ON AMBULATORY CARE

PROVIDERS

A critical issue in expanding ambulatory training is the impact residency training programs have

on the costs and clinical productivity of the ambulatory provider. Studies in this area are fairly dated

and have had mixed results. One reason is the costs

are different across the variety of settings in which

ambulatory training takes place (Lave, 1989) and

often involve medical and other health professions

students as well as residents. Another reason is the

different approaches studies have taken to measuring the effects the presence of residents has on costs.

• Some studies take an incremental accounting

cost approach or time and motion approach to

determine the additional costs when residents

(or residents and medical students) are present

compared to non-teaching sites or non-teaching physicians at teaching sites (Jones, 1997;

Ricer, 1998; Kosecoff, 1987).

• Others measure the opportunity costs of having residents. That is, the forgone clinical revenue for the time preceptors spend in teaching

that could have been spent generating patient

revenues (Gamble and Lee, 1991; Ricer, 1997;

Flanagan, 1995).

• The “replacement cost” approach measures

costs that the provider would incur to replace

the services of the resident (Delbanco and

Calkins, 1988; Gavett and Mushlin, 1986).

Some studies have tried to measure the effect

of teaching on the ambulatory site’s productivity

and net revenues (Diamond, 1993; Lave, 1989).

These studies are most closely directed at the question of whether there are unrecovered GME costs

in ambulatory settings. The findings suggest net

costs are site-dependent and reflect factors such as

the amount of time spent on teaching relative to

patient care, patient flow and the efficiency of the

practice, payer mix, the physicians’ incomes and

residents’ salaries (Lave, 1989). The studies support a widespread belief that residency programs

“break even.” First year residents generate productivity losses. Second year residents generally have

no effect on productivity. Net increases in productivity and revenues by the third year of residency

training in ambulatory sites offset the first-year

losses (Diamond, 1993; Flanagan, 1995; Lave,

1989). When residents are in the inpatient setting,

they assist the teaching physicians and reduce the

time spent by faculty members in caring for patients. This time saving does not appear to carry

over to ambulatory settings where spending time

with the resident going over the case allows the

teaching physician less time to spend on patient care

(Boex, 1997).

In addition to potential cost impacts, teaching

can affect the ability of the ambulatory site to attract patients in a competitive market. Patient scheduling in continuity clinics can be problematic because residents are not always at the site. Waiting

times are frequently longer and visits take longer

as well, sometimes leading to patient preferences

that residents not be involved in their care.

IMPACT ON THE SPONSORING HOSPITAL

AND FACULTY

Medical schools and faculty benefit from the

presence of residents. Many residents have significant teaching responsibilities for medical students

that may make community-based rotations more

difficult. It is possible this issue may diminish as

medical students increasingly receive training in

community settings. Residents also provide coverage for teaching physicians and contribute to the

services billed by teaching physicians. Resident

replacement costs can be a significant factor in decisions to rotate residents to non-hospital settings. The

cost of replacing residents will depend on the relative

cost of the staff who are replacing them, their productivity, and their ability to generate revenue.

Residents in community-based settings can provide subspecialty referrals and referrals to the teaching hospital. Most studies do not provide credit for

these referrals when evaluating the cost of rotating

residents outside the hospital (Stern, 1977; Lave,

1989).

SITE VISIT FINDINGS

As part of this study, site visits or telephone

interviews were conducted with individuals involved with selected residency programs with community-based training sites. Both programs with
FIFTEENTH REPORT OF COGME 43

long-standing community-based training sites and

relatively new programs that are developing collaborative arrangements with managed care organizations or community providers in medically

underserved areas were included. Geographic diversity was a selection criteria coupled with some

emphasis on selecting sites located in States with

innovative GME funding. The sites that were involved in the interviews are listed in Appendix C.

The interviews focused on the funding sources

and arrangements used to support ambulatory training. Of necessity, most of the information gathered

on community-based training concerned primary

care residency programs. With a few notable exceptions, ambulatory training in other specialties

is typically hospital-based and organized by department. Where possible, the views of individuals with

educational and financial responsibilities were obtained from the perspective of the sponsoring institution as well as the community provider. The goal

was to identify both features that have facilitated

community-based training and barriers to expanding community-based training sites that should be

considered in evaluating alternative GME financing policies. The report’s findings reflect the circumstances of the programs where the interviews

were conducted. However, similar themes emerged

from the interviews with different sites that are also

consistent with other information on GME financing issues.

The key findings from the site visits are discussed below.

SITE VISIT FINDING 1 – THERE IS A WIDE RANGE

OF COMMUNITY SETTINGS FOR RESIDENCY

TRAINING OPPORTUNITIES.

An individual program may have arrangements

for teaching with hospital-based continuity clinics,

hospital-owned and hospital-affiliated physician

practices, community health centers, and individual

clinician-educators in private practice. The characteristics of the most common sites are described

below.

HOSPITAL-BASED CLINICS

The most prevalent model for communitybased training is the teaching hospital clinic

that provides continuing and comprehensive

care to a panel of patients. Residents are assigned a panel of patients that they follow

throughout their residency. The continuity

clinic may be based at a hospital that is part of

an academic health center, a local public hospital, or a community hospital. Populations

served by hospital-based continuity clinics tend

to be sicker and poorer than patients treated in

community-based private practices. Payer mix

ranges from largely private paying to largely

indigent with Medicaid or no insurance coverage. Payer mix has significant impact on

whether the faculty practice plan income is able

to provide most or all physician salary support

for the clinic. Teaching faculty typically receive

base compensation with incentive payments

based on clinical productivity. Teaching is required as part of the contractual arrangement

but is not necessarily taken into account in establishing productivity levels for incentive

compensation. There may also be physicians

under contract that are engaged in patient care

only and do not teach. Resident salaries are paid

by the hospital.

Community hospital clinics also serve as residency training sites for either continuity clinics or block rotations. There is typically a small

core faculty that is salaried by the community

hospital. The majority of the teaching is by

community attending physicians who receive

little or no compensation from the hospital. The

community hospital assumes the costs for resident salaries and fringe benefits and may pay

an overhead amount to the sponsoring hospital as well.

COMMUNITY HEALTH CENTERS

Until the growth of integrated delivery systems,

most non-hospital residency training occurred

in freestanding community health centers or

other clinics serving indigent patients. The sites

are used to fulfill continuity clinic requirements

as well as for block rotations. Physicians at

these sites are salaried by the center. Typically,

there has been no explicit compensation either

from the site or the hospital to the physician

for any additional time required to teach residents. Arrangements vary regarding whether

the hospital or the site pays the resident’s salary.

HOSPITAL-OWNED PHYSICIAN PRACTICES

While some teaching institutions have had a

long tradition of operating clinics in the community, most hospital-owned community clinics opened in response to market pressures

during the 1990’s. Teaching institutions purchased or established community-based practices to maintain their market position in the

community. The driving force was the desire

to establish a physician network for referrals

and to compete more effectively for managed

care contracts. However, these hospital-owned

community practices also afford expanded
FIFTEENTH REPORT OF COGME 44

opportunities for quality community-based

training when the physicians practicing in those

sites are committed to being clinician teachers. When the site is used for teaching, a typical arrangement is for the preceptor to hold a

clinical faculty appointment only. Teaching

may or may not be required as part of the contractual arrangement. Generally, it is not taken

into account in establishing productivity levels for incentive compensation. Resident salaries are paid by the teaching institution.

HOSPITAL-AFFILIATED PHYSICIAN PRACTICES

As part of a strategy to develop a network to

compete for managed care contracts, teaching

hospitals also affiliated with physician private

practices. Those that serve as teaching sites largely

rely on volunteer faculty. These are community

physicians with clinical faculty appointments who

do not receive monetary compensation for their

teaching. They may be rewarded through “in

kind” benefits such as access to university facilities, faculty development activities, and recognition functions. Arrangements vary regarding whether the teaching institution (hospital

or medical school) or the physician practice

pays the resident’s salary. These sites are more

commonly used for block rotations than for

continuity experiences. Frequently, the resident

works one-on-one with a preceptor.

MANAGED CARE ORGANIZATIONS

Some residency programs have had long-standing relationships with group or staff model

HMOs. Typically, the teaching physicians are

salaried by the HMO and hold clinical faculty

appointments at the medical school in universityaffiliated programs. Arrangements vary regarding whether the site or the medical school/

teaching hospital pays the resident’s salary.

Residency training also occurs in physician

practices that are members of independent

practice associations and preferred provider

organizations. The amount of training in these

settings (which could include hospital-based

as well as community-based sites) is more difficult to establish. The agreements are with the

physicians rather than the managed care organization. With increased managed care penetration, it is likely significant amounts of community-based training takes place in settings

that have one or more managed care contracts.

OTHER SETTINGS

Indian Health Service clinics and Department

of Veterans Affairs (DVA) clinics also serve as

residency training sites for both continuity and

block rotations. The DVA, with its emphasis

on ambulatory care, is a significant sponsor of

ambulatory training. There is also a wide-variety of other settings that typically serve as a

training site for short-term rotations. These include other health care providers such as nursing homes and hospices, school and employerbased programs, public health agencies,

administrative offices of managed care organizations, etc.

SITE VISIT FINDING 2 – THE FINANCING ARRANGEMENTS FOR AMBULATORY TRAINING SITES

VARY, REFLECT LOCAL CIRCUMSTANCES, AND

FREQUENTLY INVOLVE OTHER INTERRELATIONSHIPS AS WELL.

The financing arrangements differ across sites

depending on a number of factors, including:

• Payer mix and sources of support for the

teaching site – The sponsoring institution is

more likely to provide support to the training

site if it has high uncompensated care costs.

Sites with adequate third-party support are

more likely to absorb the teaching costs.

• Intensity of the teaching effort – The sponsoring institution is more likely to provide support if the community site is engaged in teaching on an on-going basis for several residents

than if the site intermittently teaches residents

on short-term rotations (e.g. one month a year).

• Opportunity costs and disruption – The

sponsoring institution is more likely to compensate the community provider if the teaching activity poses significant scheduling challenges for the community provider than if the

residents can be integrated into the practice

fairly easily. Resident-pairing (matching residents with complementary schedules) and

other strategies to maintain a constant number of residents at the site increases productivity and reduces the need for support.

• Other financial arrangements with the site –

Other arrangements with the site may affect

arrangements for GME. For example, the site

may be compensated as a clinical training site

for undergraduate medical students. The site

may have other relationships with the hospital as part of its physician referral network.

The variety of arrangements suggests that decisions on how GME funds should be allocated are

best made at the local level. A single national policy

that allocates funds between hospital and community-based sites using a pre-determined formula
FIFTEENTH REPORT OF COGME 45

does not acknowledge the myriad of existing arrangements for community-based training that

could be disrupted. After examining this issue extensively, the New York State Council on Graduate

Medical Education (NYSCOGME) reached a similar conclusion. That Council decided that strengthening the HCFA requirements for a written agreement between the hospital and the training site was

more appropriate than paying the site directly for

GME (Calman, 2000; Cunningham, 2000).

SITE VISIT FINDING 3 – THERE IS SOME EVIDENCE THAT HCFA’S REVISED DEFINITION OF

“ALL OR SUBSTANTIALLY ALL OF THE COSTS” OF

NON-HOSPITAL TRAINING IS AFFECTING FINANCIAL ARRANGEMENTS WITH COMMUNITY TRAINING SITES.

At several sites, financial support was being

provided for the first time to a community-based

site or was being increased. These involved longstanding academic-community partnerships with a

few community health centers and a managed care

organization. HCFA’s revised rules governing the

written agreement between the hospital and the

community site as well as general fairness were

cited as reasons for the change.21 No situations

where arrangements with physicians in private practice have been affected were identified.

It is too soon to assess whether HCFA’s rules

have had a significant impact on the financial arrangements between hospitals and community sites.

It is not clear whether community sites have sufficient understanding of the rules and the potential

for negotiating appropriate financial arrangements

with the hospital. Additional education and provision of benchmark data on physician compensation could facilitate the process.

SITE VISIT FINDING 4 – RESIDENTS ARE NORMALLY PAID BY THE SPONSOR INSTITUTION. THE

SALARY AND FRINGE BENEFIT COSTS ARE TYPICALLY REIMBURSED BY THE HOSPITAL THAT RECEIVES GME FUNDING.

Typically, the sponsoring institution pays the

resident’s salary and fringe benefits costs. It is reimbursed by a hospital to which the resident rotates for either inpatient or ambulatory training. The

hospital claims the resident for Medicare GME

payments based on the time the resident spends at

the hospital. At two sites involving residents in

university-based programs rotating to rural hospitals, the rural hospital does not claim the residents

for direct GME payments. In one, the hospital still

pays the resident’s salary. In the other, the medical

school picks up 50 percent of the resident’s salary

and the remainder is paid by a physician group affiliated with the rural hospital.

Arrangements for rotations to non-hospital

community sites are more varied. When Medicare

funding is involved, the hospital generally assumes

the resident’s salary costs. When no Medicare GME

funding is involved, the hospital and communitysite may share the costs or the site may pay the

hospital for the resident. A single program may have

multiple arrangements that are site-specific.

SITE VISIT FINDING 5 – MONETARY COMPENSATION FOR TEACHING PHYSICIANS IN COMMUNITY

SETTINGS IS UNCOMMON. THERE IS SOME EVIDENCE THAT ARRANGEMENTS ARE CHANGING IN

TEACHING-INTENSIVE SITES.

Within hospital-based ambulatory clinics, academic faculty are expected to serve as clinical preceptors. The amount of teaching, however, is often

not specified in the contract and may differ among

the faculty in the department. A few departments

have developed ways to take additional clinical

teaching responsibilities into account in setting productivity levels for incentive compensation. However, most appear to rely on faculty to assume additional teaching sessions without supplemental

compensation. Several sites mentioned that they

were exploring how to give appropriate recognition to faculty with a disproportionate share of clinical teaching responsibilities.

Monetary compensation explicitly for teaching

in community-based sites rarely occurs, even

among hospital-owned sites with employed physicians. When employed physicians are involved, the

residency program directors believe they have more

control over teaching quality even if there are no

specific financial rewards for teaching. Several program directors expressed concern that they have less

control over the quality of the teaching experience

with volunteer community physicians. They believed it was easier to establish accountability when

monetary rewards, even token amounts, are paid to

community physicians.

SITE VISIT FINDING 6 – THERE IS CONCERN THAT

CLINICIAN-EDUCATORS IN THE COMMUNITY ARE

BECOMING LESS WILLING TO TEACH WITHOUT

COMPENSATION.

There is already a scarcity of highly qualified

clinician-educators who are willing to teach without compensation, particularly in communities with

multiple medical schools competing for clinical

training sites for both medical students and
FIFTEENTH REPORT OF COGME 46

residents. A common strategy has been to incorporate teaching into community-based practices that

are under the direct control of the sponsoring institution. This arrangement provides more control over

the selection of clinician-educators, accountability

for the quality of the training experience, and stability among the faculty.

Several program directors expressed concern

over current difficulties in placing residents in community-based sites with volunteer faculty. Even

those who are currently experiencing few problems

questioned whether they would be able to find

highly qualified clinicians who will be willing to

teach without compensation in the future. Frequently cited reasons for concern were the competitive pressures for clinical productivity and the

Medicare teaching physician rules. At the same

time, the program sponsors did not believe they had

the financial resources to pay community clinicianeducators.

SITE VISIT FINDING 7 – GRANT FUNDS HAVE

BEEN A KEY FACTOR IN DEVELOPING TRAINING

OPPORTUNITIES IN COMMUNITY-BASED SETTINGS.

HRSA primary care residency training grants,

State funds such as California’s Song Brown Fund,

and foundation grants were consistently reported

as important “seed money” to start the dialogue with

community-based sites and to provide the funds for

curriculum and faculty development. For sites involving academic partnerships with community

providers serving indigent populations, on-going

grant support has been particularly important. Uncompensated care makes it difficult for these sites

to become self-sustainable.

SITE VISIT FINDING 8 – MEDICARE’S TEACHING

PHYSICIAN RULES HAVE HAD MIXED IMPACT.

THERE IS CONSIDERABLE CONCERN THAT THEY

ARE INTERFERING WITH HIGH QUALITY GRADUATE MEDICAL EDUCATION.

Medicare’s teaching physician rules have had

a mixed impact on residency training sites in community settings. Some sites have been unaffected

by the rules. These include managed care sites and

non-hospital sites where the resident’s time is not

claimed for direct GME payments and the resident

bills under Part B. There has also been minimal

impact in clinics with low Medicare utilization, provided the Medicaid program has not adopted the

Medicare rules.

The impact in other community settings is influenced by a number of factors. These include: the

ratio of residents-to-preceptors; whether the rules

were adopted by the State Medicaid agency;

whether the site applies the rules to all patients; the

site’s teaching physician supervision levels before

the rules were implemented; whether the primary

care exception applies; and, how the documentation requirements are interpreted. Several sites expressed little concern over the rules. A few indicated that they thought the rules have improved the

quality of teaching supervision and foster better

continuity of care if the patient needs care later

when the resident is not available. Other sites had

serious concerns about adverse effects on their

teaching programs. Key points that were made include the following:

• The requirements for Part B billing for evaluation and management services are counter to

the educational goal of progressively independent action by the resident.

• The requirements also endanger teaching in

non-hospital settings. These frequently involve

one-on-one resident to preceptor relationships.

If the preceptor has to be present for the key

portion of all evaluation and management visits, the preceptor cannot see patients at the

same time. Productivity is greatly reduced and

may preclude teaching at the site.

• The supervision requirements for the primary

care exception exceed the requirements of the

accrediting organizations. The rules have required an increase in the number of teaching

physicians per session and have reduced productivity by precluding the supervisory physician from seeing other patients.

• Lack of clarity on the documentation requirements and desire to avoid any errors that might

lead to problems under the False Claims Act

have resulted in unnecessarily conservative

billing practices, overly burdensome documentation procedures, and reluctance of community physicians to teach residents.

SITE VISIT FINDING 9 – THE BALANCED BUDGET ACT OF 1997 LIMITS ON FTE RESIDENT

COUNTS ARE AFFECTING FLEXIBILITY TO MOVE

RESIDENTS AMONG HOSPITALS AND TO EXPAND

NEEDED PROGRAMS.

The Balanced Budget Act of 1997 limits on

resident counts has had unintended consequences

for several GME programs. One issue revolves

around residents who were training in ambulatory

sites in 1996 and are not included in the hospital’s

count. Several sites raised the equity issue of not
FIFTEENTH REPORT OF COGME 47

rewarding programs that had already taken action

to expand ambulatory training capacity.

In several situations, hospitals are still working to resolve issues of who “owned” residents who

were training in ambulatory settings in 1996. Hospitals at their BBA limit do not want to assume the

costs for residents that cannot generate IME payments. The hospitals are reluctant to serve as a training site unless they receive direct GME and IME

payments for the time the resident spends at the

hospital. This makes it difficult to move residents

for educational purposes.

Finally, the issue of the long-term appropriateness of an across-the-board limit on growth in residency programs in light of geographic imbalances

in physician supply was raised.

SITE VISIT FINDING 10 – TRAINING IS BEING EXPANDED IN AMBULATORY SETTINGS WITHOUT IMPACTING NEGATIVELY ON RESIDENT COVERAGE

ON INPATIENT SERVICES.

Several factors seem to have combined to facilitate the expanding ambulatory training capacity without adversely impacting on resident coverage on inpatient services. Following is a summary

of what was reported during the interviews:

• The RRC requirements have been influential

is creating a common understanding that residency training in ambulatory settings must increase. They have shifted the dialogue from

whether the shift in training should occur to

how it can occur.

• Most sites have experienced reductions in inpatient census that reduces the amount of coverage needed on inpatient services.

• Hospital mergers and consolidations have facilitated the shift to outpatient training.

• Several programs have found hospitalists can

be a cost-effective replacement for residents.

Fee-for-service billings and productivity savings from efficient care management by

hospitalists can offset their higher salary costs

and shorter hours.

This issue was framed within the context of

resident replacement costs for shifting training from

hospital inpatient services to ambulatory services.

Most shifts have been from inpatient to hospitalbased clinics. It appears a shift to community-based

training sites where the hospital assumes the salary costs but does not receive the benefit of the

resident’s services remains an issue. The issue of

replacing the resident’s services includes both the

resident’s patient care services and the resident’s

time spent teaching and supervising medical students. Also, the issue may be different for public

teaching hospitals and other hospitals with high

uncompensated care caseloads where hospitalists

cannot generate sufficient revenue to offset their

compensation.
FIFTEENTH REPORT OF COGME 48
FIFTEENTH REPORT OF COGME 49

The changing health care environment and the

uncertainties of continued reliance on Medicare, Medicaid and private pay revenues to

fund GME have led COGME and others to conclude major changes are needed in the way GME is

financed. Major features of recent proposals for

alternative GME financing mechanisms are highlighted below. Underlying the all-payer proposals

is an assumption that GME is a public good that

merits broad support. An alternative assumption

made by the Medicare Payment Advisory Commission is that GME results in enhanced patient care

that should be recognized in health care servicerelated payments.

ALL-PAYER PROPOSALS

Concerned that the competitive marketplace

will not provide adequate support for GME,

COGME’s 14th Report (1999b) recommends the

development of an all-payer financing system that

would spread the costs of preparing a well-qualified physician workforce across all payers. In making its recommendation, COGME noted that it

would be important to build in mechanisms for

public accountability to assure the all-payer funds

supported workforce needs and were adequate for

ambulatory training. In addition to COGME, other

advocates of an all-payer fund include the PEW

Health Professions Commission, the Commonwealth Fund’s Taskforce on Academic Health Centers, and the 1997 Consensus Statement on the Physician Workforce by associations representing

physicians and teaching institutions. The specificity and details of the recommendations made by

these advocates of all-payer funding vary. Two bills

(H.R. 1224 and S.210) were introduced in the 106th

Congress that would provide all-payer funding for

GME. Key elements of the all-payer proposals are

summarized below.

PEW HEALTH PROFESSIONS

COMMISSION

The PEW Commission (1998) recommends an

all-payer financing mechanism exclusively dedicated to supporting entities involved in the clinical

education of physicians, advanced practice nurses,

and physician assistants. (Funding for other public

goods, i.e. research, highly specialized and charity

care would come from other funding mechanisms.)

GME Reform Proposals

All entities providing clinical education, including

consortia and children’s hospitals, would be eligible

for payment.

Total funded positions would not exceed 110

percent of the number of U.S. medical school graduates in 1997 and the BBA limits on FTE resident

counts would continue to apply at the institutional

level.

• There would be a uniform per resident amount

for direct GME costs that would vary only for

external reasons such as geographic differences in the cost of living. To ensure an adequate supply of generalist physicians, payment would be made only for residents in their

initial residency period and only to institutions

that continue to offer at least the number of

generalist positions they offered in 1997.

• Eligibility for IME payments would be consistent with those for direct GME payments.

IME payments would be distributed among

teaching hospitals, affiliated academic institutions, and non-hospital training sites. To reduce disincentives for decreasing the number

of residents, a significant portion of IME payments to teaching hospitals would be based

on historical IME revenues (rather than the

current resident-to-bed ratio).

To replace residents furnishing care to underserved populations, the Commission would expand

the National Health Service Corps’ loan repayment

program and allow specialists to participate where

needed.

COMMONWEALTH FUND

The Commonwealth Fund’s Taskforce on Academic Health Centers (1997) recommends leveling the competitive playing field for academic

health centers and other teaching hospitals by establishing explicit mission-related all-payer financing for their social missions. The taskforce recommends that educational support be lowered

commensurate with decreasing the number of new

physician trainees to 110 percent of the graduates

of U.S. medical schools.

• Payments for direct GME costs would be made

on a per resident basis.

• Payments for IME and other indirect costs of

social missions would be linked to patient care.
FIFTEENTH REPORT OF COGME 50

The Taskforce recommends that payment be

site-neutral so that education and other academic

health center missions occur in the most appropriate location. Demonstration projects are recommended as a way to evaluate new institutional arrangements that may accelerate the transition of

programs into ambulatory and community-based

settings.

CONSENSUS STATEMENT ON THE

PHYSICIAN WORKFORCE

Associations representing major stakeholders

in GME issued a consensus statement in 1997 on

GME financing and workforce issues (AACOM et

al, 1997). The recommendations on physician supply issues include:

• Limit Federal funding of residency positions

to the number sufficient to allow graduates of

U.S. medical schools to enroll in an approved

residency program.

• Provide Federal funding to expand training

opportunities in medically underserved communities. Provide incentives to encourage students to become generalist physicians and

practice in underserved areas.

• Provide transition funding for hospitals that

lose residents.

The statement supported an all-payer fund for

direct GME costs only. Funds would flow to entities that incur the costs of GME, whether they be

hospital-based or not, or to consortia that have been

designated to receive funds on behalf of the entities that incur the costs. The statement also called

for a national workforce advisory body to monitor

and periodically assess the size and specialty composition of the physician workforce.

ALL-PAYER GRADUATE MEDICAL

EDUCATION ACT

The All-Payer Graduate Medical Education Act

(H.R. 1224, 106th Congress, 1st Session)22 would

supplement current Medicare payments to teaching hospitals with additional payments for patients

covered by non-governmental payers.

• Hospitals would be required to provide an assurance that at least 20 percent of the funds

would be used to compensate teaching physicians.

• Payment for direct GME costs would be based

on a national wage-adjusted per resident

amount (resident salaries and fringe benefits

only) and the percentage of hospital revenue

(inpatient and outpatient) attributable to patients

with non-governmental third party coverage.

• IME payments would be based on the amounts

that would have been payable had the patients

been entitled to Medicare.

• If necessary, pro-rata reductions would be

made in payments so that total payments do

not exceed the amounts in the all-payer fund.

Conforming changes would be made in Medicare to require the assurance for teaching physician compensation and to base Medicare’s share of

GME payments on the percentage of hospital revenues (rather than percentage of inpatient days)

attributable to Medicare beneficiaries. There are no

special provisions pertaining to training in community-based settings. The Secretary is required to

study the appropriate level of documentation that

should be required as a condition of payment for

Part B teaching physician services. The BBA limits on FTE resident counts would apply and the

Secretary would be required to develop a plan to

reduce the number of residents beginning July 2005

to 110 percent of the graduates from U.S. medical

schools. The Secretary would be required to monitor the distribution of specialties to assure there is

an adequate number of primary care physicians.

Hospitals receiving IME payments would be required to report annually on how they contributed

to education, improvements in clinical services and

research infrastructure, and the provision of community services.

MEDICAL EDUCATION TRUST FUND ACT

OF 1999

The Medical Education Trust Fund Act of 1999

(S.210, 106th Congress, 1st Session)23 would establish separate Medicare and non-Medicare funds

for direct GME and IME payments to teaching hospitals. There is also a medical school account. Total non-Medicare funding is estimated at $8 billion.24 The funds would be generated through a 1.5

percent tax on health insurance premiums and

health-related administrative services and 5 percent of Federal spending on Medicaid acute care

services.

The payment formulae for the non-Medicare

accounts mirror current Medicare payment methodologies. There are no special provisions for

community-based training. The legislation provides

for an Advisory Commission to study a number of

issues, including policies designed to expand eligibility for GME payments to institutions other than

teaching hospitals. Funding is authorized for demonstration projects.
FIFTEENTH REPORT OF COGME 51

COMMISSION ON THE FUTURE

OF MEDICARE

The Balanced Budget Act of 1997 created the

National Bipartisan Commission on the Future of

Medicare to examine issues related to the future

solvency of the Medicare program. One of its

charges was to explore broad-based GME financing alternatives. A GME Study Group recommended carving direct GME payments out of the

Medicare program (Breaux-Thomas, 1999). Direct

GME funding would continue either through a

mandatory entitlement or multi-year discretionary

appropriation program separate from Medicare. The

proposal also recommended exploring funding IME

and disproportionate share payments outside the

Medicare program. The full commission failed to

reach consensus on this or other recommendations

and did not issue a final report (National Bipartisan Commission, 1999).

MEDPAC PROPOSAL

The Balanced Budget Act of 1997 required the

Medicare Payment Advisory Commission

(MedPAC) to examine Federal policies that affect

GME, Medicare’s payments to teaching hospitals,

and workforce issues. In its August 1999 report,

the Commission concluded that the Medicare distinction between direct and indirect costs is an accounting artifact and that both represent costs of

providing patient care. Instead of making separate

payments for direct GME costs as an educational

cost, the Commission recommended that these costs

be combined with other patient care costs and that

Medicare’s payments be adjusted to reflect the

higher costs of providing enhanced patient care in

teaching hospitals. In addition, the Commission

recommended that a teaching adjustment be developed for other settings where residents or other

health professionals train if the added value of patient care justifies their higher costs. The MedPAC

report concluded that Medicare’s primary purpose

is to provide beneficiaries with access to care and

that specific targeted programs may be more appropriate vehicles for achieving physician

workforce goals.

In its June 2000 report, MedPAC refined the

recommendations in its earlier report (2000b). The

Commission recommends that a revised Medicare

teaching hospital adjustment be set at a level that

would provide an aggregate teaching hospital subsidy comparable to that provided under current law

(about $1.5 billion). The report defines the subsidy

as the difference between payment amounts and

higher costs per case attributable to teaching activities. The Commission is concerned that reducing the subsidy below the levels established by the

BBA could place undue financial strain on teaching hospitals.

The June 2000 report recommends that the

higher costs attributable to teaching activity be determined after folding direct GME costs for inpatient care into the Medicare inpatient cost base. In

measuring teaching intensity, the full resident count

rather than inpatient resident count would be used

in the resident-to-bed ratio. The full resident count

should avoid creating an incentive to shift residents

from outpatient to inpatient settings. Direct GME

costs for outpatient and other settings would continue based on a hospital-specific per resident payment amount determined from outpatient GME

costs. The goal would be to eliminate any financial

incentives hospitals might have to shift residents

among settings.
FIFTEENTH REPORT OF COGME 52
FIFTEENTH REPORT OF COGME 53

This section begins with a summary of

COGME’s overall goals for funding GME.

It is followed by a discussion of specific

policy considerations relevant to residency training in community-based settings. These subsections

provide a policy framework for evaluating alternative models for distributing GME funds. Fundamental issues to consider in evaluating the models are:

• Who should receive payments directly from

the fund;

• How to allocate the funds among the receiving entities; and,

• How to establish accountability for the funds.

The remainder of this section analyzes four

potential models for distributing GME funds. The

differences between three models are based on

which entities would receive payments directly

from the fund: health care providers, educational

institutions, or GME planning bodies. The fourth

model would link payment to specific performance

measures. The models are not mutually exclusive

and a combination is needed to achieve the policy

objectives for the GME fund. Recommendations

for GME funding follow in the next section,

“Recommedations for GME Financing Reform.”

POLICY GOALS FOR GME

FUNDING

GME funding policies should meet the following objectives:

• Provide a stable funding mechanism that is

responsive to the community yet consistent

with national workforce objectives;

• Enable health care institutions to compete on

price and quality by subsidizing higher costs

attributable to educational activities and uncompensated care without supporting inefficiencies;

• Create adequate support and appropriate incentives for developing community-based educational programs;

• Encourage effective and efficient educational

models that promote improved ways to meet

health care needs;

• Foster mechanisms that will stabilize the total

number of physicians while improving the

specialty and geographic distribution of the

future physician workforce; and,

• Hold recipients of Federal and State funds accountable for producing needed public goods.

POLICY CONSIDERATIONS FOR

COMMUNITY-BASED TRAINING

Educating physicians in the environment in

which they will eventually practice requires expansion of residency training in ambulatory settings

for all specialties for most training in communitybased settings. The BBA eliminated some disincentives for a hospital to rotate residents to non-hospital settings by paying IME for the resident’s time

in the non-hospital setting. However, the BBA limits on FTE resident counts operate against those

hospitals that were already training residents in

community-based settings. A modification in the

law to count the residents who were in non-hospital settings in the base year would remedy this problem. The remaining disincentives to rotate residents

to community-based settings are more difficult to

resolve:

• As the recipient of the funds, the hospital is in

the stronger bargaining position regarding who

should bear the direct costs of training in the

ambulatory setting.

• Hospital service demands compete with educational needs to rotate residents to community-based settings.

• The hospital’s patient care needs and financial interests rather than physician workforce

needs may determine the numbers and specialty mix of residents and residency programs.

• Accountability is difficult to establish because

the program sponsor, rather than the hospital,

has the ultimate responsibility for the conduct

of the educational program.

To some extent, fund allocation policies could

reduce these disincentives.

• Clear guidance might be provided regarding

reasonable financial agreements between the

hospital and community-based sites. In addition, public accounting of how the funds were

dispersed could be required.

• Empirical research is needed to determine if

an IME adjustment is also justified for other

Alternative Models for GME Funding
FIFTEENTH REPORT OF COGME 54

settings (e.g. hospital outpatient and community health centers). If the research finds that

teaching increases patient care costs in those

settings, support for indirect teaching costs

could flow directly to the ambulatory sites.

• Elimination of Medicare utilization as a payment factor will result in more comparable

payments across teaching sites.

• The funding formulae could be modified to

reinforce workforce objectives. For example,

relatively higher payments could be made for

residents in primary care programs or for

training in community-based settings. Research is needed if the adjustments are to be

established on an empirical rather than solely

policy basis.

• Payments could be based on a historical resident count rather than current resident count.

This has the advantage of providing neutral

incentives for an individual hospital regarding the number of residents it trains and where

the training takes place. However, it also reduces flexibility to move residents among hospitals and settings consistent with educational

needs.

The remainder of this section discusses potential payment models that could be used to distribute the GME funds. The models focus on the general issues regarding who should receive direct

payments from the GME fund and how to establish

accountability for the payments. Allocation policies designed to expand community-based training opportunities can be built into each of these

models.

HEALTH CARE PROVIDER MODEL

The health care provider model links payments

for clinical training to patient care activities. This

is the approach Medicare uses. It treats clinical

training costs as patient care costs as opposed to

educational costs. It is the most appropriate model

for the indirect costs of clinical training. These costs

reflect the impact of the teaching activity on the

costs of the health care provider where the training

takes place. The health care provider model does

not provide support for training that does not occur

in patient care settings. Residency programs in preventive medicine would typically receive little support under this model.

Under Medicare, the health care provider model

is also used to support direct GME costs. Direct

GME costs for a single residency program are typically incurred by multiple entities: the program

sponsor, the faculty practice plan affiliated with the

sponsoring institution, the hospital that is the primary training site for the residency program, and

the community hospitals and ambulatory providers that serve as additional training sites. Each

provider’s direct costs for GME depend on its negotiations and arrangements with other entities involved in the training program over issues such as

which party will assume the costs of the resident’s

salary or the opportunity costs of teaching. Typically, when training occurs in a non-hospital setting, the non-hospital site incurs some but not all

of the training costs. At many community-based

training sites, the hospital continues to incur the

resident’s salary costs and program administrative

costs. The community-based site incurs site-specific direct costs and may incur indirect costs. The

site’s costs are funded to some extent by patient

care revenues. The community-based site should

be paid directly for indirect teaching costs that are

supported by empirical research. The issue is how

funding might be allocated for direct GME costs

that are not recovered through patient revenues.

PAY PROVIDERS DIRECTLY

Medicare pays a hospital for the time residents

spend in training at that hospital regardless of

whether the hospital or another hospital or educational institution bears the costs of the residency

training program. Different rules apply to non-hospital settings. Direct GME payments for training

in non-hospital settings depends on which entity

bears substantially all the training costs for the

resident’s time at the site, i.e. pays the resident’s

salary and reasonable compensation for teaching.

Only the site or the hospital can receive payment

for the time the resident spends in the non-hospital

setting; there is no provision for splitting the payment based on the proportion of costs incurred by

each entity. If GME fund payments for direct GME

costs were made directly to health care providers,

there are three basic options for distributing the

funds when community-based training is involved:

• One option would be for the funding to follow

the resident. That is, payments for direct GME

costs would flow to the community-based site

regardless of which entity bears the cost. This

would require that virtually all agreements be

renegotiated between hospitals and the community-based sites. The policy has appeal as a

means to encourage non-hospital providers to

become training sites; however, it could be

counter-productive to expanding communitybased training opportunities. Hospital sponsors may prefer to retain control over GME
FIFTEENTH REPORT OF COGME 55

funding and avoid negotiating with community-based sites by rotating residents to their

own ambulatory clinics. It reduces the community site’s accountability to meet the expectations of the program sponsor. It does not provide flexibility to have different remuneration

and reward systems for preceptors based on

extent of teaching involvement. This option

would also require an administratively burdensome mechanism to identify and pay each

community-based clinician involved in residency training programs.

• A second option would be to pay pro-rata

amounts to the hospitals and the communitybased ambulatory sites participating in the residency program based on their relative shares

of direct GME program costs. This option

would not be as disruptive of historical arrangements as the first option; however, it

would require the affiliated hospitals and community-based training sites to agree on their

relative shares of program costs. The administrative burden to track each agreement and determine appropriate payment amounts would

be great. A less burdensome variation would

be to establish a fixed allocation between

hospitals and community sites based on national

data on their relative shares of direct GME costs.

• A third option would be to pay the entity that

bears substantially all the costs for the community-based rotations. As under current

Medicare policy, it would require negotiation

and agreement between the hospital and the

community-based sites regarding which entity

bears substantially all the costs. It would be

less burdensome than the second option because no cost determinations would be required and only one party would be paid for

the resident’s time at the community site. It is

the least disruptive to existing arrangements

between the entities participating in residency

training. For the same reason, it is least likely

to increase community-based training without

supplemental policies.

DESIGNATE FUNDS FOR TRAINING IN

COMMUNITY SETTINGS

A payment or voucher earmarked for training

in community settings could reduce the administrative burden of tracking resident time spent in

community-based sites. This could be accomplished

by requiring the hospital that assumes substantially

all of the training costs to provide a minimum

amount, e.g. 20 percent of the direct GME fund

payment to community training sites. Alternatively,

a voucher could be used to pay for resident time

spent in community-based settings.25 The voucher

could be given to the hospital that bears substantially all of the training costs. Only a communitybased site could redeem the voucher. This portion

of the GME fund payment would be forfeited if it

were not used for community-based training. Either approach would assure funding reaches community-based sites with less administrative burden

than alternatives to pay the sites directly. There

would be less local flexibility to determine the extent of training in community settings and an appropriate financial arrangement to support the direct GME costs of the training sites. However,

hospitals would have the flexibility to pay varying

amounts to different community sites within the

overall requirement.

EDUCATION MODEL

The education model treats GME costs as an

educational cost as opposed to a patient care cost.

It should give educational needs more weight in

deciding what and where residency training occurs

and affords more opportunity to link payment with

workforce objectives. The model is appropriate for

direct GME costs only. Payment would flow to a

single entity that would be accountable for how the

funds were expended. This could be to a medical

school or the program sponsor. Some have suggested the residency program director as the potential recipient of the GME funds. However, paying the program director could reduce the

opportunities within the sponsoring institution for

cross-subsidization of GME programs and for collective decision making on workforces issues. In

addition, the program director does not have the

ultimate responsibility for the residency program.

INSTITUTIONAL SPONSOR

This alternative pays the GME funds to the institutional sponsor that has ultimate responsibility

for the GME program. Using the ACGME definition, the sponsor could be a university or medical

school, hospital, health department or public health

agency, an organized health care delivery system,

a consortium or other organization whose primary

purpose is to provide education and/or health care

services (AMA, 1999). If sponsors of the program

were paid, funding could be contingent on meeting

specific educational or workforce objectives. There

is potential to introduce other elements into the allocation formula, such as program quality. This is

more difficult to do when funds flow directly to

providers.
FIFTEENTH REPORT OF COGME 56

For hospital-sponsored programs, this option

represents the status quo. For programs that are

sponsored by educational institutions, the relationship between the hospital and the educational institution will determine if paying the program sponsor would represent a significant change in flow of

direct GME funds. It would be unnecessarily burdensome to interrupt existing arrangements when

the sponsoring institution is satisfied with those

arrangements. These situations could be addressed

by allowing the sponsor to designate another entity to receive the payments. Payment would be

made only to the sponsoring institution or its designated entity. The program sponsor would be accountable for allocating the funds to clinical training sites and for holding the sites accountable for

high quality training experiences.

MEDICAL SCHOOLS

Paying medical schools would emphasize most

strongly that the GME funds are to support education rather than patient care. Currently, the university or the medical center/affiliated hospital sponsors most residency programs at academic health

centers. Medical schools sponsor relatively few

programs. As a result, this option would create a

mismatch between responsibility for the program

and fund accountability at many academic health

centers. Alignment could require disruptive changes

in program sponsorship.

Some residency programs are sponsored by

community-based hospitals. Many of these are family medicine residency programs. Funding through

the medical schools for these programs would require a major shift in program accountability and

funding.

RESIDENT VOUCHER SYSTEM

The resident voucher system under the education model differs from the designated funds or

voucher discussed above under the health care provider payment model.

• The resident controls the funds rather than the

program or hospital that incurs the costs for

the residency program.

• The voucher is not limited to funding for community-based training experiences. Rather, it

is for all training experiences.

Resident vouchers are intended to create competition among residency programs. However, it is

not clear that the voucher system is significantly

different from other payment models. Programs

already compete for residents and GME payments

are based on where the resident trains. The resident’s

ability to hold the program accountable is limited

once the resident has selected a program. The

voucher adds value only if there is a regulatory apparatus to determine the number of positions to be

funded and which residents should receive funding.

PLANNING MODEL

Under the planning model, the GME funds

would flow through a GME planning and coordinating body. This is an entity whose primary functions would be to assess the health care needs of

the community and allocate funds based on local

workforce considerations. In contrast to the education model, the planning model could afford States,

payers and consumers a stronger role in how the

funds are allocated to support workforce objectives.

The GME funds could be distributed to a broadbased GME consortium or to the States. Under either option, funding allocation decisions could support local health care needs more readily than

distributions directly to health care providers or

program sponsors based on national allocation formulae.

CONSORTIA

Payment to consortia under the GME fund

could be either a natural outgrowth of paying the

program sponsor or could result from deliberate

policies to encourage consortia. Several definitions

of consortium are in use.

• The ACGME defines a consortium as “two or

more organizations or institutions that have

come have come together to pursue common

objectives.” A consortium may be a sponsoring institution if “it is formally established as

an on-going entity with a documented commitment to GME” (AMA, 1999).

• The Association of American Medical Colleges and the Center for the Health Professions

at University of California at San Francisco

built on the ACGME definition in their 1996

survey of 30 consortia. They defined GME

consortia as “formal partnerships involving

two or more separate organizations involved

in graduate medical education, formed to reorganize or strengthen medical education and

characterized by shared or joint decision making” (Cox, 1996).

• The BBA defined a consortium as a teaching

hospital and one or more of the following: a

medical school, another teaching hospital, a
FIFTEENTH REPORT OF COGME 57

Federally qualified health center, a medical

group practice, a managed care entity, or an

entity furnishing outpatient services.

The AAMC/UCSF study surveyed 30 multidisciplinary consortia meeting its definition (an

estimated 80 percent of all such consortia) (Cox and

Dower, 1996). Key findings from the survey included:

• Most consortia included a medical school and

teaching hospitals; other health professions

schools, health care providers, or public agencies were rarely involved.

• Fifty percent controlled GME expenditures,

while 10 percent controlled expenditures for

some members. GME expenditures remained

under the exclusive control of the individual

members in 40 percent of the consortia.

• Few had dealt with medical education in a

comprehensive way. Sixty percent had considered clinical resources for community-based

training sites. However, only 43 percent had

addressed issues related to developing clinician-educators in the community.

• Physician workforce achievements were mixed

and largely mirrored the remainder of the academic community.

COGME’s 9th Report, Graduate Medical Education Consortia: Changing the Governance of

Graduate Medical Education to Achieve Workforce

Objectives (1997) suggested that the consortium

concept provides the organizational flexibility to

draw upon the expertise of the broad group of stakeholders needed to restructure medical education and

achieve substantive physician workforce reform.

The Council envisioned consortia that would include medical schools, teaching hospitals and community training sites and would promote an interdisciplinary approach to health care delivery.

COGME found that consortia as a group have not

instituted changes that would influence physician

supply and distribution. COGME concluded that

current consortia do not have the authority and resources to achieve workforce objectives. To be effective, consortia need local sponsorship authority

and access to financial resources. Performance to

date for consortia suggests that providing payment

only to consortia would be premature.

The Medicare consortia demonstration projects

authorized by the BBA are intended to foster

workforce objectives. Payments would flow to the

consortia. However, the financial rewards are minimal. Under the statute’s budget neutrality provisions, HCFA cannot pay more to the consortia that

it would otherwise pay to the participating entities

for direct GME costs. The demonstration does not

involve IME payments. Additional incentives are

needed to encourage effective models that are responsive to the health care needs of the community. Consortia of medical schools and teaching

hospitals may not be sufficiently broad-based to be

responsive to the health care needs of the community. Many are limited to a few specialty programs,

and do not involve all resident programs in an area.

Broad-based consortia of hospitals, communitybased providers, educational institutions, purchasers and community representatives, such as the Utah

consortium, should be encouraged through development funds. Beyond developmental support, any

preferential funding for consortia should be tied to

achieving specific workforce objectives rather than

to meeting the formal definition of a consortium.

STATES

Many States have established commissions or

task forces related to GME and physician

workforce. Some are permanent groups with the

structure and expertise that could become physician workforce planning bodies in their State. A

1998 assessment by the Center for Health Workforce Studies concluded at least seven States had

permanent organizations with some authority for

advising on GME policies that could become physician workforce planning groups: New York, Illinois, North Carolina, Minnesota, Louisiana, Arizona, and Utah (COGME, 1999b).

PERFORMANCE MODEL

The performance model would link payment to

achieving specific performance measures or objectives. Payment could be formula-driven based on

meeting specific educational or workforce objectives. Alternatively, there could be support for specific projects or demonstrations needed to support

infrastructure development or workforce goals. The

performance model is more suitable as a mechanism for making supplemental payments than as a

primary payment mechanism. Educational quality

measures and workforce priorities are not sufficiently defined to be used to determine all fund allocations. Also, if all funding were predicated on

meeting specific performance measures, significant

year-to-year fluctuations in funding could occur that

would be inconsistent with the need for stable GME

funding.

INCENTIVE PAYMENTS

The GME funding formulae could provide incentive payments for meeting specific objectives.

These objectives could be in the area of curriculum
FIFTEENTH REPORT OF COGME 58

content and quality, training opportunities, or

workforce objectives. One approach would be to

use an incentive pool along the lines of those employed by New York or Michigan (described in the

section “Current Financing of Graduate Medical

Education,” in the subsection “Medicaid Support

for GME”). Limiting the size of the pool, however,

provides less stable funding since the amount of

funding for individual participants declines as the

percentage of participants meeting the objectives

increases. The alternative would be fixed incentive

payments that any participant would receive if it

met specific performance criteria. Incentive payments could also be used to reward residents for

career decisions that advance workforce objectives

to improve the specialty and geographic distribution of the physician workforce.

INFRASTRUCTURE SUPPORT

Some funding could be set aside for infrastructure development. Examples of the types of programs that could be funded include the targeted

Public Health Service primary care training grants,

support for developing academic-community

partnerships to serve medically underserved populations, consortia development, and faculty development

programs for clinician-educators in the community.
FIFTEENTH REPORT OF COGME 59

Graduate medical education (GME) should

meet community needs and remain current

as new technology and evolving health systems affect the way care is delivered. The funding

policies should provide incentives to support high

quality training in both traditional and community

settings. It should encourage training innovation

and improved ways to meet patient needs. Funds

should be allocated to regional or local levels consistent with national workforce priorities. However,

Federal support must be sufficiently flexible to allow some funding allocation decisions to be made

at the local level. At the same time, recipients of

those funds must be accountable for producing:

• an appropriate number and specialty mix of

physicians distributed across geographic areas

consistent with current and future national

health care needs; and,

• educating physicians who are well-equipped to

provide high quality, effective and efficient care.

The recommendations outlined below are based

on these principles. The recommendations are made

within the context of an all-payer GME fund. However, some recommendations could also have applicability to current GME funding policies under

the Medicare program.

RECOMMENDATION 1

CREATE A GME FUND THAT COMBINES

FEDERAL FUNDING TO SUPPORT GRADUATE

MEDICAL EDUCATION WITH ALL-PAYER FUNDS.

To assure financing policies are consistent

across Federal programs and reflect national

workforce priorities, the various Federal funding

streams for GME that is provided by non-Federal

institutions (i.e., excluding DoD and DVA) should

be combined into a single fund and supplemented

with all-payer funds obtained through a modest surcharge of private insurance premiums. The GME

fund would include amounts that would otherwise

be paid under current formulae for Medicare for

direct GME and indirect payments to teaching hospitals, the Federal portion of Medicaid payments

that are implicitly GME payments, and the

Children’s Hospital GME fund. In addition, the

HRSA Title VII grants for GME, e.g., primary care

residency training grants, would be included in a setaside fund for specific workforce goals.

Within the general GME fund, five separate

accounts should be established for:

• Medicare direct GME payments;

• non-Medicare direct GME payments;

• Medicare IME payments;

• non-Medicare IME payments; and,

• targeted payments to support specific

workforce and educational objectives.

The separate Medicare and non-Medicare accounts are needed as a transitional measure. They

would assure full funding on behalf of Medicare

patients if contributions from other payers are not

sufficient. Also, since the Medicare funds are currently being paid, changes in the allocation of the

Medicare funds should be phased-in or offset by

additional funding from the non-Medicare accounts. A transition may not be needed for the nonMedicare funds. To the extent they represent new

funding streams, funds in the non-Medicare accounts should be allocated consistent with preferred

policies from the outset.

While the GME fund would not include funding for residency training in DoD and DVA-sponsored programs, the Federal budget for those programs should be consistent with the policy

objectives for the GME fund. Residency training

in these programs has significant impact on the size

and specialty composition of the physician

workforce.

a. GME should be broadly supported by allpayers.

Explicit funding for GME should be spread

more broadly across all sectors of society. A

permanent and stable funding source, such as

premium contributions from all health insurance plans, should supplement current Federal funding for GME. In the long run, Medicare and Medicaid’s contribution to the GME

fund should be proportionate to the percentage of insured population represented by their

enrollees.

b. Funding from all sources should be sufficient

to support high-quality, efficient training of

an appropriately sized physician workforce.

Total aggregate funding should be sufficient

to support the efficient training of an appropriately sized physician workforce. Together

with payments from other sources (primarily

patient care revenues and State funds), GME

funding should be adequate to train the number

Recommendations for GME Financing Reform
FIFTEENTH REPORT OF COGME 60

of physicians required to meet current and

future national health care needs. Additional

funding would not be in the public interest

since it could contribute to a continuing surplus of physicians.

In the past, COGME has recommended that

the total number of physicians entering first

year residency should not exceed the number

of U.S. medical school graduates in 1993 plus

10 percent (COGME, 1994). The Council’s

14th Report found that a reduction of 3,386

first year positions in 1997-1998 was needed

to meet the 110 goal. In view of recent changes

in the health care delivery system since its initial recommendations were issued, COGME

plans to review the 110 goal and its target of a

50/50 mix of primary care and other specialists.

Most of the increase in the total number of

residents in recent years is attributable to an

increase in the number of graduates from

medical schools outside the United States.

Support should be discontinued for new exchange visitors (J-1 visa) residents. As

COGME has previously recommended (1997),

exchange visitor residents should be funded

by alternative sources, such as home country

financing or foreign aid.

A conceptual framework should be used to establish an appropriate level of Federal support

for funded residency positions. Because GME

is a joint product with patient care services,

patient care revenues cover some direct GME

costs. Consideration also needs to be given to

issues such as maintenance of effort for current State funding through the Medicaid program and grant programs and whether all resident activities required for accreditation in an

approved program should be funded. Under

Medicare, only resident time spent in patient

care activities is supported.

RECOMMENDATION 2

IME ACCOUNTS SHOULD PAY HOSPITALS

AND OTHER CLINICAL TRAINING SITES AS

APPROPRIATE FOR THE INDIRECT COSTS OF

EDUCATIONAL ACTIVITIES.

IME accounts should be created to subsidize

higher patient care costs associated with residency

training. The funds should be allocated to hospitals and, to the extent it is empirically supported,

to other clinical training sites that incur indirect

teaching costs, including hospital outpatient clinics and community-based settings. Initially there

should be separate accounts for Medicare and nonMedicare patients in order to assure the indirect

costs for Medicare patients are fully funded. In the

long run, a single account would be appropriate.

a. IME payments should be set at no more than

the analytically justified level for teaching

activities

Paying more than the analytically justified

amount would subsidize inefficient providers

and give teaching institutions a competitive

edge over non-teaching institutions. For Medicare inpatient services, MedPAC’s (2000b)

current estimate is a 3.1 percent adjustment

for each 0.1 increment in the resident-to-bed

ratio after other refinements are made to the

Medicare prospective payment system. Based

on this estimate, Medicare IME payments

would be $1.5 billion lower than the 5.5 percent adjustment provided by the BBA. The

difference could be targeted toward achieving

specific workforce and educational goals (see

Recommendations 4 and 6) or toward supporting uncompensated care (see Recommendation 8). A transition would be needed to the

extent reductions in Medicare IME payments

are not offset by increases in non-Medicare

IME funding.

b. Research is needed to determine the appropriate IME payment formulae.

Research is needed to refine the Medicare IME

adjustment and to determine the appropriate

IME teaching adjustment for non-Medicare

hospital inpatients. Medicare’s adjustment

should be based on the higher costs attributable to teaching activities. For non- Medicare

patients, the adjustment should be directed at

“leveling the playing field” between teaching

and non-teaching hospitals. It does not need

to cover the full indirect teaching costs if

teaching hospitals are able to command a premium for quality or specialized services.

Ideally, the IME payment formula should not

reflect higher costs indirectly attributable to

other teaching hospital missions, e.g. specialized services, uncompensated care, and research. Subsidies for those public goods

should be directed toward the hospitals producing them through separate funding streams.

Reducing the adjustment to an analytically

justified level for teaching would reduce incentives to train more physicians than necessary.

It would also eliminate confusion between

funding for the teaching mission and funding

to support charity care. Higher costs attributable to serving low-income patients and

uncompensated care costs should be recognized
FIFTEENTH REPORT OF COGME 61

through a separate funding mechanism (which

would also distribute payments to non-teaching institutions serving low-income patients.

See Recommendation 8). Refinements in the

IME payment methodology should not reduce

the total level of support for hospitals with significant uncompensated care until specific

funding for such services is provided. Reductions in the IME payment formula should be

accompanied by refinements in the prospective payment system to incorporate better casemix and severity measurements. An additional

adjustment for research-intensive hospitals

may also be appropriate.

Additional research is also needed to determine the extent to which there is an indirect

teaching effect on costs when resident training takes place in hospital outpatient and nonhospital settings. If empirical research finds

there is an indirect teaching effect on the costs

of services provided in ambulatory/community

settings, the IME account should pay for these

services as well as inpatient hospital services.

RECOMMENDATION 3

DIRECT GME ACCOUNTS SHOULD PAY

PROGRAM SPONSORS OR THEIR DESIGNEES

FOR THE DIRECT COSTS OF GRADUATE

MEDICAL EDUCATION.

Direct GME costs are educational costs that

should be supported through payments to the sponsoring institution ultimately responsible for the

graduate medical education program. Payment allocation decisions should be made at the local level

because the tremendous variety of existing arrangements cannot be accommodated at the national

level. By making payments to either the sponsoring institution or its designees, the sponsor can determine the most appropriate recipient of the funds

based on local circumstances for a particular program. For example, a sponsoring institution may

decide to retain maximum control over the funds

and receive them directly, elect to continue historical arrangements having the funds flow through the

teaching hospital, or may choose to have a consortium distribute the funds. The same election would

not need to apply to each program sponsored by

the institution. Regardless of which entity received

the funding, the sponsoring institution would be accountable for the funds being expended to support

a high quality training program with the appropriate balance of hospital and community-based training experiences.

a. There should be written agreements between

the program sponsor and training sites indicating the sponsor is assuming substantially all of the training costs and describing

how GME payments will be allocated

The program sponsor or its designee must assume all or substantially all of the direct costs

of operating the residency program as a condition of receiving direct GME payments.

Written agreements should be required between the sponsoring institution and clinical

training sites to formalize the negotiation process and to increase accountability for the

funds. The agreements should detail how the

direct GME funds will be allocated between

the sponsor and the training site, identify

which entity will pay resident salaries and

fringe benefits, and specify teaching physician

compensation arrangements for supervising

residents. The goal is to strengthen the negotiating position of community–based sites

without jeopardizing long-standing relationships between academic institutions and community training sites. A sponsoring hospital

may have a disincentive to rotate residents to

community-based training sites if all direct

GME funds automatically follow the resident

to a community-based training site through

direct payments from the GME fund or a

voucher system.

b. Model agreements and information on direct

GME costs should be made available to facilitate equitable agreements between the

sponsor and the sites

Local circumstances should determine how direct GME payments are allocated to teaching

sites. However, benchmarking information

should be provided to facilitate the negotiation process, including:

• breakdown of GME payments into three

components based on average direct GME

costs: resident salaries and related costs,

teaching physician compensation, and an

administrative and overhead cost component.

• benchmarks for teaching physician compensation and the added time per teaching session when residents are present in community-based practices on short-term rotations

and on an on-going basis; and,

• model agreements between institutional

sponsors and community-based sites.

c. Require separate reporting of resident time

spent in inpatient hospital, hospital outpatient and community settings

At present, there is no formal accounting for

the time residents spend in each type of training site. Standard definitions should be
FIFTEENTH REPORT OF COGME 62

developed to distinguish hospital outpatient

settings from community settings. Community

settings should be broadly defined to include

both hospital-operated and community-based

sites that are representative of the environment

in which residents will eventually practice.

The determining characteristics are the processes of care rather than proximity to the

hospital or provider ownership. Community

settings address the care of the individual patient in the context of the population of which

the patient is a member. They teach residents

to deliver culturally effective care to an ethnically and racially diverse population.

RECOMMENDATION 4

ESTABLISH A NATIONAL AVERAGE PER

RESIDENT PAYMENT FOR DIRECT GME

COSTS.

The base payment for direct GME costs should

vary only for differences in the cost of living across

geographic areas. For Medicare payments, there

should be a transition from the hospital-specific per

resident amounts to the national per resident payment. The length of the transition will depend on

additional payments for non-Medicare patients.

These can help compensate for any reductions in

Medicare payments. At the end of the transition,

separate Medicare and non-Medicare accounts

would no longer be necessary. Higher payments

may be appropriate for training in community-based

settings. In addition, there should be an incentive

payment for programs that meet specific workforce

or educational objectives.

a. Base total direct GME payments on the net costs

of supporting an appropriately sized workforce.

Ultimately, total direct GME funding should

be based on the net costs of educating an appropriately sized physician workforce. Establishing a fixed payment per resident should

provide incentives for efficiency in the educational process. However, the costs of efficiently delivering high quality GME and the

extent to which these costs are offset by patient care revenues has not been determined.

As an interim policy, either the average per

resident amounts or average GME costs per

resident could be assumed to represent the

total costs of an efficient program. Total costs

based on the FY1997 average per resident

amount updated for inflation and the 110 percent target are estimated at $6 billion for

FY2000.26 A lower funding amount would be

appropriate since the per resident amounts do

not take into account patient care revenues attributable to GME.

b. Provide higher payments for training in community settings

When training occurs in a community setting,

the sponsoring institution continues to incur

some supervisory physician and overhead

costs. The community setting incurs some direct GME costs as well (for example, to compensate the community physician for teaching) even if the sponsoring institution

continues to pay resident salaries and fringe

benefits. As a result, total GME costs may be

higher when residents rotate to communitybased settings than when they remain in hospital-based settings. A higher payment for

training in community-based settings would

be appropriate if the net total costs (after taking any additional patient care revenue into

account) are higher in the community-based

settings. Research is needed to determine

whether this is the case. To counter any disincentive that might currently exist for community-based rotations, a temporary policy might

be to increase the component of the per resident

amount attributable to teaching physician compensation by a fixed percentage, e.g. 25 percent.

The higher payment could apply in all community settings even though the rationale for the

payment is primarily applicable to settings off

the hospital premises. This would provide an

incentive for hospitals to turn training in ambulatory clinics into experiences that are more representative of community physician practices.

c. Provide incentive payment for meeting specific workforce and educational objectives.

In addition to the base per resident payment,

there should be an incentive payment for meeting specific workforce and educational objectives. Programs that meet one or more of the

objectives would be eligible for a bonus on

the national average base payment. The incentive payment should be established as a fixed

payment rather than a pool so that the benefits do not erode as additional programs meet

the objectives and qualify for payment. The

bonus payment could be awarded based on:

• Participation in a broad-based consortia of

the sponsoring institution(s) for residency

programs in an area, hospitals and community providers participating in GME activities, and community representatives. The consortia would have to be designated by the

sponsoring institutions to receive all direct

GME funds. Bonus payments would be made

if the consortia has a formal process to identify the health care needs of the community,

engage in workforce planning, and promote

community-based training opportunities;
FIFTEENTH REPORT OF COGME 63

• Number of graduates that provide significant amounts of care to medically underserved populations;

• Percentage of time residents spend providing care to medically underserved populations; and,

• Quality of the residency program.

d. Research is needed to understand variation

in direct GME costs by specialty and setting.

Most research regarding residency training

costs was conducted at a limited number of

sites and before the growth of managed systems of care. A better understanding of differences in the net costs of training across residency programs and training sites is needed

to refine the payment allocation methodology.

A generic financial model should be used to

examine systematically issues such as:

• Whether there are significant differences in

the amount of teaching physician involvement between primary care and non-primary care residency programs and between

initial residencies and fellowships;

• Whether there are significant differences in

impact on clinical productivity and net physician practice revenue when teaching occurs in ambulatory settings relative to inpatient settings and between initial residencies

and fellowships;

• How direct GME costs are affected by the

presence of students in other health professions at the training site and by residents

teaching medical students; and,

• Factors that affect the efficiency and quality of the educational process.

RECOMMENDATION 5

CONTINUE THE BALANCED BUDGET ACT

OF 1997 LIMITS ON THE NUMBER OF RESIDENTS WITH MODIFICATIONS.

In concept, the Balanced Budget Act of 1997

limits on the residents that will be recognized by

Medicare are consistent with the goal of reducing

the future physician workforce and should be carried over to eligibility for payments under the GME

fund. However, hospital-specific limits are not an

appropriate long-term way to deal with physician

supply issues. The limits hamper a program

director’s ability to move residents among hospital

programs for educational reasons. In geographic

areas with physician shortages, the limits preclude

expansions in needed residency programs.

a. Modify the caps to apply to sponsoring institutions rather than hospitals.

The sponsoring institution is to be held accountable for educational outcomes and

workforce objectives. Therefore, the limits

should apply to the number of residents in the

programs sponsored by the institution rather than

the hospitals serving as training sites for the program. This will provide the flexibility to move

residents between hospitals and other settings.

Consortia that meet certain workforce planning

objectives should be able to work under an aggregate limit for multiple sponsoring institutions.

Applying the limit to sponsoring institutions

is consistent with making direct GME payments to sponsoring institutions. However, it

complicates IME payments to individual hospitals. One option would be to apply no limit

for IME as long as the sponsoring institutions

whose residents are training at the hospital are

under their caps. An adjustment would be

needed only if the total number of residents

in programs at the sponsoring institution(s) exceeded an aggregate cap. The three-year rolling average and the one-year cap on the resident-to-bed ratio should continue to apply. The

rolling average provides a form of transition

payments to hospitals that reduce the number

of residents and slows the recognition of new

residents in the IME count.

b. Include residents in non-hospital settings

regardless of who paid the resident’s salary

in the 1996 base year count.

Residents who were working in non-hospital

settings were not included in a hospital’s 1996

base year count for Medicare IME payments.

They were included in the direct GME count

only if the hospital incurred substantially all

of the training costs. The limit applicable to a

sponsoring institution should be adjusted to

include all resident time in non-hospital settings

regardless of who paid the resident’s salary.

e. Allow adjustments in the Balanced Budget

Act of 1997 limits to improve the distribution

of physician workforce.

Further research is needed to understand the

impact of the Balanced Budget Act of 1997

limits and to develop policies that will result

in a better geographic balance in the physician workforce while encouraging an overall

reduction in the number of physicians. Appropriate indicators of adequate distribution by

specialty are needed. As an interim measure,

the limits should not apply to rural residency

training tracks if their graduates practice
FIFTEENTH REPORT OF COGME 64

predominately in rural areas. In addition, the

limits should not apply to primary care residency programs whose graduates practice predominately in those States with low physicianto-population ratios.

RECOMMENDATION 6

ESTABLISH AN ACCOUNT FOR FUNDING

SPECIAL PROJECTS AND PROGRAMS DIRECTED AT BUILDING HIGH-QUALITY COMMUNITY-BASED TRAINING CAPACITY OR

ACHIEVING SPECIFIC WORKFORCE GOALS.

At least 10 percent of the GME fund should be

set aside to support specific projects and programs

directed at building high-quality community-based

training or achieving specific workforce priorities.

The types of projects and programs that should be

funded include:

• Primary care residency program grants;

• Faculty development grants to support training of community clinician teachers;

• Information technology infrastructure development to link patient care records at teaching hospitals and community sites within organized systems of care;

• Incentive programs to reward residents that focus their practice on medically underserved

populations;

• Transition funds to cover residency replacement costs in hospitals with high uncompensated care patient loads; and,

• Demonstration projects involving development of broad-based consortia.

RECOMMENDATION 7

MODIFY THE MEDICARE RULES RELATED

TO TEACHING PHYSICIANS TO EMPHASIZE

THE TEACHING PHYSICIAN’S OVERALL RESPONSIBILITY FOR THE MANAGEMENT OF

THE PATIENT’S CARE AND TO REDUCE THE

IMPORTANCE OF DOCUMENTATION.

The Medicare rules pose two challenges to

graduate medical education: 1) the supervision rules

make it more difficult for residents to become progressively independent, and 2) the documentation

requirements detract from the amount of time available for teaching and resident supervision. There is

some evidence that the rules may adversely affect the

willingness of community physicians to participate

in teaching programs. The rules should be revised to

address these concerns.

a. Establish different rules for residents in fellowship programs

HCFA’s rationale for its teaching physician

rules rests on: 1) making payment only when

there is an identifiable physician service to an

individual patient and 2) avoiding duplicate

payment for the physician’s supervisory time.

Duplicate payment should not be an issue with

residents who are beyond their initial residency

period. These residents count as only .5 FTE and

resident salaries and fringe benefits comprise

only 43 percent of the per resident amount.

The rules on teaching physician supervision

should be revised for residents who are beyond their initial residency program to permit

Medicare billing if:

• the teaching physician is immediately available;

• reviews with each resident during or immediately after the visit the patient’s medical

history and care; and,

• documents his or her participation in the

review and direction of services.

Accreditation standards for the residency program should be relied upon to determine issues regarding supervision requirements for

specific services and resident-to-preceptor ratios.

An alternative would be to allow residents beyond their initial residency period to bill for

services furnished in the hospital if an election is made to forego a direct GME payment

for the resident’s time.

b. Evaluate the impact of the teaching physician rules

The issue of when physician billing is appropriate for care provided by residents is not limited to the Medicare program. It will remain

relevant under an all-payer fund. There is a

need to evaluate formally the administrative

and teaching burden associated with the current Medicare rules and their impact on the

quality of clinical training and patient care.

Particular attention should be paid to the effect in hospital ambulatory clinics and community-based settings where there is a low

resident-to-preceptor ratio.

c. Develop clear and reasonable documentation

requirements

There is need for additional guidance and common understanding of what constitutes adequate documentation of a teaching physician’s participation in the care of patients

involving residents. HCFA should work with
FIFTEENTH REPORT OF COGME 65

the academic physician community and the Office of Inspector General to develop reasonable

standards that do not compromise high quality clinical education. The standards should

provide a reasonable means for documenting

the teaching physician’s involvement in the

care of the patient and assuring appropriate

payments without imposing undue administrative burden. They should be tested in a variety of teaching settings and specialty programs before implementation.

RECOMMENDATION 8

PROVIDE ADDITIONAL SUPPORT FOR

HOSPITALS AND COMMUNITY-BASED TRAINING SITES THAT SERVE A DISPROPORTIONATE SHARE OF LOW INCOME PATIENTS.

In the absence of national health insurance,

“safety net” providers should be provided with additional funding to cover uncompensated care costs.

Major teaching hospitals provide substantial uncompensated care. Faculty practice plans also furnish charity care. Uncompensated care is not an

educational cost. However, it affects the training

site’s ability to provide high quality educational

experiences. More importantly, teaching institutions

that furnish high amounts of uncompensated care

rely on current GME funding to support their charity care. As changes are made in the IME payment

methodology, the current level and distribution of

DSH payments should be examined to assure the

funds are well targeted to subsidize uncompensated

care. The subsidies should apply to hospitals for

both inpatient and outpatient services and to

community-based providers. Without additional

support, GME is not sustainable in communitybased training sites with a high volume of uncompensated care. These sites cannot generate the patient care revenues needed to support their

educational activities.
FIFTEENTH REPORT OF COGME 66
FIFTEENTH REPORT OF COGME 67

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FOOTNOTES

1 Based on 83,422 residents and $71,468 average

per resident cost incurred by hospitals in FY1997,

full funding would require $6 billion.

2 In 1994, academic health center’s market share

of HMO patients was 80 percent of their market

share of other privately insured patients. (Commonwealth, 1997). A study of 1994 private sector health data found that severity and geographic

adjusted hospital payments per admission in high

managed care penetration areas were significantly lower for managed care plans than feefor-service plans. For teaching hospitals, managed

care payments were about 30 percent lower than

the fee-for-service payments (MEDSTAT, 1997).

3 Margins are defined as revenues minus expenses

divided by revenues.

4 The $33.6 billion includes provisions affecting

PPS updates, outlier policy, transfer policy, bad

debt and outpatient services. The extent to which

the Medicare cuts are offset by the carve-out

amounts will depend on whether managed care

plans take account of the carve-out amounts in

negotiating payments with teaching hospitals.

5 For example, if a hospital’s per resident amount

was $100,000 and the hospital had 10 residents

and 35 percent Medicare utilization, the

hospital’s Medicare GME payment would be

$350,000 ($100,000 x 10 residents x .35).

6 The Omnibus Reconciliation Act of 1993 provided for a two-year freeze on per resident

amounts for programs other than those in primary care and OB-GYN. In addition, the Balanced Budget Refinement Act of 1999 affected

the updates for per resident amounts that exceed

140 percent of the national average.

7 The analysis excludes 428 hospitals that reported

fewer than 10 residents. These residency programs are more likely not to incur certain costs

(e.g. teaching physician compensation for rotating residents) and could distort a comparison of

the components of GME costs.

8 Pearson’s correlation coefficient was .51; prob >

lRl .0021.

9 HCFA calculated the FY1997 average per resident amount (standardized for wage differentials)

to be $68,684. The FY 1997 70 percent floor is

$47,925 and the 140 percent ceiling is $95,850.

10 Information on direct GME costs by specialty

programs is not readily available. For example,

only aggregate direct GME costs are reported on

the Medicare cost report. However, the resident

count is separately provided for residents in primary care and OB-GYN programs and in other

programs.

11 Pearson’s correlation coefficient for the per resident amount =.17; prob > lRl = .00004. The coefficient for GME costs = .14; prob > lRl =.0037.

12 The low-income patient percentage defined is

consistent with the formula used to distribute

Medicare DSH payments. It is the sum of the

hospital’s percentage of inpatients who are Medicare patients who are entitled to SSI plus the percentage of inpatients who are non-Medicare patients who are entitled to Medicaid.

13 The Balanced Budget Act of 1997 reduced the

payment from 7.7 percent in FY1998 to 6.0 percent in FY2000, and 5.5 percent in FY2001 and

subsequent years. The Balanced Budget Refinement Act of 1999’s modification in the phased

reduction increases payments to teaching hospitals by $600 million during FY2000-FY2004

relative to the Balanced Budget Act of 1997.

14 Medicare’s indirect teaching adjustment for capital costs was established empirically, based on

the effect of teaching on total Medicare inpatient

operating costs per discharge. The formula is

based on the ratio of residents to average daily

census and is therefore not directly comparable

to the adjustment for operating costs. The adjustment increases payment by [e raised to the power

of (.2822 times the ratio of residents to average

daily census)] minus 1.
FIFTEENTH REPORT OF COGME 72

15 MedPAC’s June 2000 report recommends that

time spent in both inpatient and outpatient settings be counted in determining the refined Medicare teaching hospital adjustment.

16 Medicare managed care enrollment varies significantly across geographic areas. For example,

24 percent of beneficiaries were enrolled in managed care plans in California in 1998 compared

to fewer than 7 percent in New York. Managed

care penetration tends to be concentrated in urban centers where teaching hospitals are also concentrated. In 1998, 22.5 percent of Medicare beneficiaries residing in urban centers (generally the

core cities of metropolitan areas) were enrolled

in risk-based managed care plans compared to

11.7 percent in outlying urban areas (U.S. Congress, 1999).

17 The $4 billion in additional payments assumes

managed care plans do not adjust for the carveout by reducing their payments.

18 Section 541 of the Balanced Budget Refinement

Act of 1999 provides for up to $60 million in

nursing and allied health education direct payments for Medicare managed care enrollees and

a proportionate reduction in direct GME payments under the GME carve out. The provision

is effective January 1, 2000.

19 The NYS formula for distributing IME payments

provides a higher payment to primary care, preventive medicine and emergency medicine programs meeting State criteria than programs in

other specialties.

20 The estimated Medicare per resident direct GME

payment in FY 2000 is $24,900. The estimated

per resident IME payment in FY 2000 is $48,300.

21 To qualify for GME payments for residents in a

non-hospital setting, the hospital must assume

substantially all of the training costs in the setting. As discussed more fully in the section entitled “Current Financing of Graduate Medical

Education” (beginning on page 23), there must

be a written agreement between the hospital and

the community site that indicates that the hospital is paying the resident’s salary and fringe benefits and reasonable compensation for teaching

physicians.

22 Introduced by Rep. Cardin on March 23, 1999.

23 Introduced by Senator Moynihan on January 19,

1999. The same legislation was also introduced

as H.R. 2771 by Rep. Lowey on August 5, 1999.

24 Estimate assumes $5 billion in tax on private

health insurance and $3 billion from Federal payments for Medicaid acute care services.

25 In this report, hospital-based sites that provide

training that is representative of the environment

in which the residents will ultimately practice

are considered community settings.

26 Based on 83,422 residents and $71,468 average

per resident cost incurred by hospitals in FY1997,

full funding would require $6 billion.
FIFTEENTH REPORT OF COGME 73

APPENDIX A: Explicit Medicaid GME Payments, FY1998

Alabama .................................. $0 $10 Montana .................................. * *

Alaska ...................................... * * Nebraska .............................. $5.0 $0

Arizona ...............................$17.8 N/R Nevada ................................. $8.4 $0

Arkansas ..............................$5.7 $0.00 New Hampshire ................... $2.1 $0

California ..........................$129.1 $0 New Jersey ........................ $20.0 $23.4

Colorado ...............................$8.0 $0 New Mexico ......................... $4.4 $0

Connecticut ..........................$6.0 $1.5 New York ............................. $812 $0

Delaware.............................$1.07 $0.2 North Carolina .................. $102.5 $0

District of Columbia ...........$15.2 $0 North Dakota ........................ $.93 $0

Florida ................................... N/R N/R Ohio ................................. $115.7 $28.9

Georgia ...............................$70.0 $0 Oklahoma ........................... $15.7 $0

Hawaii .................................... N/R N/R Oregon ................................. $8.6 $0

Idaho ....................................... * * Pennsylvania ...................... $66.6 $0

Illinois ...................................... * * Puerto Rico ............................. * *

Indiana ...............................$12.0 $3.0 Rhode Island ......................... N/R N/R

Iowa ...................................$43.8 N/R South Carolina ................... $57.8 $0

Kansas .................................. $7.7 $1.9 South Dakota .......................... * *

Kentucky ............................$49.7 $12.4 Tennessee .......................... $46.3 $0

Louisiana ............................$50.0 $0 Texas .................................. $40.0 $0

Maine ...................................$2.4 $0 Utah ..................................... $4.0 $1.0

Maryland ............................$54.8 $0 Vermont ............................... $.63 $0

Massachusetts ...................$25.0 $0 Virginia ............................... $16.1 $0

Michigan ............................... N/R N/R Washington ........................ $63.5 $0

Minnesota ..........................$39.0 $19.0 West Virginia......................... N/R N/R

Mississippi .........................$12.5 $3.1 Wisconsin .......................... $25.0 $12.0

Missouri .............................$26.7 $0 Wyoming ............................. $.06 $0

Italicized amounts are estimated.

N/R = Not Reported

*The Medicaid Agency reported that it does not pay for GME.

Source: Henderson, 2000.

STATE

TOTAL GME PAYMENTS

(Millions of Dollars)

Explicit

Payments

Implicit

Payments

STATE

TOTAL GME PAYMENTS

(Millions of Dollars)

Explicit

Payments

Implicit

Payments
FIFTEENTH REPORT OF COGME 74
FIFTEENTH REPORT OF COGME 75

SPECIALTY RESIDENCY REVIEW COMMITTEE REQUIREMENT

FAMILY PRACTICE ...................................... The primary training site is the model office or family practice

clinic where each resident must provide continuing, comprehensive care to a panel of patient families. The clinic must be

for the exclusive use of the residency. Residents may not be

away for remote assignments more that 1month in the first year

and two months in each of the last years.

INTERNAL MEDICINE ................................... The clinical settings must include a minimum of one-third of

the time in ambulatory sites and a minimum of one-third of the

time in inpatient sites. Over the 36 months of training, at least

1⁄2 day each week must be spent managing a panel of general

internal medicine patients in continuity. Total required emergency

medicine experience must not exceed 3 months in 3 years of

training for a resident.

INTERNAL MEDICINE SUBSPECIALTIES .......... Minimum requirement for experience in ambulatory settings that

includes consultative as well as continuing care at least 1⁄2 day

per week for at least 18 months.

Continuing care experience must occur at least 1⁄2 day per week

for at least 24 months.

The ambulatory care program must compromise a minimum of

33% of the resident’s time. In a long-term care institutional setting, each resident must have 12 months of continuing longitudinal clinical experience. Experience with home visits and hospice care must also be included. Residency program must

provide residents with experiences in an ambulatory care setting at least 1⁄2 day each week over 24 months of training.

The residency program must provide experiences in ambulatory settings at least 1⁄2 day per week throughout 2 years.

Each resident must have equivalent of 1 full day per week of

continuity care experience the first year and at least 1⁄2 day per

week in second year.

PEDIATRICS ............................................... A minimum of 50% of clinical training should be devoted to

ambulatory experiences. This may include all assignments in

the continuity practice, emergency and acute care, and community-based experiences, as well as the ambulatory portion of

normal/term newborn, subspecialty, behavior/development, and

adolescent experiences.

Residents must devote at least one-half day per week to their

continuity experience throughout the three years, and an additional one-half day session per week is suggested.

APPENDIX B: Program Requirements for Residency

Education in Ambulatory/Community-Based Settings

– CARDIOVASCULAR DISEASE

– GERIATRIC MEDICINE

– HEMATOLOGY

– ONCOLOGY

– RHEUMATOLOGY
FIFTEENTH REPORT OF COGME 76

SPECIALTY RESIDENCY REVIEW COMMITTEE REQUIREMENT

DERMATOLOGY .......................................... Adequate exposure to both outpatients and inpatients is necessary. It is essential that an active outpatient service furnish sufficient clinical material representing the broad array of diseases

seen by the dermatologist.

EMERGENCY MEDICINE ............................... No specific requirement for ambulatory/community-based training outside the emergency department. There must be a structured resident experience involving pre-hospital care (EMS).

NEUROLOGY .............................................. Program must include 6 months outpatient experience and must

include a resident longitudinal/continuity clinic with attendance

by each resident 1/2 day per week.

OBSTETRICS AND GYNECOLOGY ................... Primary and preventative care experiences should occupy the

equivalent of at least 6 months of the 4 years of residency. Experiences should be strongly oriented toward ambulatory care

and must include at a minimum a 4-month rotation in general

medicine or family practice medicine and a 1-month rotation in

emergency medicine. Residents should have a continuity clinic

experience at least 1⁄2 day per week for 3 years.

OPHTHALMOLOGY ...................................... Residents should be responsible for the care of an adequate

number of outpatients representing a broad range of ophthalmic

disease. Each resident should participate in a minimum of 3,000

outpatient visits.

OTOLARYNGOLOGY ..................................... Residents must have an opportunity to see patients, establish

provisional diagnoses, and initiate preliminary treatment plans

on an outpatient service that operates in relation to an inpatient

service used in the program. Experience should be provided in

office practice procedures and management.

PSYCHIATRY .................................. Inpatient clinical experiences must be no more that 18 months.

Outpatient experiences must include at least one year of continuity experience. Clinical experience should include continuitybased mental health activities. Psychiatric consultation in medical, surgical, and community settings.

PHYSICAL MEDICINE AND............................ Residents must spend at least 1/3 of their time in care of outpaREHABILITATION tients. Residents should gain fundamental understanding of

types of patients and care provided in the continuum of rehabilitation care in community rehabilitation facilities.

UROLOGY .................................................. Residents must participate in continuity of care through preand post-operative clinics.

Source: AMA, 1999
FIFTEENTH REPORT OF COGME 77

As part of this study, site visits or telephone interviews were conducted with individuals involved

with selected residency programs with community-based training sites. The sites that were involved in the interviews are listed below.

Beth Israel/Institute for Urban Family Health Family Medicine Residency Program. As the

only family medicine residency program operating in Manhattan, the program’s focus is

quality training of physicians that will meet the needs of urban underserved. Beth Israel

and The Institute jointly own a Medicaid managed care plan and the Institute’s family

practice centers have contracts with other HMOs. One family practice center serves as a

training site.

Boston University/Boston Medical Center Internal Medicine Residency Program. The Boston University/Boston Medical Center residency programs have a long-history of involvement with Boston’s network of community health centers. Of particular interest is

the role of the Center for Community Health, Education, Service and Research, a consortium that places medical residents and advanced practice nursing students in interdisciplinary teams in the community health centers. The consortium has a Kellogg Community Partnerships grant.

East Tennessee State University. Founded in 1974 to alleviate a primary care shortage, this

community-based medical school has 14 training sites outside its primary service area.

The medical school used a Kellogg grant to develop multi-disciplinary training sites in

two rural communities. The medical school is the direct recipient of Medicaid GME

funds under Tenncare.

Georgetown University Medical Center. For several years, Georgetown University operated a

joint medicine/pediatrics residency program with Kaiser Permanente where the residents’

continuity experience was in a Kaiser community site. This program has now been moved

out of the Kaiser site into a university-owned suburban physician clinic.

George Washington University. The university owns an HMO. The medical school is now

community-based, having recently sold its hospital. As a partner in the Washington Regional Academic and Community Consortium (WRACC), George Washington University has four residency programs participating in a Kellogg-funded Community Partnerships demonstration involving an interdisciplinary faculty practice at six community

clinics.

Harvard Pilgrim Health Care/Brigham and Women’s Primary Care Residency Program.

In 1992, the Department of Ambulatory Care and Prevention was started by Harvard

Medical School and Harvard Pilgrim Healthcare as the first medical school department

to be based in a freestanding HMO. It is a model of an academic medical center-managed care organization partnership. Participants spend 70 percent of their time practicing

ambulatory medicine at Harvard Pilgrim Health Centers in one-on-one relationships with

preceptors and 30 percent of their time at Brigham and Women’s on inpatient services.

Henry Ford Health System. In affiliation with Case Western Reserve, the Henry Ford Health

System operates residency programs with sites in the Detroit area, including community

health centers, and 31 Henry Ford Medical Centers located throughout the State of Michigan. Most community-based training takes place within the Henry Ford System.

APPENDIX C: Site Visits and Interviews
FIFTEENTH REPORT OF COGME 78

Michigan State University. The university houses community-based schools of allopathic and

osteopathic medicine. The osteopathic consortia is a Statewide network of 17 hospitals

with the osteopathic college and over 1,000 interns that have pooled funds for central

administrative expenses, as well as formal academic programs and workshops. This Statewide campus system is overseen by a governance board and osteopathic GME committee representative of all members. Among the allopathic residency programs, the Department of Family Practice sponsors a network of affiliated family medicine residency

programs throughout the State. The internal medicine program is affiliated with two

Lansing hospitals and the MSU Medical Clinic. The program uses a “firm” approach

that teams small groups of residents with a full-time academic general internist for the

care of their continuity primary care patients on both an outpatient and inpatient basis.

The Institute for Managed Care is an interdisciplinary managed health care initiative for

education and research created through funding by the Blue Care Network of Mid Michigan to advance education in the managed health care system. The Institute has a PQE

grant to develop a multidisciplinary curriculum for community-based training.

Montefiore/Albert Einstein School of Medicine. Montefiore and the Albert Einstein School of

Medicine have unified clinical departments that are responsible for academic and clinical programs. Montefiore has a long-standing history of training in community clinics in

the Bronx. The hospital has expanded its network of hospital-owned clinics in order to

compete more effectively for managed care contracts. As these clinics develop strong

clinical practices, they are used as residency training sites.

Ohio University. The College of Osteopathic Medicine is part of Centers for Osteopathic Regional Education (CORE). CORE, the first Osteopathic Post-Doctoral Training Institution accredited by the AOA, combines the College, 14 osteopathic teaching hospitals in

Ohio and three other osteopathic medical schools located in Iowa, Maine, and Pennsylvania. CORE trains 472 interns/residents, 376 of which are in primary care specialties.

University of California, Los Angeles. Over a 5-year period, UCLA changed from 47 percent

primary care residency programs to 54 percent. The increase in primary care residency

positions has led to continuing efforts to increase community-based training sites. Expansions have occurred through a network of university-owned primary care offices as

well as increased use of county health centers. Building on a successful program at

Harbor/UCLA, the family medicine residency program is moving out of the hospital and

into a county health center.

University of Washington. The WWAMI network involves 45-50 residency training sites in five

States (Washington, Wyoming, Alaska, Montana, Idaho). About 30 sites provide opportunities for 2-month block residency rotations to rural community sites. Training sites for

residency programs within the Seattle area include a hospital-based clinic, a universityowned network of physician clinics, community health centers, private practice offices

including the not-for-profit University of Washington Physicians Network (UWPN) organized under the auspices of UWAMC. The Affiliated Family Practice Residency Network consists of sixteen residency programs in the five-State region. Sponsors of programs in the network include Group Health Cooperative of Puget Sound and four programs

with rural training tracks.