59

Prospective Payment Assessment Commission

Chart 8 Total Margins, by Hospital Group, First Ten Years of PPS (In Percent)

Tospta Groue FES1 PPS2 PPSS PPSa PPSS PPSE PPS? 95a PPSS PPSTO
Minosenais at re er er ee ee re 2
Jean Ts 67 45-35) 34 34 Tk ta
Sura 4390460300028 34 SO
Large uroan p30 64 403027 28k.
Sar uen 730720 «$40 4k Sk 38S
Aura terrae 70 TS $7 49 $6 57 6S 88 83 80
Sola cammunty 4735002) 230 2t Bt 39 ka sO
Other era Ee ce rr
Majer aacrng 47008) 28 ak 8 30 aka
Omer macring 3300 T20 Se 0 5039 a az Sw
Nontencnng “20630 442696 8st aa
voluntary ‘S68 47 36) 388 teat
Program ye 720 #200 47 B39 83ST
Urban goverment 4300 42 150-21 2033 328k a
Aura govemment 43032 23 13 238k

SOURCE, PPAC anaivns of Meccare Cost Rapon cata "rom me Healm Care Financing Agminstraton


123

The current cost of obtaining a nurse practitioner education is
similar to students pursuing master’s degrees in other subjects. A
division of nursing study estimated that the average cost is about
$34,000 per graduate. A large portion of graduate nursing student
programs are in clinical practice. Some certifying exams require
that the nurse spend one-third of his or her education in the class-
room and two-thirds in clinical practice.

Advanced practice nurses currently train in a variety of set-
tings—hospitals, skilled nursing facilities, home health agencies,
nurse managed care centers, ambulatory care facilities, HMOs,
public health departments, and community health centers.

Therefore, even as advanced practice nurses are training for
their degrees, their services are being utilized in providing much
needed health care services to patients. However, nursing pro-
grams and students currently incur the cost of the support of the
clinical training in the advanced practice nurse education, despite
the fact that these students are providing direct health care similar
to many medical residents.

Funds should be available to nurses to help them defray tuition
and fees and provide student stipends, as well as reimburse the
costs for faculty supervision at the clinical site.

Mr. Chairman, we commend you and the other members of the
subcommittee for holding this earing on graduate medical and
nurse education and for working so diligently to find solutions to
the health care crisis. We appreciate this opportunity to share our
views with you and look forward to continuing to work with you
as you develop solutions to this critical problem.

again, thank you very much.

{The prepared statement follows:]


25

viders, including advance practice nurses, physician’s assistants,
and others who are much more cost effective? That happens be-
cause you educate in a different environment, not because you edu-
cate more.

And finally, in spite of this incredible increase that has been
going on for the last decade or decade and a half, the supply issue
alone has not solved the problem of more doctors in urban America
or more doctors in rural America. I would suggest to you that is
not a numbers issue; that is an organizational and a management
issue. We are going to have to change the way we think about
health care in rural Louisiana, whether we are talking about the
use of teams of providers, managed care organizations that have
responsibilities in rural areas, the role of telemedicine.

There are a whole variety of issues. And I think the notion that
we are going to solve that by saturating the market has not turned
out to be true and will not be true if we just continue in the direc-
tion we are going.

Mr. McCrery. Well, I appreciate that answer, and I would like
to discuss it some more at a later date.

But it sounds to me as if one of the problems is government got
involved in the business and started directing resources in certain
ways and produced results that are not necessarily those that were
intended.

And I find that—and I do not know nearly as much about the
health care system as J need to, but the more I get into it and the
more I see Federal dollars being spent, the more I see consequences
and results that are driven by dollars, Federal dollars, more than
they are by the needs of the communities, the needs of the health
care system. I am wondering if maybe we ought to examine or re-
examine the whole role of government generally in the health care
system and in medical education, because it does seem to be driv-
ing the system more than it is helping society.

Since you mentioned rural health care and HMOs in the context
of graduate medical education, what is the role of managed care in
medical education?

Dr. SHINE. I think there is a potentially large role. You heard
about one program which actually is quite good, but there are oth-
ers around the country.

One of the reasons that I think that managed care organizations
would, in fact, be willing to contribute to the education costs is
that, as you have heard, our current system does not educate indi-
viduals in managed care environments, and therefore they are not
ready to go to work in those environments when they finish their
training.

It would be in the economic interest of Harvard Community
Health Plan or Kaiser to have those individuals, and therefore
there is an opportunity for those individuals to get more training
in those managed care environments.

That is beginning to happen. It is costly, because outpatient edu-
cation is costly. It is much less efficient to see a single patient in
the outpatient than it is in a hospital with a whole bunch of pa-
tients.


154

AMERICAN OSTEOPATHIC HEALTHCARE ASSOCIATION

Statement of
THE AMERICAN OSTEOPATHIC HEALTHCARE ASSOCIATION
For the Record of the March 23, 1995 Hearing
‘on Graduate Medical Education
Subcommittee on Health, Committee on Ways and Means
U.S. House of Representatives

The American Osteopathic Healthcare Association represents osteopathic hospitals and related
institutions nationwide. Seventy percent of our member hospitals sponsor one or more graduate
medical education (GME) programs. We are vitally concemed with GME training and believe it
is essential that Medicare continue to support it as competitive pressures drive thitd-party
payments downward, thus virtually eliminating whatever support the private sector has
heretofore implicitly provided for graduate medical education.

We believe that osteopathic GME programs are especially worthy of support and that harm to
them would be a loss to the Nation. Most of these programs are community-hospital based.

They train generalist (as well as specialty) physicians in the type of environment in which they
will eventually set up practice rather than in a distant tertiary-care medical complex. Our
programs tun out a high proportion of primary care physicians. Nearly 60 percent of osteopathic
physicians practice in primary care fields. And osteopathic physicians are more likely than their
MD counterparts to practice in underserved areas.

We believe that, ideally, all those who pay for health care services should explicitly contribute
toward the cost of graduate medical education, but we recognize that an all-payer approach is not
likely to be part of whatever incremental health care reform the Congress will adopt in the near
future. Therefore, we assume that the issue now is what Medicare's policy toward GME will be
during a period when it is necessary to make significant reductions in Medicare program cost.

Recognizing that the area of graduate medical education will not escape budget cuts, we believe
that the cuts should respond to physician workforce concems. A major problem is an overall
excess supply of physicians. From the standpoint of both workforce policy and Medicare cost
control, there is cause for concern regarding the continuing increase in the total number of
residency positions that Medicare is supporting. The Council on Graduate Medical Education
(COGME) has recommended an annual limit on the number of first-year residency positions
equal to 110 percent of the number of medical school graduates (allopathic and osteopathic). If
this recommendation were applied to Medicare funding, it would produce significant savings
‘over present policy, which provides financial support for whatever residency positions are
actually filled,

{tis important to recognize that intemational medical graduates (IMGs) make up a major part of
the increased number of residents-in-training. For 1993-94, IMGs were about 39 percent of
residents. For 1990-91, they were about 30 percent. Itis time to recognize specifically that the
large numbers of international medical graduates is a problem for physician workforce policy and
for Medicare payment policy. One way to respond would be to limit Medicare support to 110
percent of medical school graduates and to specify that the additional 10 percent is for IMGs.
Room would be provided for 100 percent of American graduates. Without this specification,
limiting the overall number of supported positions might mean depriving some American
graduates of training positions while providing them to IMGs. There is little reason to do that,
since we know that the quality of American medical school training and its graduates is
universally high, which can not be said with the same confidence regarding IMGs and their
training. In imposing a 110 percent limit, Medicare would be acting as a prudent purchaser and
‘would be doing so in a way that is consistent with the physician workforce needs of the Nation.


149

American
Best ADA
Association rVIN.

Washington Ottice
1 saan Sireet, NW
Sune 1200
ungion, DG 20008
092 AGB. 2400
nene 898-2437

April 10, 1995

The Honorable William Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means

1136 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Thomas:

The American Dental Association appreciates the recent
opportunity to testify before the Subcommittee concerning
future support for Graduate Medical Education.

During the course of the March 23 hearing, you asked several
important questions regarding dentistry and managed care. The
issues raised are timely and relevant to the debate on health
system reform. Your inquiry is particularly appropriate as
individual States seek to convert their Medicaid programs into
capitated systems.

The purpose of this letter is to briefly expand upon our
responses provided at the hearing. We hope the following,
additional information will be of value to the deliberations of
the Subcommittee.

Pentistry and Managed Care

The Association believes that Congress must understand and
acconmodate the significant differences between medicine and
dentistry as it addresses the issue of managed care. Dental
disease is chronic, progressive and destructive. It is also
almost entirely preventable through regular examinations and
early interception. Americans saved nearly $100 billion in
dental care costs during the 1980’s through the profession‘s
emphasis on preventive oral health measures. Managed care in
the capitated model is designed to respond to and treat medical
diseases; conditions which are generally episodic, but also
potentially life-threatening and catastrophic in cost.

A basic element of managed care is the gatekeeper. This
concept is designed in part to "guide" the patient through the
maze of physician specialty and subspecialty care. By
contrast, 80% of dental services are provided at one site by
one primary care practitioner.


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, IUinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM MCDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

PHILLIP D. MOSELEY, Chief of Staff
JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH
BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada JiM McDERMOTT, Washington
JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Hlinois JOHN LEWIS, Georgia

AMO HOUGHTON, New York
SAM JOHNSON, Texas

ay


119

cally has wanted to pay the cost of production. That is the kind of
difference I was alluding to.

Mrs. JOHNSON OF CONNECTICUT. Thank you. Thank you, Mr.
Chairman.

Chairman THOMAS. Just to follow that up, we heard testimon’
earlier that, in fact, the product—it sounds like most of the prod-
ucts coming out of most schools—the product of primary care physi-
cians are, in fact, not equipped to deal with the new world of medi-
cine under managed care. It seems to me that if they are getting
a product which they cannot use immediately, schools should pl
them in in an efficient way and have them deal with additional
training or working on their interpersonal skills with health profes-
sionals who are not doctors. They might be interested in contribut-
ing a portion of the education cost to get a product that they can
use immediately and who has been trained along the lines that
they believe to be appropriate.

So I guess as we pursue this, I think you are goin to find that
the marketplace in terms of what it asks for, to the Gegree it asks
for a product different than is being produced today, is going to be
asked to pay for the changes in that product.

And we have b discussions, and we will continue discussions
in terms of a fair share pay.

The easiest way, obviously, is to get a different funding system
that is broader based. But we discussed that. It is very difficult to
do politically, and it is very difficult to create a different system be-
cause of the way in which this one fits circumstances that have not
completely changed but are changing.

So’ we are going to try to do two things, keep the best of what
we have had and anticipate how we can get those folks who may
not be paying their fair share or who are complaining about the
product coming out of the structure, to say: OK, you know, put
your money where your mouth is, and let us talk about bringing
about changes.

It will be not as perfect as we would like, but there are going to
be changes made. And I believe you will find that it will be a
broader based support for the costs with an expectation that the
product coming out of it will be more relevant to the needs of the
marketplace.

Dr. Jacott.

Dr. JAcotT. I am really delighted, Mr. Chairman, to hear you
saying that, because we do—those of us in academic health centers
and in education programs—and my background is family prac-
tice—and we do hear a lot from the managed care entities that we
are not training the kind of person that they want to come out into
practice.

On the other hand, we need to look at what their expectations
are. If we are just training a triage officer or a gatekeeper, that is
really not satisfactory either, to provide the kind of care.

On the other hand, many of our educational institutions have de-
veloped within their training programs the kind of information and
experience that the residents need to get out and practice in a
managed care environment.

At the University of Minnesota, in our Department of Family
Practice, we have our own HMO, and it is basically run by the resi-


68

Hospital training is essential, Particularly for surgical specialties,
for real differential diagnosis of complex cases. So you need both.

Mr. CHRISTENSEN. Dr. Carter.

Mr. Carter. I agree with Dr. Hanft, that the necessity for hos-
pitals is clearly there.

As an interesting point, the hospitals that participate in GME for
nursing are not generally teaching hospitals. These are community
hospitals. And the nursing program may be the only educational
program that that hospital offers,

ose of us that are in systems such as mine at the University
of Tennessee, where there is a single board that supervises the hos-
pital and the nursing school, we are privileged to be able to do a
small piece of that.

And therefore I think that we need to look very carefully at how
that happens. But in the same way, the training cannot take place
in one hospital, which has been unwilling to share the salary for
that learner, that nurse anesthesia student, to be gone, so it is a
difficult question to look at.

Our hospitals, for the most part, do not operate community-based
systems, and in our State, where TennCare has become our new
managed care arrangement for our former Medicaid, most of the in-
dividuals participating are not hospital affiliated.

Mr. CHRISTENSEN. Looking at the contributions that teachin;
hospitals make, which ones fo you think are absolutely essential
for us to preserve? Which ones do you think may be something that
we could streamline?

Mr. ALTMAN. Well, that is a difficult—that really is a difficult
question to answer.

Teaching hospitals play several very important roles. If you are
in a big center such as Boston or New York or Houston where you
have many, one or two less is not going to change the balance of
that city or the health care.

But you could have what might be called even a semi-major
teaching hospital in a middle-size Midwestern city, which is the
critical deliverer of care in that area and is where most of the indi-
viduals are trained.

So I get uncomfortable about using any kind of formula to decide
which one should go and which one should not.

In this case, I do believe to the extent that there is this market
out there—it is not a market that I grew up learning about in eco-
nomics, but it is a market of sorts, and therefore I think that may
sort itself out, where the students want to go. If you reduce the
number of students, you reduce the number of residencies, there
will be a self-selection process taking place.

Plus I think some communities are going to hang on hard to
what even might be viewed from sort of the elite as second-rate in-
stitutions. They may be very important for their communities, and
their communities are going to support them.

So I really could not tell you which institutions should go.

Ms. Hanrt. May I add one thing to that? If you look at famil
medicine residencies, they are basically not based in what we call
the major 250 or 330 teaching hospitals. Most of those family medi-
cine residencies come out of the community hospitals, and many of
them are in smaller communities. That is one area where you cer-


152

there will be, you know, really some concerns about what they are
loing.

Chairman Tuomas, OK. I was going to try to move, then, over
to Ms. Johnson, because clearly their concern is that there are a
number of things that can be done by professionals in the health
care industry that are not allowed to be done or historically have
not allowed it to be done because of the historical role of the doctor.

But I guess, Ms. Johnson, my question to you is: Why should we
elevate the training of these folk when we have in certain areas—
and I guess anesthesiologists would be my best example—why
should we take some of these folk and give them advanced training
in anesthesia when we already have anesthesiologists who are out
of work?

And it seems to me that in moving this structure, you move this
way, you have got folks who are getting better training if you had
room for those folks who move up. But you do not; they are out of
a job.

Why should you not just as easily move in this direction and
have doctors performing functions that historically doctors tend not
to perform, because they would not have a job otherwise?

And frankly my goal is to push ends this way and provide more
folk in that edging between doctors and health professionals in
more of that managed care setting that can perform more.

And I think your goal is similar to theirs in terms of finding slots
and educational positions for these people who can pursue this ad-
vanced training.

In the Medicare area, what percentage—ballpark, if you do not
have it fairly precisely—or give me some general feeling of the pro-
portion or percentage of Medicare patients that receive their care
from these advanced practice nurses. Do we know?

Ms. JoHNSON. In terms of percentages, it would be difficult for
me to even “guesstimate.”

T will tell you a large percentage of advanced practice nurses pro-
vide gerontological care. We focus a Jot in terms of our primary
care—our transition to managed care has probably been easier in
some aspects because we have always focused on prevention and
health maintenance, so-called wellness care, as opposed to always
focusing on illness care.

So when you talk abont the fact that, for example, with reg-
istered nurse anesthetists, someone mentioned earlier that the
largest percentage, somewhere in the neighborhood of about 80 per-
cent of anesthetic services in rural areas where there is a great
need for care, is provided by nurse anesthetists.

I think there is enough work, enough care needs, given our Na-
tion’s status related to health care at this point, that a collabo-
tative approach that involves all of us—and I think you mentioned
this a while ago—is the most effective way of approaching it, as op-
posed to saying one discipline needs to do it all, and others do
none.

Chairman THOMAS. Then if you have got doctors who are out of
work, but they choose not to move where the work is, and the
nurses do, that is a decision in the marketplace.

What about home health care? Is that an area that looks to you
folks as a really growth market?


719

‘support. If furure generations of Americans are to have appropriate access to well-trained physicians, we must maintain
and strengthen our medical education system. including its residency training component.

Constructing a National Average Payment Amount for OGME Costs, Last year, during the debate over comprehensive
health care reform, some policy makers recommended the development of a national average per resident payment
methodology with payment adjustments for regional differences in wages and/or wage-related costs. In some instances,
the proposals excluded certain types of costs, such as direct overhead costs or allocated institutional overhead costs. These
changes were suggested in the context of a package of proposals for graduate medical education reform. including an all-
payer funding mechanism that was to be separate from payments for patient care services

The AAMC supports the continuation of the current Medicare per resident payment method based on hospital-specifie
costs, The AAMC believes that a national average payment method would fail to recognize structural factors that
legitimately affect a hospital's per resident costs. The overall financing of teaching hospitals and medical schools often
is driven by historic circumstances, which have led to certain costs, especially faculty supervisory cosis. being borne
variably by the medical School or teaching hospital, The diversity of support forthe costs of faculty is prabably the most
important reason for the variation in Medicare per resident payments. Additionally, there are legitimate differences in
educational models depending on the specialty and the institution. Wide variation in per resident amounts exists among
hospitals in the availability and amount of support from non-hospital sources, including faculty practice earnings and state
cr local government appropriations. While some proposals would adjust the Medicare national average per resident
payment for differences in wages and other wage-celated costs, these other structural factors would not be reflected in the
rational average payment methodology. creating inappropriate winners and losers.

Last year, at its January 20, 1994 meeuing, ProPAC discussed recommendations on graduate medical education financing
for its March 1994 report. Commissioners reviewed a staff analysis of graduate medical education cosis and payments
and noted the complexity of the distribution of these payments to hospitals, Chairman Stuart Hl. Altman. Ph.D.., cautioned
those who prefer moving (oa national average payment methodology for residency costs without incorporating a number
‘of adjustments in the payment system. Pointing to the commission's eleven-year experience wit) the prospective payment
system-the first attempt by the federal government to standardize payments based on national averages--Dr. Aluman noted
how many adjustments had been added to the PPS over the years (0 achieve payment equity. ProPAC’s preliminary
analysis of graduate medical education costs found significant relationships between per resident costs and hospital size:
its share of full-time equivalent residents in the ourpatient seting, its share of costs related to faculty physicians’ salaries:
‘geographic region: location in a metropolitan statistical area; and area wages.

The AAMC also supports the current methodology because it recognizes all types of costs. including salaries and fringe
benefits of the faculty who supervise the residents, direct overhead costs. such as malpractice cost. and the salaries and
benefits of administrative and clerical support staff in the graduate medical education office; and allocated instiutional
‘overhead costs, such as costs for maintenance and utilities. The AAMC opposes proposals to exclude cerain types of
DGME costs, such as faculty supervision costs or overhead costs, from the calculation of the Medicare per resident
amount, The AAMC believes the level of payment should recognize all types of costs, including direct overhead costs,
such as maipractice costs. and clerical support The current method recognizes the diversity in how graduate medical
‘education is organized and financed. Further, ample faculty supervision is necessary to ronitor appropriately residents’
development in an environment of rapidly changing patterns of practice. Graduate medical education in all specialties is
based on the premise that residents learn best by participating, under supervision, in the day-to-day care of patients,
Supervising physicians must judge the clinical capabilities of residents, provide residents with the opportunities to exercise
progressively greater independence, and ensure that the care of patients is not compromised This supervising
responsibilty requires substantial time and commitment, and must be compensated.

‘The AAMC believes that. within these policy parameters. consideration should be given to changes that would ensure
‘equitable, economically justified payments among training sites. The AAMC intends to pursue the development of
alternative payment proposals that would recognize the significant diversity across instirations that participate in graduate
medical education. For example, one suggested alternative has been to develop a methodology that pays hospital-specific
‘costs within a payment corridor, such as within (wo standard deviations of the average per resident amount. The AAMC
woul be pleased to share our payment policy proposals with subcommittee members and staff, and withthe administration
as the policy options are refined.

Limining Payments Based on Certain Types or a Defined Number of Residents. Education in the practice of medicine
includes both undergraduate medical education in a medical school and graduate medical education in a teaching hospital
‘or other clinical site. Because medicine involves a number of different specialties. each specialty area has developed its
‘own residency training period. The AAMC believes that the variable length of training for each specialty area is
appropriate and in the national interest, but recognizes that Medicare payment policies must be balanced. Some policy
‘makers have proposed imposing additional limus on he length of time for which the Medicare program should provide
its suppor.

Currently. the Medicare program limits the number of years for which it will provide full support. Congress has
restricted full support to the direct costs of those residents within the minimum number of years of formal training
necessary (0 satisfy the educational requirements for initial board certification, up to a maximum of five years

[As noted earlier, the limit is waived for a period of up to ewo years for training im a geriatric residency or fellowship
program, Payment for residents beyond either the period for intial board certification or the five-year level are reduced
bby 50 percent


15

of that, the medical leaders at HCHP and Group Health Associa-
tion of America have focused on a new set of competencies and
skills which are required, skills in cost-effective delivery, skills in
interpersonal care, and especially in teamwork and obviously in
providing effective care and in managing care and referrals. The e
are primarily skills that can be found in ambulatory settings. And
we need to shift our attention away from the hospitals to such am-
bulatory settings.

Let me just comment very briefly on the fact that HCHP is a
model of a teaching HMO. We have put money into teaching, re-
search and community service from the very beginning of our 25-
year history, including a teaching center and the first ever Depart-
ment, cosponsored with Harvard Medical School, of Ambulatory
Care and Prevention, which we cofund with them.

We have developed new programs in primary care education with
the Brigham and Women’s Hospital, sponsored primary care
residencies at other Harvard-affiliated hospitals, and have spon-
sored a psychiatry residency program with HMS.

We are looking to do this further, and we have presently been
required really by marketplace pressure to reduce our contribu-
tions, so that this year we will still be spending $2.5 million di-
rectly on programs for mostly graduate, but some undergraduate,
medical education.

Let me try to skip to just four things in conclusion.

First, you have already heard of the importance of allocating fi-
nancing appropriately to the sites of training, so that it can be fo-
cused on the new marketplace.

Second, HMOs and other organizations should be able to receive
direct credit or reimbursement for their ongoing expenditures di-
rectly in support of medical education, including ME.

Third, you have heard about the increase necessary in primary
care. I believe that financing should also be included for
nonphysician primary care education.

And fourth, such GME financing should be broad-based and sep-
arate from service delivery costs, so that in this competitive mar-
ketplace we can assure that education costs are quantified, justi-
fied, and directed appropriately.

I would be glad to work further with you and answer any ques-
tions later on. Thank you.

[The prepared statement follows:]


128

to nurses in graduate nurse education programs to help them defray tuition and fees and
provide student stipends, as well as the costs of faculty supervision at the provider site,
and program expenses.

ANA also believes that the classroom costs incurred by rural and urban underserved
providers should be considered for reimbursement. It has been demonstrated that nurses
often provide care in underserved inner city or rural areas where no other provider is
available. Thirty-one percent of all nurse practitioners report that greater than half of
their patients are Medicaid recipients and eight percent of all nurse practitioners report
that 50 percent of their clients are Medicare beneficiaries. Furthermore, 20 percent of
all nurse practitioners report that more than 50 percent of their patients have no source
of payments. Nurse practitioners also report that special populations comprised more
than 25 percent of their patients in practice including the homeless, victims of abuse,
culturally diverse patients with a non-Western orientation to health care, and substance
abusers. Many clinical nurse specialists provide psychiatric services. Over 25 percent of
all clinical nurse spectalists report that greater than half of their patients are Medicaid
recipients. Overall. greater proposals of nurse practitioners and certified nurse midwives
were found in urban undeserved and high poverty areas. Near 19 percent of all certified
nurse midwives provide care in high poverty areas compared to 10 percent of all
obstetricians/gynecologists. In high poverty areas, nurse practitioners and certified iiurse
midwives work predominantly in clinics and in rural undeserved areas, more than one
third of these practitioners work in rural health centers.

Medicare beneficiaries in inner cities or rural areas are known to be able to access the
health care delivery system less than their counterparts in other geographic areas despite
the fact that they have a single payer system available to them, As managed care
continues to grow and the Medicare system looks toward managed care as the cost
saving salvation additional steps will be needed to allow this population to access their
services. Advanced practice nurses play a critical role in providing care to the nation’s
elderly population.

THE NEED FOR RESEARCH

There is a need for additional data on the relationship between the workforce trends and
advanced practice nurses. We request that Members of this Committee take the lead in
establishing a graduate nurse education council to track workforce trends as they relate
to the advanced practice nurse. In tracking such trends, the supply and demand for
physicians and other health professionals should be assessed.

CONCLUSION

Mr. Chairman, we thank you for holding these hearings today on graduate medical and
nurse education. We applaud this Committee for its strong commitment to the
improvement of the health care systems in this country, and we appreciate the
opportunity to share our views with you, ‘Thank you.

(G\poted re testimony\GNE.


134

January 17, 1995) directly addresses postdoctoral dental training
policy?

"The Committee recommends that postdoctoral education in a
general dentistry or specialty program be available for
every dental graduate, and that the goal be to achieve this
within five to ten years, and that the emphasis be on
creating new positions in advanced general dentistry ..."
(Recommendation 7)

The Association would support the establishment of additional
positions sufficient to meet need or demand.

Because Medicare DGHE and IME funding provides for ongoing
aintenance of these programs, continued inclusion of dental
training in these formulae helps to maintain the hospital-based
postdoctoral training positions that currently are provided. The
Association also supports funding for start-up costs of such
programs. This is critically important in assuring comprehensive
care to patients and to the availability of a workforce abl
meet the broad spectrum of patient needs.

‘Medicare DGME and IME: Impact on Dental Education and Needed
Taproverents

Given limitations in oral health care coverage described earlier,
it is clear that patient care revenue is not sufficient to
support dental residency training programs. Significant support
from a host institution is required, and even the Medicare GKE
and IME that teaching hospitals receive can only meet a portion
of the total costs.

While Medicare DGME and IME funding streams currently flow to the
teaching hospital administration rather than directly to
residency training programs, their continuance is vitally
important to dental programs. If the dental residency training
position "counts in the formula", there is less financial
pressure from the hospital administration or threat of program
closure. Often, directors of dental residency programs can
point to such offsetting funds in making the case for
continuation of their programs. ‘These programs are often in a
deficit situation absent such DGME/IME support, due to the
indigent unreimbursed oral health care that is provided.

A 1994 survey of Medicare GME and IME’s impact on 235 hospital
dental training found that thirty percent have been threatened
with closure due to financial hardship. These Medicare funds
help the programs to continue despite an average thirty two
percent shortfall in revenues to expenses.

Medicare Direct GME (DGME): DGME payments are based on a formula
of full-time equivalent (FTE) residents multiplied by a per
resident dollar amount and then multiplied by the proportion of
hospital inpatient days used by Medicare patients in the
particular hospital. Since the beginning of Medicare, hospital
dental training has been part of this funding mechanism.

Under HCFA regulations, the GME formula counts a full-time
resident for the time Spent in a basic training period plus one
year (basic training period means the time required to be
eligible for board certification). The regulations make an
exception for General Dentistry residencies, so these primary
care residents are counted in the formula even though the
training is not required for board certification (Federal
Register, September 29, 1989, p. 40294). The other basic
training periods (plus'one year) for dental residencies aré
Endo-3 years, Oral Patn-4, OMFS-5, Ortho-3, Pediatric-3, Perio-4,



74

‘TESTIMONY OF ERIC B. MUNSON
ASSOCIATION OF AMERICAN MEDICAL COLLEGES

Mr. Chairman and members of the subcommitee, ! am Eric Munson, Executive Director of the University of Noh
Carolina Hospitals in Chapel Hill, The Associaton of American Medical Colleges (AAMC) welcomes the opportunity
‘o testify on the Medicare programs current law and policies relating ¢o Part A payments for graduate medicat education.
‘The Association represents all ofthe nation’s 126 accredited medical schools. approximately 300 major teaching hospitals
that panicipate in the Medicare program. the faculty of these institutions through 92 constiqent academic society
‘members, and the more than 160.000 men and women in medical education as students and residens, In 1992, nonfederal
members of the AAMC's Council of Teaching Hospitals (COTH) accounted for 6 percent ofthe nation’s hospital, but
nearly 2 million. or almost 20 percent. of all Medicare discharges

‘Teaching hospitals are among our nation’s most complex enterprises They are important components of the nation’s
heal care sysiem because they

provide all levels of pattent care-from primary to tertiary services-often to the most disadvanlaged members of our
society.

serve as primary sites for the clinical education of health professionals, including physicians, nurses and allied health
professionals: and

provide the environment for the conduct of clinical biomedical and behavioral research and the introduction of new
technologies.

‘The health care delivery system is evolving as both public and private payers struggle to contcol health care expenditures,
and academic medicine is responding positively to the changes in the environment, Teaching hospitals. faculty practice
plans and medical schools have recognized the need for change within their own organizations and are actively engaged
in helping to reformulate the health service delivery system. find ways to reduce the rate of increase in health care costs.
improve accountability, and maintain or improve the quality of clinical service. Teaching hospitals are studying ways 10
deliver services more efficiently through partnerships with other health care organizations and are seeking new
arrangements with payers of services, Medical schools, often in conjunction with teaching hospitals, are working
aggressively 10" increase the number of generalist physicians; identify new community-based sites for physician education:
‘enhance the curriculum to reflect both new knowledge and new delivery paradigms; and assure the vitality of biomedical
and behavioral research,

For example, atthe Universiny of North Carolina Hospitals. we are engaged in a number of strategic initiatives which
Seek ro balance our tradicional, statutory, public mission with the contemporary, market driven mandate to be an
Inexpesive provider of healthcare services. Some of our strategic iniatve include
‘expanding our network of primary care providers. through contracts and acquisition, for both service delivery needs
and residency traning sites;
networking with other providers to cast a wider net for various managed care offerings:
collaborating with our medical schoo! faculty colleagues to “sell” our primary. secondary. ceriary and quaternary
services 10 those purchasers of care with long term commitments to serve our market area: and
‘marketing specific product lines such as lung transplantation 10 regional and national buyers as "Centers of
Excellence."

With regard to graduate medical education, we are changing the blend of residency training positions available by
increasing primary cate opportunities and decreasing the number of specialty slots. We continue t0 operate the country’s
finest demonstration of dispersed medical education through our Area Health Education System (AHEC) ‘The AHEC
program provides alt four of North Carolina's medical school students with training experiences throughout the state
Not only does this program foster exposure to primary care practice models in rural North Carolina. it sustains the
practicing professionals who serve as the clinical role models in these remote health care settings

While pursuing all of these strategic initiatives. we continue to service the people of North Carolina as the “court of last
resortTM..the place fo Which the sickest patients are sent the place 10 which the poorest patients are sent...the place to
where the cure for cystic fibrosis may be found...the place where teenage mothers go for education and health care. We
know that today's conventional wisdom says we are (00 expensive: we know also that in today's scientific age, we are
priceless.

Jn St Louis, where the market is rapidly changing from one based on fee-for-service to managed care payment
arrangements, St. Louis University Health Sciences Center 1s transforming itself into a more effective institution through
structural change. The Heaith Sciences Center has consolidated the clinical practices of its faculty into a single unit to
promote administrative efficiency and allow the faculty 10 develop and market product lines to health care purchasers.

Itis also consolidating the newly-reorganized faculty practice group with the hospital into a single provider structure that
aligns physician and hospital incentives and permits rapid and coherent responses to changes in the market, Soon, this
new entity will merge with other health care providers in the community who have strong primary care bases and broader
‘geographic coverage, This move will provide the Health Sciences Center with access toa sufficient base of covered fives,
nd fo a network of providers who can provide ambulatory training opportunities for both medical students and residents

In Kansas City, the University of Kansas Medical Center is concentrating not only on restoring health, but keeping people
hheaithy through the formation of community-focused networks, KU has joined with other health systems and 1wo Blue
Cross plans to form a corporation that operates a HMO in a iwo-state area and seeks to find innovative ways to benefit
the communities it serves. KU Medical Center also has formed the Jayhawk Health Alliance with seven suburban and
rural hospitals within 75 miles of the medical center,

‘These examples are typical of the actions that teaching hospitals and teaching physicians are taking around the nation to
adapt to the new and rapidly changing marketplace, Academic medicine is prepared and willing 10 meet the delivery


32

ical College of Pennsylvania and Hahnemann. We are seeing new
configurations taking place.

I think there is going to be a lot of pressure. And I do not know
what the number is going to be. It is hard for me to predict that.
There are going to be both political and economic forces that influ-
ence it.

But as Bob says, the issue from our perspective is how do you

et good training. If that is in a mobile unit, if it is a rural system,
if it is telemedicine, that is fine.

The one thing I want to emphasize, though, is that it is not nec-
essarily all going to be physician dependent—that is, when you talk
about rural sites, when you talk about urban sites, as well as the
rest of the system, managed care has learned to use a variety of
other providers—nurses, physician’s assistants, community health
workers—and we have got to get away from the notion that every-
thing is going to have to be done by the doctor.

And second, we have got to have an educational system in which

oung people learn how to work with those various players in a col-
Tegia way, how to interact with them and provide care.

And I think one of my concerns, which may be an implication of
your question or an inference of your question, is that while it is
true that I would like to have doctors learn from those mobile
units, I do not believe we are going to solve the Nation’s health
problems on the basis of trying to maintain every local site as a—

Mr. JOHNSON. Well, now you have gotten to the good issue. Why
is Medicare paying for medical education? See, that is the real
issue. Tell me the answer.

Dr. SHINE. I think that it is very clear that it is in the public
interest to prepare young people appropriately for careers in medi-
cine and that—

Mr. JOHNSON. But think about Medicare. What is the Medicare
system for?

Dr. SHINE. It is for taking care of elderly patients.

Mr. JOHNSON. So we should train young people to take care of
young people, so the elderly can have medical care; is that true?

Dr. SHINE. No, What we need to do is to train young people who,
in fact, will be prepared properly to take care of elderly people. And
second, we need to do that under circumstances in whith they are
being trained in facilities and in locations, both urban and rural,
in which they are able to take care of disadvantaged people, people
who cannot travel, people who have a variety of other medical dif-
ficulties.

Mr. JOHNSON, Right.

Dr. SHINE. And that is what we are——

Mr. JOHNSON. And in addition—excuse me—the gentleman over
here indicated there was some indecision or lack of precise designa-
tion by a unit here in Washington, for example, your institute, the
National Academy, I do not believe that any one person in Wash-
ington or anywhere else can dictate what is going to happen.

All of you seem to say that the system will take care of itself,
if you let it. It will sink or rise, whatever is needed. Is that true?

Dr. HEYSSEL. I think it will if the incentives are right. I think
Dr, Shine is absolutely right. How many teaching hospitals we are
going to have and how big or large they are going to be 10 years


103

Mrs. JOHNSON OF CONNECTICUT [presiding]. Thank you, Dr.
Schwartz.
Dr. Anderson.

STATEMENT OF WILLIAM G. ANDERSON, D.O., PRESIDENT,
AMERICAN OSTEOPATHIC ASSOCIATION

Dr. ANDERSON. Madam Chair, thank you very much for the op-
portunity to appear before the Subcommittee on Health.

My name is William Anderson, and I am president of the Amer-
ican Osteopathic Association. I have been practicing as an osteo-

athic physician for over 38 years in primary care in Southwest
orgia and in recent years as a surgeon in inner-city Detroit.

I am pleased to be here representing 36,000 osteopathic physi-
cians, the majority of whom are in primary care and, we believe,
are playing a very vital role in health care delivery in the United
States today.

So we fee] as though it is very important that members of the
subcommittee take under consideration, when we speak of funding
of graduate medical education, preserving this system of training
osteopathic physicians that has demonstrated historically that it
can produce a higher percentage of primary care physicians. As
many as 60 percent of the 36,000 are currently in the primary care
specialties.

So before I go to some specific recommendations relative to this
matter of training relevant physicians and cost containment in
graduate medical education, I wanted to just make a few brief re-
marks relative to the profession itself.

Osteopathic physicians are trained in many respects the same as
allopathic physicians in that we have the same basic training in
medicine, surgery, physiology, anatomy, and all the fundamentals.
However, osteopathic physicians have the added dimension where
emphasis is placed on the musculoskeletal system and the body
functioning as a whole with an interrelationship between structure
and function.

This philosophy of practice was first initiated by Andrew Taylor
Still over 100 years ago, and it permeates our educational process
from undergraduate through the graduate levels.

Although a number of osteopathic physicians ultimately go into
the specialties and the subspecialties, they all are first trained in
primary care. They have that orientation, and it is embedded in
them in the rotating internship. We believe that this enables them
to practice better even as specialists. So I certainly prevail upon
the committee to take under consideration those measures that will
be necessary to preserve this system of training.

Now let me go then directly to the matter of how we can achieve
savings in graduate medical education while preserving the system
and, second, addressing the issues of the physician work force,

First, let me mention the matter of the allocation of the GME po-
sitions. We certainly do support the concept that the number of
residency positions could be limited to just 110 percent of the total
graduates from the osteopathic and allopathic medical schools in
the United States.

At the present time, we receive funding from various sources—
and the Federal Government through Medicare is the principal


39

TESTIMONY OF RUTH S. HANFT
GEORGE WASHINGTON UNIVERSITY

My name is Ruth Hanft. I am a Professor of Health Services, Management and
Policy at the George Washington University.

Mr. Chairman, members of the Subcommittee. I appreciate the opportunity to
discuss the direct support of graduate medical education and the issues related to the
current methods of support.

‘The evaluation, structure and financing of graduate medical education is very
complex, involving all allopathic medical and many osteopathic colleges,
approximately 1200 teaching hospitals, over 90,000 interns and residents and
numerous clinics, faculty, and preceptors. It is also a critical component of the
provision of indigent care in the United States.

‘The major issues today include:

. ‘The size and cost of the enterprise

. ‘The appropriateness of the specialty distribution as between
primary care and other specialties

. ‘The mismatch between the structural changes in the health care

delivery system, the structure and locus of current training
programs, and their financing.

Structure of Graduate Medical Education

Medical education to the MD level is focused within and under the control of the
medical school; graduate medical education, in contrast, tends to be hospital-based,
with the direction of the program under a program director. The program director
may or may not be the Chairman of a medical school department, a faculty member,
the director of a hospital service or a designated attending physician at the hospital.

‘The accreditation bodies and processes are different for undergraduate medical
and graduate medical education. Yet the education process should be a seamless
continuum. Medical and graduate medical education are a cascade process for clinical
education, involving teaching physicians, chief residents, senior residents, junior
residents and interns, and 3rd and 4th year medical students. Frequently,
particularly in academic health center hospitals, other health professions students
participate. In each successive year, the medical student or resident assumes
Participant to quasi-
independent provider under greater or lesser supervision of a teaching physician. The
degree of independence varies widely and is dependent on the capabilities of the
student, the specialty, complexity of the case, philosophy of the program and the
teaching physician and in some cases the payment status of the patient.

Residents not only provide patient care while learning but they also engage in
research and teach more junior students. Teaching physicians simultaneously
provide education and patient care.

There are more than 6000 residency programs approved in the United States,
scattered over more than 1200 teaching hospitals, plus clinics. The majority of
residency programs are hospital based and have been so historically.

Residency programs are reviewed and approved by residency review committees
(RRCs) under the umbrella organization The Accreditation Council for Graduate
Medical Education (ACGME), a private sector organization. There is no one
organization that sets the total number of residency programs, residents, specialty
distribution or sites of training. The RRC’s do not directly establish overall residency
numbers in the specific specialty but set qualitative standards such as volume of
clinical cases, type of cases, etc.

‘The number of residency programs per hospital varies widely from one program
to programs in every specialty and subspecialty. The degree of integration, with
medical school faculty also varies widely from programs with no medical school
affiliation, a declining number, to integrated medical school program that rotate


164

STATEMENT OF

AMERICAN SOCIETY OF PLASTIC
AND RECONSTRUCTIVE SURGEONS

to the

Subcommittee on Health
Committee on Ways and Means
United States House of Representatives

April 3, 1995

RE: Graduate Medical Education

The American Society of Plastic and Reconstructive Surgeons (ASPRS) represents
97% of the nearly 5,000 board certitied plastic surgeons in the United States. Plastic
surgeons provide highly skilled surgical services which improve both the functional capacity
and quality of life of our patients. These services include the treatment of congenital
deformities, burn injuries, traumatic injuries, and cancer.

ASPRS agrees with subcommittee Chairman Bill Thomas (R-CA), that a “revolution
is underway in health care which has significant implications for the future health manpower
needs of the nation as well as the destiny of our major teaching hospitals.” Health care
reform that does not support and foster medical education will not be viable in the long run
as the quality of any health system depends on the renewal of its work force,

In 1994, ASPRS commissioned a study of the plastic surgery market and workforce
‘The study was performed by RRC, Inc. of Bryan, Texas. Among the study's findings, we
learned that substantial increases in provider workforce are expected in the next 20 years,
although many underserved areas will require a long time to attract a plastic surgeon.

Taking into account the study’s findings, ASPRS adopted the following positions,
which are now recommended for Congressional action:

1. Continue Federal Support for Graduate Medical Education

Federal support for graduate medical education must continue to ensure that the
United States will maintain a well-trained and highly qualified physician workforce. In
recent years, we have observed a trend toward lower payments by third-party payers to
physicians and hospitals. As a result, teaching programs have become even more dependent
on Medicare financial support and are less able to compensate for any funding shortfalls
through payments they receive for services provided to non-Medicare patients. This is

problem is especially acute for specialties with longer training periods, such as plastic
surgery, which already receives reduced financial support from Medicare beyond the first
five years of training

ASPRS opposes proposals that would further limit Medicare direct graduate medical
education support to only the first three or four years of residency training. Specialities with
longer training periods are as critical to the health care needs of our nation as those with the
shortest training

Require Third-Payer Participation in Funding Graduate Medical Education

Further, all third-party payers should participate explicitly and uniformly to the
financing of graduate medical education. Provisions must be made for adequate transition
payments for institutions that lose residency programs.


64

Testimony of Michael A. Carter, DINSc,, RN.
Dean, College of Nursing
University of Tennessee, Memphis

Good Morning. 1 am Michael Carter and I serve as the Dean of the University
of Tennessee College of Nursing. The College in cooperation with our
University Hospital in Knoxville, TN conduct a Master's degree program in
nursing that prepares Certified Registered Nurse Anesthetists, We began this,
program in the early 1930's and today graduates of this program provide
anesthesia to patients throughout the nation. We would very limited in our
ability to operate this program without the money the hospital receives from
the Medicare reimbursement. I believe, however, that a number of changes
are needed if the legislative intent of this reimbursement are to be to be met
today and in the future. As important as the reimbursement is to us, I can
not tell you the amount of this reimbursement. This is because the money
goes directly to the hospital and not to the budget of the educational program.

T understand that the original aim of Medicare reimbursement for a portion
of the costs of nurse education was to promote high quality care for Medicare
beneficiaries. in 1965 it was very appropriate that this rembursement be
made to hospitals for nursing education since that was where most of the
‘education took place. Many changes have occurred since then. For example,
in the area of preparing Certified Registered Nuree Anesthetists, all education
could be done in one hospital in: the past. Today, all hospitals do not provide
all clinical services. Our University Hospital doca not provide enovgh
obstetrical services for our students to learn to competently administer
epidural anesthetics. We must have the student leave Knoxville and spend
at Jeast one month of their training in Memphis.

‘The situation is far more complicated in the area of educating nurse
practitioners, The College of Nursing has operated a Master's level Family
Nurse Practitioner program since 1973. We have graduated hundreds of
these providers and they today provide primary health care to thousands of
citizens in the heart of the nation. None of the education of our nurse
practitioner students takes place in the acute care hospital. They are prepared
in community based clinics in inner city Memphis and in rwal Tennessee,
Arkansas, and Mississippi. When they graduate, this is were they practice.
Medicare reimbursement for « portion of the costs of their education is not
available to these clinics. These clinies care caring, for mostly poor people.
There is not any form of reimbursement to cover the costs of educating nurse
practitioners in these clinics, We must change the current system of
reimbursement if we are to meet the original aim of Medicare
reimbursement.

T would strongly recommend the following

1g Discontinue the current reimbursement for hospital based nursing
educational programs. This moncy needs to be redirected to mect the

emerging needs of Medicare beneficiaries. The need is the greatest for
advanced practice nurses. nurse practitioner, nurse midwives, and nurse
anesthetists - at the Master's or higher level. The education of these students
does not take place in the hospital or in only one hospital

2, Redirect the current reumbursement to the education of advanced
practice nurses, The money needs to be made available to the nursing
education program offering the program. This money would pay stipend
support for full time students, cover a portion of the costs for clinical
supervision of these students, and allow for some payment for the costs of
education borne by the primary care clinics.

J believe that if these two changes are made in the current Medicare Graduate
‘Medical Education reimbursement system that the nation would be able to
greatly expand the critically needed number of nurse practitioners, nurse
midwives, and nurse anesthetists particularly those in rural and other
underserved areas without adding new money to the aystem. Rather, we
would make a much better use of the current investment Medicare makes in

nursing education


148

You know, it is our premise that we need to train individuals in
dental education and the general practice programs and the dental
specialty programs to be able to function within a managed care
market, as well as the private market also, because we are going
to have a mix in the future obviously.

[The following was subsequently received:]


35

tionate, and you got money different ways for rural. That is all the
political history of where we are.

If we want to change it, we have to start with where we are. And
so if we put a freeze on the total number of folks financed, if we
limited the Medicare money to 3 years, and if we figured a way to
allow you folk to make the decisions of how you operate within
those two parameters, and we created a mechanism to allow money
to go where you folks, in your training and teaching and educatiny
capacity, decide best where it should be used—is that a big enoug!
change to have an impact on the marketplace, on the profile of doc-
tors and other health care professionals?

Dr. HEYSSEL. I think the 3-year limitation, if it were absolute,
would have a real impact.

I also, I think, said that, you know, there are certain programs
that really ought to go beyond 3 years; for instance, surgery, gen-
eral surgery.

Chairman THoMas. But can we not find a way to fund that out-
side of our payment, which then creates a real choice factor there
that if folks want it, they are driven to do it.

Dr. HEYSSEL. Congressman Thomas or Chairman Thomas, let me
give you a story; let me give you a story, though, which makes me
hesitant about making these things change.

For 20 years at Johns Hopkins Hospital, the hospital, unlike
most other places, did not fund fellowships leading to subspecialties
in internal medicine, in any subspecialty in internal medicine and
in some other areas.

And as you are probably aware, we have some of the largest
training programs in these subspecialties in the country. And
somehow or other, my colleagues on the faculty found ways to get
money for that, generally from their own professional fees, I will
say, more often than not.

To the extent that that is in jeopardy now, whether that would
continue or not—but I am just saying that there are always other
sources of funds for people to use, if they really are interested in
a particular training program. And they are; that is their stock in
trade and understandably.

Chairman THomas, No, I agree with you, because we have only
complicated the problem because the traditional source of funds—
largely from that excellent faculty, making money in the fees and
the structure—is less and less available because of the patient pro-
file in medicine.

Dr. HrEyssEL. Right.

Chairman THOMAS. The other concern I have is, you indicated a
structure that grew up at Johns Hopkins which was not driven by
government funding, but by a felt need.

Does it make sense to redirect where the money goes into the
system? That is, do you really believe we can get a top-down ref-
ormation, or would it go faster and would it be better if we did a
bottom-up; that is, we funded the folk who were looking for the
training and the assistance?

And you mentioned, I think, Dr. Ludden, a voucher where folks
would go where they believed they were being provided with the
best education and training for their particular interest. And I


67

justment, I just do not know exactly what to do, recognizing how
high it is.

ir. JOHNSON. Doctor, you did not really answer my question
when I asked you if—and Mr. Cardin led into it—if these dollars
are drastically reduced, are hospitals going to go out of business?

Mr. ALTMAN. Oh, now, if you get—I was just responding to——

Mr. JOHNSON. I know. The nurse part of it.

Mr. ALTMAN. Now when we talk about the big issue, I do get con-
cerned. I mean, I am concerned about several of our major teaching
hospitals. I am concerned about what Mr. Cardin said. If we sort
of just reduce the amount of money at the same time that the man-
aged care world and competition is squeezing down, I think we run
the risk of some of these institutions falling into deep financial
problems. I do.

Mr. JOHNSON. Well, I think there has to be some restructure, and
I think you are hitting the nail on the head about where to get.
some of those reductions.

You also said the number of 229 major hospitals or 230. The
panel before you corrected me when I used that number, which I
got from you, and said 130 or so. Now——

Mr. ALTMAN. Well, it is the definition of “major.” You know,
there is major and there is major-major. You know, I mean—
(Laughter.]

And then there is a major-major-major. You know, before you
know it, there is only Johns Hopkins left. So what can I tell you?
{Laughter.]

Mr. JOHNSON. Well, if we can keep that one, maybe we will be
all right.

Thank you very much.

And Mr. Christensen, did you want to inquire?

Mr. CHRISTENSEN. Sure. I would like to get your opinions on
what your vision of a graduate medical education should be. For
example, what should the role of the hospitals in graduate medical
education be in light of the current budget constraints that we are
going to be facing in the next few months. What role should they
play:

Ms. HaNnFT. Well, hospitals have to play a partial role. A physi-
cian and a nurse practitioner as well needs some hospital-based
training.

The real problem is that the need is for training in HMOs, in
managed care environments, and in clinics. And we have a mis-
match of what are the educational needs versus the way the funds
flow to support that.

Some hospital training is absolutely essential, and hospitals, par-
ticularly large teaching hospitals, also have numerous outpatient
clinics as part of them, which are a major source of education for
both nurse practitioners, residents, and physician’s assistants. So
you need some of both.

The problem is that the bulk of the funds flow to the hospital,
and unless the hospital is willing to support the outpatient training
in another locus by continuing the salary, Medicare does not pay
for it. And that is the fundamental mismatch that we have in the
financing.


104

source of that funding—we are funding the equivalent of 140 per-
cent, and we recognize that many of those are the international
medical graduates that make up the difference between the 100
percent and the 140 percent.

We feel that if we are in a situation now where we are graduat-
ing as many as we need—and there are those who think we are
even graduating more than we need—it seems to be just prudent,
then, that we should buy what we need to meet the needs of the
citizens of this country first.

Then if we have a system that produces enough physicians, it
seems to me we should limit our funding to just meeting that need.

So I would strongly recommend that consideration be given to
limiting the funding to 110 percent of our graduates.

Now there is a potential for the loss of osteopathic graduate med-
ical education positions if the osteopathic allocation then is buried
within a single allopathically dominated pool; therefore, I would
prevail upon you to take under consideration the fact that there is
a separate system of educating physicians.

Second, GME funding should be equitable for all positions and
based on national averages rather than the current system that is
hospital-specific, that provides for a wide range of costs in graduate
medical education, that may be producing the same end product.

Third, GME funding should be by all third-party payers, and you
have heard that repeatedly this morning, and we in the osteopathic
profession want to reinforce our position relative to that.

We feel as though all of the third-party payers should participate
by funding graduate medical education, recognizing that as man-
aged care now is permeating the medical market and soon will in-
clude many of the people who are in the Medicare program, and
while the HMOs are receiving 95 percent of that average cost per
Medicare patient, and that includes the medical education portion,
we feel as though they should bear a portion of that cost, or that
portion of the payment to the managed care systems should be re-
moved, so it can go directly to those training institutions.

Fourth, we feelas though there should be a freeze at least on the
resident-to-hospital-bed ratio at the current level. This would re-
move the disincentive to move much of the graduate medical edu-
cation out of the hospital and into the ambulatory sites. That is
less costly than the hospitals. You do not begin to incur as much
of an indirect medical cost where training takes place in the ambu-
latory sites.

If the greater need is for primary care physicians who will prac-
tice in ambulatory sites, we feel as though that is where they
should receive their training.

In conclusion, osteopathic physicians have provided for many
years a vital component in the health care delivery system in
America. In order to assist the country in meeting the many chal-
lenges in physician work force development and reducing cost, we
suggest that the present system of funding graduate medical edu-
cation be made more equitable. All residents, without regard to the
site of their training, should receive the same direct funding. The
indirect funds would be based on averaging, utilizing the same na-
tional average, not hospital-specific, and based on a more recent


167

STATEMENT OF THE SOCIETY OF GENERAL INTERNAL MEDICINE

‘The Society of General Internal Medicine (SGIM) was founded in 1978 to promote
improved patient care, teaching and research in primary care general internal medicine. There
are approximately 2,700 members of SGIM. The importance of generalists to the nation's health
care system and the critical role they play in effecting reform in health care delivery has long been
recognized by the profession, by the nation’s policymakers, and by society, Recent efforts to
reform the nation’s health care delivery system reaffirmed the role of the generalist physician in
providing universal access and controlling costs. ‘The unique contribution of generalist physicians
to health care delivery is their ability to provide comprehensive high quality primary care in a
variety of settings, to people with a broad array of health-related conditions. Generalist physicians
are specially trained to deliver primary care. Primary care is characterized by first-contact care
for patients with undifferentiated health concerns; patient-centered comprehensive care that is not
‘organ or problem specific; continuous, longitudinal patient care; and coordination of necessary
medical, social, mental, and other services through appropriate consultation and referral. General
internists provide this type of primary care to men and women from adolescence through old age.

‘We commend Chairman Thomas in addressing current graduate medical education (GME)
and teaching hospital policy. In examining alternative policies regarding the training of future
health professionals, the needs of the health provider in the evolving health care system, and the
financing of teaching hospitals, the committee must also consider the series of disincentives related
to the generalist disciplines from undergraduate medical training through practice:

1. Financial and other incentives have pushed an increasing number of international and
U. S. medical graduates into specialist careers. Despite one of the highest physician to
population ratios, the U. S. has shortages in important areas of its health care providers.

2. Federal funding of training after medical school (graduate medical education) promotes
hospital-based training of specialists who provide expensive services at low cost to the
hospitals.

3. Medical students have strong incentives to choose specialist careers because of increasing
indebtedness from medical school and the higher income potential of specialty as opposed
to primary care practice.

4. There has been continued and increased demand for specialty services, despite concems
that many procedures and specialty services are overutilized.

Market forces alone will not correct for the low proportion of primary care physicians;
the Federal Government must reevaluate and establish specific goals in the financing of medical
education and medical practice. The outcome of these goals should be to achieve at least 50
percent of U. S. physicians practicing the generalist disciplines of general internal medicine,
general pediatrics and family medicine.

Among the various mechanisms which have been proposed to shift graduate medical
‘education payments to support the training of generalist physicians, we believe that the most
effective short-term approach will be to modify payments to hospitals. In July, 1994, the
Department of Health and Human Services Office of the Inspector General (OIG) issued a final
audit report, "A Study of Graduate Medical Education Costs." The report analyzes hospital
graduate medical education costs during the first 5 years of Medicare's prospective payment
system, which began October 1, 1983. The report concludes that, in the absence of changes to
GME through health system reform legislation, the Health Care Financing Administration (HCFA)
should reevaluate Medicare's policy of paying GME costs for all physician specialties. As part
Of this reevaluation, the OIG recommended that HCFA consider submitting legislation to reduce
or even possible eliminate Medicare's investment in GME for specialties for which there is a
surplus of physicians.

Our comments address several issues related to policy reform concerning funding graduate
medical education:


126

Furthermore, Medicare funds for nurse education are not routinely targeted for this
intended purpose, but can be diverted to a hospital’s general revenue pool and
distributed in a variety of manners based on the institution's internal budgeting
processes,

THE NEED FOR A GRADUATE NURSING EDUCATION PROGRAM

As the need increases for community-based and primary care providers, nursing will be
forced to expand the number and capacity of its graduate level education programs.
‘These programs do not currently receive Medicare funding. In order to educate
adequate numbers of skilled advanced practice nurses who provide high quality and cost-
effective services to Medicare recipients, there must be a reliable revenue stream that is
not subject to the uncertainties of the annual appropriations process. We urge this
Committee to redirect, aver a three-year phase-in period, a portion of the Medicare
funds currently being used to support diploma nursing programs in hospital institutions to
programs that educate advanced practice nurses. However, since there is also a
continued need for four-year BSN prepared nurses to play a variety of critical roles in
the evolving health care system, we believe that the current Medicare funds reimbursing
hospitals for those programs should be maintained.

We also believe that funding must be available to the 72 existing programs offering what
is termed an "RN to MSN" program. In essence, these are accelerated nursing
education programs for diploma or associate degree nurses to become master’s prepared
and hence, better able to meet the primary health care needs of the nation. These
programs allow for a readily-available pool of skilled experienced health care
professionals to become educated as advanced practice nurses in a shorter amount of
time.

‘A graduate nurse education program would help many graduate nursing students who
are currently attending school part-time due to financial constraints to become full time
students, The current cost of attaining a nurse practitioner education is similar to
students pursuing master’s degrees in other areas of study. A 1994 Lewin-VHI study
commissioned by the Health Resources and Services Administration, Bureau of Health
Professions, Division of Nursing estimated that the average cost of nurse practitioner and
certified nurse midwife programs per student year is $15,591. The average costs for all
nurse practitioner programs are $17,544 per student year and $34,096 per graduate.

A large portion of a graduate nursing student's programs are in clinical practice. Some
certifying exams require that the nurse graduate spend one-third of his or her advanced
nurse education in the classroom and two-thirds in clinical practice, although in most
cases, the classroom and clinical studies are integrated through the graduate student’s
curriculum. In other words, even as advanced practice nurses are training for their degrees,
their services are utilized in providing much needed health care services to patients.

THE NEED FOR RN’s

Recent research by Linda Aiken, PhD, RN, FAAN demonstrates that hospitals have not
increased employment of nurses enough to offset the increase in acuity, so nurses are
working under greater pressure to provide critical health care services to acutely ill
patients. While employment in the hospital sector increased 33 percent during the 1980s
and positions for nurses also increased by over 200,000 FTEs between 1980 and 1992,
RNs and LPNs exhibited the slowest growth of any occupational category in the hospital
workforce. Further, many of the new RN positions were in administrative or other non-
clinical roles. Consequently, nurses represented a smaller share of the hospital
workforce at the same time that patients in the hospitals were sicker than in previous
years; this increasing need for acute health care services fell mostly on the nursing
personnel,


45

Mr. JoHNSON [presiding]. Thank you, madam. We appreciate
your testimony, and we will proceed with the other two gentlemen
and then take questions for the panel.

STATEMENT OF STUART H. ALTMAN, PH.D., CHAIRMAN,
PROSPECTIVE PAYMENT ASSESSMENT COMMISSION

Mr. ALTMAN. Mr. Johnson, thank you for allowing us again to
come before this committee. As Chairman of the Prospective Pay-
ment Assessment Commission (ProPAC).

Mr. JOHNSON. It is always a pleasure to have you before us.
Thank you.

Mr. ALTMAN. Thank you.

I want to switch the discussion, if you will, to where the dollars
are. I realize and I do not want to diminish the importance of di-
rect medical education and the discussion you had before about the
training of physicians. But most of the money that flows from Med-
icare for graduate medical education flows in two other sources.
One is what we call the indirect medical education adjustment,
which is about $3.8 billion a year, and the second is the dispropor-
tionate share payments which come from Medicare, which amounts
to another $3.4 billion.

You know, we have looked at this at ProPAC in all different
ways. And what just astounded me—I was looking at the numbers
this morning—a third of all of the money, of all of the Medicare
money, that flows to the major teaching hospitals comes from these
three sources: The indirect medical education, the direct medical
education, and the disproportionate share payments. A third of all
of their income comes from these three sources. So we are talking
about substantial ameunts of money.

As you have heard this morning, there is no question that the
changing marketplace is putting our teaching hospitals at a big dis-
advantage, and we at ProPAC are very sympathetic to their prob-
lems. We do believe they should be protected.

But we are increasingly uncomfortable that Medicare now is
being asked to disproportionately keep this important engine alive.
And Medicare is under the gun. There is no question about it, that
its rate of growth is higher than in the private sector, and there
are all kinds of ways of looking for cuts.

And I support, and I know the Commission supports, moving
away from using patient care dollars to support this public good,
as Dr. Ludden said. So we have looked at what we would suggest
you do.

And in the short run, we believe that it is appropriate to reduce
the indirect medical education adjustment from about 7.7 percent
of every 10 percent of the number of resident interns down to 6.7,
which is a 1-percent reduction. That is $500 million, and then do
that for 2 more years to bring the number down to where our esti-
mates say it should be. So over a 3-year period, you would reduce
the Medicare indirect payments by almost 40 percent.

We support, though, moving away from this patient care empha-
sis and developing some type of pool arrangement, whether it is
through some State organization or community consortium that
was in Senator Dole’s and Senator Packwood’s bill, some way of es-
tablishing a separate fund.


87

As of 1993, there were 97,300 resident physicians enrolled in ACGME-accredited GME
programs in this country. Approximately 74% of those resident physicians were graduates of
U.S. or Canadian medical schools accredited by the Liaison Committee on Mediczl
Education (LCME), 3% were graduates of U.S. osteopathic schools, and 23% were
graduates of foreign medical schools not accredited by the LCME. Almost one-third of the
total resident physicians on duty were enrolled in approved residencies in internal medicine
or internal medicine subspecialties. And, as reported as recently as March 15th, 1995, by
the National Resident Matching Program, this year more than half of U.S. medical student
seniors have signed up for initial residency training in primary care -- that is, in family
practice, internal medicine and pediatrics.' While some of these students will continue to
center subspecialty training, it is clear that student choices are responding to the changing
marketplace

The responsibility for the oversight of this large and extremely important educational
enterprise is widely diffused. GME program directors, hospital service chiefs, medical
school department chairs, and the administrators of medical facilities currently have a great
deal of autonomy in determining the size and mix of the GME programs sponsored by a
given facility. The ACGME is responsible for establishing accreditation standards in the
approved residency training programs and accrediting individual GME programs. Individual
Residency Review Committees (RRCs), which are comprised of representatives appointed
upon nomination by the AMA, the appropriate specialty board, and, in a majority of cases, a
specialty society, are responsible for assuring these standards are met.

GME Financing

GME is largely financed from patient care revenues generated by teaching hospitals.
‘Medicare is the only third-party payor that reimburses hospitals separately for GME costs.
Although Blue Cross plans and commercial insurance companies generally recognize that
GME costs are built into the rates they pay teaching hospitals, they do not require that these
costs be explicitly identified for separate reimbursement. Health maintenance organizations
(HMOs), preferred provider organizations (PPOs), and self-insured industry or government
plans are generally unconcerned about the individual components of provider costs,
particularly GME costs, as long as they are able to obtain competitive prices by negotiating
discounts from stated charges. With the exception of Medicare, there is no way to document
precisely the actual contribution that each payor whose beneficiaries use the services of
resident physicians in teaching hospitals makes to the financing of an institution's GME
costs. It is reasonable to conclude, in fact, that a significant portion of HMOs, PPOs, and
self-insured plans do not contribute to the financing of GME.

The federal government is the single largest contributor to the total costs of GME in the
country. ‘The Medicare program pays approximately 30% of the direct costs of GME in non-
federal teaching hospitals, The Department of Veterans Affairs (VA) and Armed Forces
finance GME programs operated in VA and military hospitals. These federal hospitals
sponsor approximately 10% of all GME positions in the country. Through grants provided
under Title VII of the Public Health Services Act, the federal government also subsidizes
some of the costs of GME programs in family medicine, general internal medicine, and
general pediatrics. Finally, the federal government provides an additional contribution to the

' ‘The AMA also recognizes Obstetrics-Gynecology as a primary care specialty


8

done. And so medical students and others are told that there are
good opportunities in these particular areas.

Second, in the absence of any limits, the number of international
medical graduates who come to this country has continued to esca-
late.

Now just to make this as clear as possible, between 1988 and
1994, the number of residents in graduate medical education pro-
grams increased from 84,000 to almost 104,000, 20,000 more each
year. Each of those residents represents 35 to 40 years of profes-
sional service. So in terms of the health care system, we add 4,000
residents a year, which is what we have been doing; you basically
are creating a cost center for 160,000 physician years.

Now one of the questions would Be, Well, if the price comes
down, if subspecialists charge less or receive less, why will that not
ultimately decrease the supply?

Well, there are several reasons. One is that the pipeline is very
long. It takes 7 to 10 years for people to prepare.

But more important, practicing in the United States is very at-
tractive to international medical graduates, and over the same time
period, the number of international medical graduates has gone
from about 7,200 to over 18,500; that is, 11,300 more international
medical graduates have gone into residency programs over that
same period of time.

The effect, then, is that the forces are to increase the number of
physicians.

Pet me just conclude by arguing that if you have a cap, if you
have a freeze, that it does several things for you.

First, it reduces the rate of rise of costs, because it is harder to
add more people. At the present time, if an institution has an ac-
credited program, it can add more residents.

Second, it has the effect that if one is going to have more gener-
alist positions in your program in a particular institution and you
are frozen, you have got to diminish the number of subspecialty
slots.

Third, we all believe that people need to have more training at
sites outside of the hospital, and we want to see the rules change
so that individuals can take care of senior citizens in the commu-
nity and so forth.

Right now, if you change the rules, that is dangerous, because
there will be the tendency to increase the number of residency slots
to provide high-tech care. In the presence of a freeze, if you had
a fixed number of people, you can use them in a variety of commu-
nity slots. They can do preventive care; they can work on Medicaid

managed care programs and so forth without Tanning the risk
that you will continue to escalate the number of individuals.

Let me just conclude by saying that I am concerned about the
issue of payment to these institutions, As you made reference in
your statement, as more and more Medicaid and managed care oc-
curs, there is going to be less and less support for this activity.


ISSUES REGARDING GRADUATE MEDICAL
EDUCATION

THURSDAY, MARCH 23, 1995

House OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in room
1100, Longworth House Office Building, Hon. Bill Thomas (chair-
man of the subcommittee) presiding.
(The press release announcing the hearing follows:]

jm


150

Dentists, of whom over 80% are primary care providers, already
serve as gatekeepers for the patient when referrals are
necessary.

Most telling, however, is the underlying incentives in the
managed care model to limit utilization. This is a consequence
of a financing system which-~absent deductibles, copayments and
other out-of-pocket expenses--often insulates the patient from
economic decisions regarding health care services.

Gatekeepers, limited choice of practitioners, designated sites
for care and lower, capitated reimbursement rates for
participating providers can serve as the cost-containment
mechanism by creating barriers to patient care.

In contrast, the traditional fee-for-service dental model is
cost-effective because it (1) encourages patient visits to

oral disease and allow early therapeutic intervention,
and (2) involves consumers directly in the cost of dental care.
Today's patients pay almost 53 percent of the national dental
bill out-of-pocket. The result is, at once, a dramatic rise in
the oral health status of those who receive regular dental care
and a steady decline in expenditures for dental services as a
percent of total health care spending.

The American Dental Association respectfully requests the
inclusion of this letter in the formal hearing record of March
23, 1995,

Sincerely,

fu Moss

Director
Washington Office

DM:SK:k1p


42

‘State Support

‘The states have considerable discretion in setting hospital rates under Medicaid,
including graduate medical education and teaching physician payments, Most states
include the direct cost of graduate medical education but not the indirect education
adjustment.

In addition to Medicaid payments, states provide support for undergraduate and
graduate medical education through a number of different mechanisms, The majority
(76) of allopathic medical schools are state schools.

States provide direct support of residencies through specific appropriations. The
majority of this support is for family practice residencies.

States also provide operating subsidies to their university hospitals. Sometimes
these subsidies are in the form of residents’ salaries and fringes, sometimes they are
subsidies for indigent care, Some states deficit finance or make up the balance
between revenues and expenses,

Critics of current methods of graduate medical education financing have raised
three issues:

1, The total number of residents being trained compared to the supply need and
the number of US medical school graduates. There are approximately 17,000
graduates of US medical and osteopathic schools and 21,600 first year residents in
allopathic programs, plus about. 1000 osteopathic positions. ‘The total number of
residents in all years of residency has increased from 74,500 in 1985 to 96,500 in
1993. Over 20 percent of residents are not US graduates.

2. Most critics observe that there is an imbalance between the numbers being
trained in primary care vs. other specialties. While the Medicare change to limit full
support to five years was designed to reduce the incentive for specialty training, it
has not yet worked.

3. Perhaps the most important criticism is the problem of supporting out of
hospital training.

Primary Care Residencies and Ambulatory Care Training

A recent Institute of Medicine (IOM) study contained a number of commissioned
papers on primary care residency and ambulatory care education financing. The
following is quoted from the document:

“There are several generic problems in financing primary care residencies
outside of the hospital setting. ‘These problems may be of lesser magnitude in
support of general surgery or other procedural specialties where patient charges tend
to be substantially higher for services. The problems are summarized as follows:

- In the hospital setting, the resident and supervisory physician are paid
salaries from hospital revenues with education costs separately recognized by
Medicare and Medicaid and historically included in hospital charges. Ifa
personal and identifiable service is provided by the teaching physician, a fee
can be charged to the patient or insurer. Residents may not bill fees.

- In the outpatient setting not linked to a hospital (for Medicare) and for
outpatient settings in terms of other insurers, the resident's salary and
supervisory salary for the faculty must be generated from fees to the
patient/third party or from grants from government and/or philanthropy. In
the primary care specialties, the fee level, as noted extensively in the
literature, are substantially lower than for procedure-oriented specialties.
While there are two sources of patient.car support for hospital-based or
hospital outpatient linked training, there is only one in the nonhospital
ambulatory care setting. Payments for physicians services as distinguished
from payments for hospital services historically did not incorporate education
costs since education was almost exclusively hospital-based in allopathic
medicine.


161

training psychology interns in health care facilities will allow them greater exposure to primary
care, and afford them opportunities to prepare to teach, evaluate and provide services even more
effectively as partners in the health delivery system (Linton 1995).

Despite the important role that psychologists play in the delivery of health care services as
members of interdisciplinary teams, there has been almost no federal support for students of
psychology, including minority students. Compared with assistance to the medical profession,
federal assistance to psychology is minuscule (Dumivin, 1994). There 1s, in fact, a critical need
for more psychologists, especially minorities, to work in public settings and in particular in
underserved areas. Yet, without federal financial aid programs, it is nearly impossible for those
who otherwise could not afford the seven years of graduate school to become a professional
psychologists, -

Currently, hospitals do not receive any GME funding to support psychology internship programs,
This lack of reimbursement, coupled with the loss of income due to health care reforms, has
forced many hospitals (0 reduce financial support to train psychologists. Moreover, current
inequities in GME funding have lead to cutbacks in positions of hospital staff psychologists who
provide training to intems, in addition to providing diagnostic, assessment, preventive, and
therapeutic services to hospital patients, Linton (1995) notes that while it is unusual to find
administrators who are antagonistic per se to the notion of training psychologists in their
facilities, because they receive no GME pass-through funds, a burden is placed on them (0
differentially support certain efements of the health care team,

‘The link between financially sound training and competent health care delivery is well known,
Further, a growing number of studies have shown that the provision of psychological services
reduces medical utlization and cost. Indeed, psychological services produce quality health care
that generates better health for the recipiemts of the services and, in turn, more wealth for society
at large. Clearly now is time to recognize the important and critical role psychology plays in
fhealth care and to ensure that psychology students participate in the Medicare GME program for
the benefit of all Americans.


73

Medicare support will make it more difficult for teaching hospitals
to sustain their role in society.

On this point, I find it paradoxical and even pathetic that the
new crop of publicly held managed care companies are so eager to
hire our product, specifically primary care doctors, but they have
no interest in talking about the costs of production.

Medicare and Congress, on the other hand, have recognized from
the beginning that in order to ensure quality care for the next and
ex) anding generation of seniors, Medicare has a responsibility to
help pay for the next generation of caregivers. Now, in my view,
is no time to flinch on this contract.

I would like to now end my comments by turning to the Medicare
AAPCC methodology, which Representative Stark alluded to earlier
on and explain how that poses a threat to the future of teaching
hospitals’ ability to carry out their responsibilities.

In some areas of the country, as in California, Oregon, Min-
nesota, and Florida, this threat is real and immediate. In other
areas such as mine where Medicare risk-based contracting is not
as prevalent, the urgency of addressing this problem is only coming
to the attention of teaching hospitals.

One thing is certain. As time passes and Medicare enrollment in
risk-based programs grows, this problem will only increase in mag-
nitude and become more difficult to solve. Failure to address the
way in which DGME and IME payments and the disproportionate
share payments are incorporated in the AAPCC calculation poses
a threat to the financial status of teaching hospitals. Modifying this
aspect of the calculation would at least partially ameliorate the
competitive disadvantage that teaching hospitals bring to the nego-
tiating table.

I urge you to address this issue in the context of the Medicare
reform package currently being developed by the subcommittee.
The AAMC staff would be happy to work with the committee to
remedy this situation.

Before I close, I would like to make a personal biased observa-
tion. Our country’s teaching hospitals—I have worked at three—are
a national treasure. They are also fragile. In this era of competi-
tion, greed, and return to shareholders, I believe that those who
champion education, research, and public service, the very domain
of government, will be smiling when the last chapter is written.

Thank you.

[The prepared statement follows:]


82

Any reduction in the IME adjustment would substantially harm teaching hospitals, destroying the “rough justice” chat has
been achieved with the current level of the IME adjustment. On average, PPS margins calculated without the IME or
DSH payment adjustments—but with only DRG. outlier and “high end stage renal disease (ESRD) use” payments-are
‘minus 31.76 percent. The IME adjustment makes a significant contribution to reducing what would have been large
losses, increasing the average PPS margin from minus 31.76 to plus 0.96 percent. The addition of the DSH payment to
the margin calculation moves the average PPS margin 10 plus 11.75 percent. If the IME adjustment is reduced from 7.7
to 3.0 percent. as proposed by the Republican House Budget Committee alternative budget for FY 95, the average PPS
‘margin would fall from a positive 11.75 to a negative 1.49 percent, 2 reduction of 13.24 percentage points,

Most important, if the IME adjustment were reduced to 3.0 percent, the impact on average total margins would be
substantial. ‘The average total margin in 1994 would fall from 5.1 percent 10 2.8 percent, a decrease of 2.3 percentage
points, At6.7 percent, ProPAC’s recommendation for FY 96, and 4.5 percent IME levels, average total margins would.
bbe 4.6 and 3.5 percent, respectively. The calculation assumes no change in the hospital's 1994 intern and resident-to-bed
ratio and no other changes in Medicare payment policy

Congressional mandates extending Medicaid coverage to broader populations which previously may have been categorized
a indigent patients, combined with favorable changes in Medicaid payment policy, may have contributed to these
hospitals’ improved total margins during this period. However, recently mandated limits on the amount of Federal funding
available for Medicaid disproportionate share payments has moderated or will reverse this pattern. In addition, the
continued growth in managed care arrangements. which often do not recognize the training and other special costs incurred
by teaching hospitals, and pressure by third-party payers o discount high cost tertiary services. threaten teaching hospitals
financial stabitiry,

‘he IME payment 1s an important equity factor in the Medicare PPS, compensating teaching hospitals for the higher
patent cate costs they incur as a result of the severity of their patients” illnesses. the scope of services provided and the
impact of educational programs on hospital operating costs. Last year, some policy makers argued that in a reformed
heats care system in which more individuals would have health insurance coverage and in which all payers would
coniribite to 3 fund for patient care costs associated with the academic mission, a significant reduction in Medicare [ME
Paynionts would be justified. One year later. atthe current levet of IME payments, “rough justice” appears to have been
achieved, but the number of uninsured and under-insured is growing and prospects for the creation of an all-payer fund
for costs associated with the academic mission ace dim.

Teaching institutions are vital national and community resources. often taking care of the most disadvantaged members
ot society. Yet theit overall financial viability, on average. tends to be more precarious than non-teaching hospitals.
‘The AAMC has noted repeatedly the Purpose of the IME adjustment is o recognize factors that merease costs in teaching
hospitals and ensure these hospitals’ overall fiancial viability, Analysis by government and private researchers
consistently has shown an empirical basis for a differential payment to teaching hospitals based on their costs. The
Justification for a special adjustment for these institutions traces back to the Medicare routine cost limits of the late 1970s
‘and the inception of the PPS in 1983. Even if the health care system is reformed to improve access. legitimate cost
differences between teaching and non-teaching hospials wll continue to exist. Teaching hosputals continue to have higher
inpatient operating costs because ofthe types of patients they teat, services they offer, biomedical research they conduct,
and residents they teach

‘The IME adjustment was originally developed to create a “level playing field” for teaching and non-teaching hospitals.
Ue serves as proxy (0 adjust for madequacies inthe PPS, including

inadequate recognition of differences within a given DRG of the complexity of disease, intensity of care required, and
resources utilized by patients in teaching hospitals,
non-recognition of the teaching hospitals costs of maintaining a broader scope of services, stand-by capacity for
episodic needs (e.g. trauma services) and the capacity to provide specialized regional services:
failure of the wage adjustment 10 account for differences between central city and suburban wage rates within
metropolitan areas:
unavoidable decreases in productivity steraming from the presence of physician trainees: and
«additional ancillary services ordered by physician trainees as they leacn how to diagnose and treat patients efficiently

‘The AAMC strongly supports the importance of considering other factors. such as aggregate financial performance. in
addition to an empirical estimate in determining the level of the IME adjustment. Teaching hospitals are under the same
bbudgeiary pressures as other hospitals to provide care efficiently; moreover, they must also fulfill their unique educational
and service missions, including provision of health care tothe poor. The current IME adjustment of 7.7 percent for each
O11 increase in the number of residents-to-beds represents a substantial reduction of over 30 percent, or neatly 4
percentage points, from the original adjustment of 11.59 percent. Teaching hospitals have coped with the decreased rate,
‘but in the current health services delivery environment, they will not be able 10 withstand furher reductions without
‘making substantial changes in the programs and services that they offer

‘A reduction in the IME adjustment would hinder teaching hospitals’ capability to support adverse selection within the
DRGs, high technology care, high cost services for referred patients, and unique community services such as burn and
trauma units, The AAMC continues 10 oppose any reduction in the indirect medical education adjustment and urges the
‘Congress 10 consider carefully the impact of a reduction in the adjustment on all teaching hospitals.


ISSUES REGARDING GRADUATE MEDICAL
EDUCATION

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

MARCH 23, 1995

Serial 104-17

Printed for the use of the Committee on Ways and Means

Se

U.S. GOVERNMENT PRINTING OFFICE
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108

producing community-level primary care medical practices is
the result of the profession’s carefully crafted educational
program that emphasizes primary care and the osteopathic
philosophy at all levels of education and training

Osteopathic physicians start their medical careers by
earning the degree of Doctor of Osteopathy or Doctor of
Osteopathic Medicine (DO). Presently, there are 16
accredited colleges of osteopathic medicine located in 14
states.‘ The colleges enroll qualified applicants who have
completed four-year college degrees and often advanced
graduate degrees. Requirements for graduation from
Osteopathic medical colleges include the successful
completion of a four-year curriculum of basic sciences and
clinical studies, including the same subject matter taught in
allopathic medical schools.

While the education of an osteopathic physician includes
the same materials required of allopathic physicians, the
education also emphasizes principles of osteopathic care. As
the osteopathic philosophy places an emphasis on the
musculoskeletal system and holistic care, so too does the
curriculum in our medical schools. In addition, osteopathic
medical students receive training in the administration of
manipulative medicine. In the first two years, the standard
osteopathic curriculum includes two to three hundred hours

‘chicago College of Osteopathic Medicine, Midwestern
University - Chicago, Illinois

College of Osteopathic Medicine of the Pacific - Pomona
California

Kirksville College of Osteopathic Medicine - Kirksville
Missouri

Lake Erie College of Osteopathic Medicine - Erie,
Pennsylvania

Michigan State University, College of Osteopathic
Medicine - Lansing, Michigan

New York College of Osteopathic Medicine, New York
Institute of Technology - Old Westbury, New York

Nova Southeastern University, Health Professions
Division, College of Osteopathic Medicine - North Miami
Beach, Florida

Ohio University College of Osteopathic Medicine -
Athens, Ohio

Oklahoma State University College of Osteopathic
Medicine - Tulsa, Oklahoma

Philadelphia College of Osteopathic Medicine -
Philadelphia, Pennsylvania

University of Health Sciences, College of Osteopathic
Medicine - Kansas City, Missouri

University of Medicine & Dentistry of New Jersey, School
of Osteopathic Medicine - Stratford, New Jersey

University of New England, College of Osteopathic
Medicine - Biddeford, Maine

University of North Texas Health Sciences Center at Fort
Worth, Texas College of Osteopathic Medicine - Fort Worth
Texas

University of Osteopathic Medicine and Health Sciences
College of Osteopathic Medicine and Surgery - Des Moines
Towa

West Virginia School of Osteopathic Medicine -
Lewisburg, West Virginia


131

TESTIMONY OF KENNETH KALKWARE, £ DDS.
AMERICAN DENTAL ASSOCIATION

Thank you Mr. Chairman and Members of the Committee for the
opportunity to testify today on behalf of the American Dental
Association and its 140,000 members. I am Dr. Kenneth Kalkwarf,
Dean of the Dental School at the University of Texas Health
Science Center at San Antonio.

Introduction

The ADA endorses the goal of the Committee to develop a relevant
and long-term policy on the role of Medicare in the support of
health professions education. For almost thirty years, Medicare
payments for graduate medical education have been vital to
meeting the health manpower needs of our country while enhancing
the quality of care for Medicare beneficiaries. Since the
beginning of Medicare, dental residency training has been part of
this funding mechanism. It is essential, we believe, that this
assistance be continued. Our views on this important issue are
based upon three fundamental propositions:

1) A direct link exists between a financially sound
graduate dental education system and the provision of
oral health care to the elderly, disabled, medically
compromised and other special need populations:

2) Graduate dental education rests upon a fragile
economic base;

3) Alternative sources of financing do not exist.

‘These factors compel, we believe, an adequate and predictable
level of federal support through Medicare direct and indirect
graduate medical education funding.

Before addressing more specific issues and recommendations with
regard to Medicare and Graduate Medical Education payments, I
would like to briefly describe the nature of oral health care
provided to patients in these dental residency training programs.

‘Treatment of dental caries (decay) in children was the
predominate concern of dentists in the past. Today, as a result
of advances made in preventive oral health care over the last
four decades, an increasing number of people are retaining their
teeth for a lifetime. This change in the nature of dental
disease requires today’s dentists to master a broader range of
treatments and to understand the implications of an ever~
increasing number of medical conditions and prescription drugs on
the oral health of patients, especially the elderly. Further,
there is growing recognition of the importance of providing
medically necessary oral health care.

Dental caries and periodontal diseases are bacterial infections
which, like pneumonia and other bacterial diseases, require
treatment. Oral cancer is more common than most people realize
and kills more people each year than cervical cancer. Untreated
dental diseases cause millions of hours of lost productivity and
impede employability. Oral health affects general health and
treatment of dental diseases is often a medical necessity.

For adults without dental coverage or the means to pay for care,
teaching hospitals and dental school clinics serve as a dental
“safety net". As in medicine, the hospital emergency room is
often the major source of orai health care for the poor. The
dentists and dental residents in hospitals serve this safety net
function, and unless there is a dentist available, patients with
dental problems will be given only temporary relief -- the
underlying problem, still untreated, will resurface at a later
time. Dental staff in these nospitals also provide numerous


159

‘arrangements such as HMOs, psychologists play a critical role because they understand the issues
of individual and family dynamics which contribute to the over and under use of medical
services. HMOs and other managed care plans have an economic incentive to develop
prevention programs that reduce unhealthy behaviors and compliance programs that encourage
adherence to prescribed medical regimens.

Psychologists are uniquely trained to provide necessary services to the external and internal
clients of HMOs. Apptoximately 35% of the U.S. population now utilize HMOs and the
enrollment in HMOs is increasing rapidly. Psychologists in HMOs work with multiple
disciplines (ie. doctors, nurses, and administrative officers). HMOs rely on psychologists to train
‘other health professionals on how to communicate effectively, especially with individuals who
have different language or cultural backgrounds, and to identify organizational problems within
and between departments. ‘The psychologist in an HMO ensures that individuals are receiving
appropriate treatment and that the HMO is working efficiently to deliver these services (Tulkin,
1985).

In HMOs and other settings, psychologists work side by side with pediatricians in primary care
(a) providing psychodiagnostic assessment services required 10 accurately diagnose learning
disabilities;(b) providing consultations regarding child behavior and developmental issues (e.g...
behavior management, toilet training, sibling rivalry), and (c) providing identification of high risk
situations (e.g.. child abuse) and the design of appropriate interventions. Indeed, one study has
demonstrated a 63% reduction in wilization of pediatric medical services after psychological
intervention with parents (Belar, 1994).

Case Study::Dr. Gregory Hafen works in a large multi-specialty group of 450-
plus physicians and: psychologists with a capitated population of 350,000 patients
in Southern and Northen California. Psychologists have been partners of the
medical staff and part of the primary treatment team since 1988. The HMO has
javioral health which has-developed its:own internal
‘quality assurance (QA) procedures, Psychologists are

das equals within the medical center and. have responsibility for being the
seks (oma and less restrictive levels of care. In the new managed care
arcstmarket, psychologists’. make ‘a: significant contribution: tothe
integration ofall medical cére. Dr. Hafen notes that his organization is committed
to coh oe the seit of mind and body. should be integrated.
Accor lreatinent teams for medical conditions such as

pain. mapagement have Reagan, ‘The integration of the behavioral and
medical disciplines: creates a-tiore balanced and efficient treatment process in the
Primaryicare'setting. -Becgiise-patients get the interventions they need instead of
‘inappropriate-medical treatments (e.g., drugs in wrong dosages, and combinations),
such interdiseiplinary treatment js more. cost-effective in the Jong run.

Psychological Services are Cost-Effective

‘Over the past several decades psychologists have assumed an increasingly greater role in the
provision of mental health services. The most extensive research to date on the cost-effectiveness
of mental health and substance abuse services involves the study on Hawaii's medicaid
population. An analysis uf 16,000 medicaid recipients showed that patients with mental health
needs were higher utilizers of the medical system by 200-250%. This study also found that over
a three-year period medical costs increased by 15% for medicaid patients who never used mental
health services and relative to this baseline, targeted, focused mental health treatment reduced
medical costs by 25-36%, depending on the comparison group (Pallak, 1991).

‘A study of the entire Georgia medicaid population revealed a substantia! offset savings from
‘mental health treatment. Patients receiving physical and mental health services realized a savings
of $1500 over 2 1/2 years. The cost of the mental health services were entirely paid for by these
savings (Feidler, 1989). Similarly, the CHAMPUS Program, which provides health care to
dependents of military personnel has demonstrated that unlimited outpatient mental health
services resulted in a net saving of $200 million between 1989 and 1992 (GAO, 1992).

Data from Kaiser Permanente and the Harvard Community Health Plan reveals that 50-75% of
patients seen by general practitioners have complaints of physical illness that are influenced by
psychological factors (e.g., indigestion, hypertension, headache, diarrhea, sleep problems,
shortness of breath), and that these patients tend to use the health care system twice as often as
other health plan members. Short term psychological intervention has resulted in a 47% decrease




109

which focus on manual medicine, and the concepts that the
body's systems are interrelated, that a dysfunction in one
system may be reflected in a dysfunction in another, and that
the body has a self-healing capacity.’ Osteopathic medical
schools expose their students to clinical experience at an
early stage in their training, typically including a 14-week
family medicine clerkship in addition to another 16 weeks in
pediatrics and internal medicine.* This curriculum is part
of a larger process of teaching all students to be primary
care physicians first and foremost.

Following graduation, osteopathic physicians generally
embark on a course of unique graduate medical education

Just as osteopathic medical education differs from allopathic
education, so too do the postdoctoral training programs. The
graduate medical educational program is designed to build
upon the osteopathic concepts taught during medical school.
The internship year of osteopathic graduate medical education
required for entry into osteopathic residency training
includes mandatory rotations in primary care areas of
internal medicine, obstetrics and gynecology, general
pediatrics, family practice and surgery. In addition, the
required curriculum for internships states that "Osteopathic
principles and practices shall be incorporated throughout the
program."’ Following internships, the physicians progress

to residencies in primary care and other specialties. The
osteopathic internship with its rotations in areas of primary
care is required regardless of whether a physician
contemplates a non-primary care specialty, such as
anesthesiology or radiology. It is our understanding that
such required primary care content is not included in
allopathic non-primary programs. Moreover, all of our
residency training programs, as with our internships,
incorporate osteopathic concepts. The AOA residency training
curriculum requirements include "Utilization of osteopathic
principles and practices relating to the specialty."* The
osteopathic system of graduate medical education creates a
profession in which all facets of primary care and specialty
care are represented. The osteopathic profession has become
one in which primary and non-primary specialties are balanced
in a way that more properly reflects the needs of our
society.

With this explanation of osteopathic medical care and
osteopathic medical education in mind, I would now like to
address directly the issues of Graduate Medical Education and
the AOA’s recommendations for this Committee

1. ocation sitions

The program of osteopathic predoctoral and postdoctoral
medical education and training produces high quality
physicians who practice in primary and specialty care fields
Gur program of graduate medical education reflects our belief

Sc. D. Meyer, DO, Osteopathic Medicine: Past, Present
and Future: What's Distinctive About Osteopathic Medicine
(March 1995) (presentation for the Josiah Macy, Jr.
Foundation) .

"Id

"Policies and Procedures for Intern Training, Section
VII, D, 1 (American Osteopathic Association, March 1993).

‘Residency Training Requirements of the American
Osteopathic Association, Section II, C, 3, e (American
Osteopathic Association, duly 1992).


30

many will, because they want to do more managed care and Medic-
aid managed care—they would have to subtract them from their
subspecialty slots.

If they downsize, the total number of residency slots in an insti-
tution was diminished, you would diminish the total pool. You
would not necessarily go and let somebody start a new program.

Chairman THomas. Does the gentleman from Illinois wish to in-

juire?
q Mr. Crane. Thank you, Mr. Chairman.

Dr. Ludden, in your conclusions and recommendations, you point
out that graduate medical education financing should not always
be directed through hospitals, and you on to state that HMOs
and other organizations should receive direct credit or reimburse-
ment for ongoing expenditures that directly support medical edu-
cation, especially including GME.

Do you think that Medicare should pay any of these entities?

Dr. LuDDEN. I think that however—I mean, we do get payment
from Medicare for those patients that we have. What we need to
be able to do is to focus our resources and use them in an innova-
tive way directly in medical education as such.

With the money that we have been able to put together over the
years, we have been able to affect the training programs of the
Harvard and other related institutions in a positive way toward es-
tablishing more primary care and making the skills something
which are more nearly what we are going to need in the future, so
that it has to do with being clear on the spending side that HMOs
and managed care need to have the opportunity to effect that
change at the local level to make sure we get the right skills.

On the revenue side, which is a lot of what our discussion has
been about so far, I would favor a more broad-based approach to
financing.

Mr. CRANE. Dr. Heyssel, Dr. Shine, do you share the same view?

Dr. HEYSSEL. The view of a broad-based approach to support and
that the money should be able to go to a different entity than a
hospital? Yes, I do.

I would think that since hospitals are needed for treatment as
well as ambulatory care sites, that an organization that was pri-
marily involved in ambulatory care and a hospital could form a
consortium around that, where the money went to that consortium
rather than to the hospital alone.

Dr. SHINE. My view is that there is merit to moving it away from
payment supply to the hospitals. I would recommend that it be the
educational institutions that are responsible for education of train-
ees, and they ought to be in a position to determine the kinds of
sites, the contents of the education that is required, and they would
then be able to reimburse the players in the consortium.

In other words, what I am concerned about is that there are obvi-
ous exceptions, depending upon locality, but I am concerned that,
“a consortium” as to have some kind of a lead agent which is re-
sponsible for how the money is used, and I would suggest that it
should be the nursing school, the dental school, the medical school,
whichever is responsible.

Dr. HEyYSSEL. I think there is a problem with that in the sense
that the residency review committees and others are, in fact, the


89

community has acknowledged that the IMEA is not in any way an educational adjustment
equivalent to the DME.

Medicare's new payment methodology for physician services, the Resource-Based Relative
Value Scale (RBRVS), has had an important impact on discussions of GME financing for
several reasons. First, because the IMEA payments were explicitly identified, Congress was
able to determine for the first time Medicare’s contribution to financing the total costs of
medical education conducted in teaching hospitals. Second, by mistakenly identifying the
IMEA as though it was dedicated only to medical education costs, Medicare's contribution to
financing these costs was exaggerated. As a result, RBRVS has had the effect of making
medical education costs, particularly GME costs, a highly visible target for those seeking
ways to control Medicare expenditures without seeming to cut services 10 beneficiaries.

‘Those interested in decreasing the amount Medicare pays for GME have justified their
position by referring to the language of the original Medicare legislation. In the body of the
legislation, Congress stated that the costs of the services provided by interns and resident
physicians could be claimed by hospitals as a legitimate inpatient expense. However. no
mention was made of the many other costs associated with medical education programs. In
the Conference Report accompanying the legislation, Congress acknowledged that hospitals
incurred additional expenses by sponsoring medical education programs, but stated that
Medicare should pay its fair share of those costs only until the community developed an
alternative way of paying those costs

The Social Security Advisory Council (in 1982), the Inspector General of the Department of
Health and Human Services (in 1984) and officials of the Health Care Financing
Administration (in 1985) have all stated that sufficient time has passed for alternative sources
of funds to be identified to cover GME costs. To date, however, Congress has rejected the
notion that Medicare should discontinue paying GME costs. At the same time, Congress has
expressed concern that the policies governing Medicare payment for GME may be no longer
appropriate and should be examined.

Coincident with the introduction of the Prospective Payment System (PPS), major changes
also occurred in the financing of health care services in the private sector. Due in large part
to the continued growth of aggregate health care costs, businesses and other third party
payors have developed more aggressive strategies for controlling their own expenditures for
health care. Central to these strategies are efforts to negotiate discounts in the prices
providers are paid for delivering services to plan beneficiaries. In order to maintain market
share in this increasingly competitive environment, hospital administrators have been willing
to provide discounts, even though doing so has clearly eroded their operating margins. Since
GME had been largely financed from hospitals’ discretionary revenues, the narrowing
operating margins have been perceived as a threat to the continued financing of GME costs

In its report, "Phe Financial Status of Teaching Hospitals: The Underrepresentation of
Minorities in Medicine” (1990), the Council on Graduate Medical Education (COGME)
documented the declining operating margins of the nation’s teaching hospitals, However, the
data presented in the report clearly demonstrate that this decline is due primarily to a decline
in non-Medicare revenue margins. The decline in non-Medicare revenue margins is due
largely to two factors: (1) deep discounts negotiated with some payors, and (2) the growing
uncompensated care burden being borne by teaching hospitals. Nevertheless, and this is
particularly important, teaching hospitals have generally done better than non-teaching


84

Mr. CHRISTENSEN [presiding]. Thank you, Mr. Munson. And Dr.
Jacott

STATEMENT OF WILLIAM E. JACOTT, M.D., UNIVERSITY OF
MINNESOTA, MEMBER, BOARD OF TRUSTEES, AMERICAN
MEDICAL ASSOCIATION

Dr. Jacotr. Good afternoon, Mr. Chairman. I am William Jacott.
I am a family physician, and I am associate provost for the aca-
demic health center at the University of Minnesota in Minneapolis.
Today, however, I am speaking as a trustee of the American Medi-
cal Association.

As we have learned by the discussion this morning, graduate
medical education is really a complex system. Any discussion of
GME involves those issues such as the physician work force plan-
ning, quality of care, charity care, and specialty choice. I will focus
today, however, on financing mechanisms that you, as a committee,
will be examining. I want to offer you a structure for analyzing this
complex issue. I will discuss several principles that the has
endorsed and a suggested first step for implementation. These and
other guiding principles are further elaborated in our written testi-
mony.

There are no easy answers here, but there is one overriding
goal—for Americans to be confident about the training and edu-
cation that their physicians receive. But to do this, we must ensure
stability and accountability in funding of graduate medical edu-
cation.

Our first principle, one mentioned earlier and several times, is
that all third-party payers should pay their fair share for GME.
That is all third-party payers, private as well as public.

You have heard in testimony earlier today about direct and indi-
rect payments to hospitals and especially to those large tertiary
care institutions affiliated with medical schools like ours at the
University of Minnesota. Right now, Medicare is the single largest
payer for GME. It pays about half of the total cost.

Private third-party payers often do not pay their fair share to
support graduate medical education, education from which they
continue to profit. Hospitals negotiate discount contracts with cer-
tain private third-party payers and they do this to maintain their
market share. But because these contracts rarely include provision
for paying a share of the hospital’s GME cost, the costs get shifted.
The discount contractor provides no GME support, but benefits
from medical resident service.

The AMA believes that there should be some kind of accountabil-
ity and fairness here. We think that there should be explicit and
uniform contributions from all payers for GME. And one way to do
this is to require all payers to adopt an approach that is similar
to the Medicare methodology for determining their share of the di-
rect costs of GME.

Our second principle: We should continue the current system of
linking GME payments to patient care services. Many GME pro-
grams are moving to alternative sites for delivery of care and edu-
cation. We ought to have the payments in those cases follow the
patients and the resident physician who is providing that patient’s
care. And that means if the patient gets his or her care at an am-


12

rural communities and underserved urban communities remains very high and is not
likely 10 be solved solely by flooding the market with physicians. Other strategies,
including professional, technological, and management innovations will be required to
meet these needs.

‘There have been many proposals by organizations to limit the number of positions
under graduate medical education. The most common proposal is that they be limited to
110 percent of the number of graduates of American medical schools. Such a rule
requires significant downsizing in the number of residents at the present time. I strongly
urge the Congress to change legislation so that, at the very least, the total number of
positions supported using Medicare monies be frozen at the current level. The effect of
a freeze would stop this increase of almost four percent per year in the number of
physicians added to the workforce. If an institution wished to add a resident without the
use of GME funds, they could have that opportunity, although J believe an absolute
freeze makes even more sense, Under a freeze, an institution could shift residency
positions from program to program, and residents could be assigned to multiple
non-hospital sites without increases in the total number of residents.

This leads me to the second major flaw in the current system. ‘The formulas for
reimbursement in graduate medical education lie predominantly on calculations and
services related to inpatient beds. This has two effects. First, it causes institutions to
keep a disproportionate number of positions in subspecialty areas employing technology
on an inpatient basis. Secondly, it means that the educational experience is often
disconnected from the real needs of society and of the health care system, Medica}
education must move increasingly into ambulatory services not only at the hospital but
into the community, urban and rural, for all segments of society.

The managed care industry emphasizes that it may take them 18 months to
prepare a physician, even those with generalist training, to practice appropriately in the
managed care environment. We must use limited resources in health care to provide
services for all elements of society, including the poor, the elderly, and the underserved,
in non-hospital sites, with the extensive use of non-physician providers as part of a team
that can emphasize preventive services, consult with young parents about ilinesses before
they make use of the much more expensive emergency room to receive needed care, and
to emphasize preventive programs. Under current circumstances, institutions cannot
construct educational programs for their residents based on either the long-term social or
professional needs, but rather organize these programs in order to meet the requirements
for reimbursement. Under circumstances of the freeze, institutions ought to be allowed
to plan resident educational activities based upon educational requirements for physicians
and the overall health care needs of the community in which they work. Under such
circumstances, residents might spend substantial amounts of time in neighborhood health
clinics rotating through managed care organizations and otherwise providing services that
are the most cost-effective and useful way to improve health in the community. Under
these circumstances, if an institution wished to increase the number of residency positions
in the generalist or primary care specialties, it could do so but only by reducing the
number of positions in the subspecialties. A freeze would then begin to ameliorate the
potential long-term cost to society of producing too many physicians with public subsidy
and would create a set of conditions in which the more appropriate assignment of
residents, according to social and educational needs, would become rational for all
concerned. indeed, one could support the arguments previously made that the formula
for reimbursement might be altered so that a higher premium is offered to institutions
that substantially change the ratio of generalists to specialists. ‘Those of us concerned
about graduate medical education are also worried that residents have been added and
assigned according to the work needs of the institution rather than to the education
needs of a student. Under a freeze situation with some premium for generalist
physicians in comparison to subspecialty physicians and increasing flexibility for
educational program directors to make assignments to a variety of training sites, this goa!
of emphasizing education versus service would, in fact, result in better service in the right
places, according to the patients needs.



54

Prospective Payment Assessment Commission

Chart 3. Per Resident Costs and Payments, 1990

a 4 & Costs
7 | Payments

Percent 74
at
Hospitals 6

2500 3250062500 $2500 122500 152500 182500 212500 242600

Dollars

SOURCE, Medicare Cost Report and per resident payment data supplied by the Health Care Financing
Agministration, .


171

April 6, 1995

‘The Honorable William M. ‘Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
US. House of Representatives
Washington, D.C, 20515,

Dear Chairman Thomas:

‘Thank you for the opportunity to submit for the record these remarks to expand on the American
Medical Association's Statement filed at the March 23, 1995 hearing on graduate medical
education (GME) financing, We believe these comments will be useful in better understanding
our positions regarding the ertically important GME financing and physician workforce planning
issues

Our Statement declared that "Health maintenance organizations (HMOs), preferred provider
‘organizations (PPOs), and sell-insured industry or government plans are generally unconcerned
about the individual components of provider costs, particularly GME costs, as long as they are
able to obtain competitive prices by negotiating discounts from stated charges.” The intent of our
comment is that HMOs, PPOs, and self-insured industry or government plans are concerned about
the price they pay for services and the outcome to the patient. We are well aware that managed
care plans track individual components of provider costs in an effort to curtail overall costs,
While benefitting from GME programs. these plans have not evidenced a willingness to assume
explicitly their fair share of GME costs.

(Que discussion of some of the problems that have resulted from the evolution of GME financing
noted that “the current methods of financing GME have made it difficult to establish primary care
GME programs in settings other than hospitals, such as non-hospital based ambulatory settings and
rural health ctinics.” While itis true that the current methods of financing GME have created
obstacles to the establishment of GME programs in non-hospital settings, nevertheless. a number
of residency training programs, chiefly in family medicine, have been established in such settings
(despite a lack of easy access to a source of funding) Proress has been made in this regard, but
there still exists the need ta emphasize and encourage the development of and adequate funding
Yor pritnary care GME progeams in non-hospital settings.

We would like to clarify our statement regarding the ellect of the Prospective Payinent System
(PPS) on GME, that "teaching hospitals have generally done better than non-teaching, hospitals
under PPS ....". While this is true in general, we would like to point out that itis not so in the
case of each and every teaching hospital, especially many public hospitals serving predominantly
indigent patients. Furthermore, even though some teaching hospitals may have benefitted under
PPS (as compared to non-teaching, hospitals), such hospitals carry additional costs related to
education and patient mix, Clearly, both PPS and RBRVS (the Resource Based Relative Value
Seale) have had an important impact on GME financing. in any future design of GME
‘eitmbursement, these significant differences between teaching and non-teaching hospitals must be
taken into consideration.

Our Statement, in the seetion entitled "Goals," declared that “the AMA believes that reform should
achieve long-term stable funding of GME to ensure that all graduates of U.S. medival schools witl
be able to obtain, at the very least, GME. leading (o eligibility for initial board cenification and
result in increased accountability for the total number and specialty mix of GME positions. the
appropriateness of the site of GME training, and the appropriateness of both the cantent aud length
of training requirements.” Our use of the word “reform here (and throughout the document)
should not in any way be construed to indicate a preference for government based reform. Change
is needed, but it ideally should continue to emanate from private sector initiatives with significant
Input from the medical profession, We would like to make it perfectly clear that the AMA is ot
advocating here the involvement of government in mandating how medical residency training
programs should operate

In our discussion of "Principle #1," we recommended that “all payors be required to adopt the
Medicare approach for determining their share of the direct costs of GME.” While the Medicare
methodology for determining GME cost sharing is currently the only complere and tested model
we have £0 look to, the AMA does not mean to imply’ that it should be adopted without question
Rather, we believe that an approach could be designed that is similar to Medicare's approach,


96

We also agree that broad goals should be set regarding the num-
ber of generalists and specialists to be trained, but would empha-
size that quality should be the major determinant in deciding
which residency programs should be funded and in how residency
slots should be allocated.

Actually the number of residency positions in surgical programs
is determined specifically by patient mix and volume that ensures
that training criteria are met. This has limited the number and the
size of surgical training programs. The number of physicians
trained in surgical specialties has remained relatively constant
over the past decade. In the academic year of 1982 to 1983, there
were 21,000 residents cumulatively in all surgical specialties.
About 10 years later, 1992 to 1993, the most recent year for which
data are available, this number is essentially the same.

Now I would like to emphasize that in general surgery for the
same period, the number has decreased steadily from 8,683 to

There is a growing sentiment in the medical community that the
number of residents should be constrained. However, Federal phy-
sician work force controls may be viewed by some as not in concert
with the current efforts to reduce bureaucracy.

We would submit that a mechanism is in place. That mechanism
is the residency review committees for the various specialties. They
are encumbered at this time by the feeling that they do not have
the authority or the antitrust immunity required to impose limits.

We would suggest Federal endorsement of the residency review
committees as the body to address the issue of numbers.

I would point out that even if we accept the physician work force
controls as a possible solution, they in no way address the persist-
ent geographic maldistribution of physicians. And as has been
pointed out several times already, it seems that current market-
place pressures may be playing a positive role in alleviating or cor-
recting this situation.

In Southern California, for instance, medical and surgical spe-
cialists are finding that there are simply not enough patients to
maintain their practices, and some of these are relocating to small-
er and at times rural communities. Some have even become pri-
mary care physicians.

Mr. Chairman, on behalf of the College, I would like to thank you
for the opportunity to express our views on these issues. I would
be pleased to answer any questions.

(The prepared statement and attachment follow:]


170

Conclusion

‘A reconfiguration of our nation's health care delivery and financing systems is necessary
in order to achieve a more balanced system with expanded preventive and primary care services,
We commend the committee for their efforts to restructure graduate medical education funding.
‘The Society of General Internal Medicine is committed to working with you in further developing
our policy recommendations and ensuring budget neutrality,

References

Office of the Inspector General, Department of Health and Human Services, Graduate Medical
Education Costs. A-09-93-00096 (Washington, D. C.: July, 1994)

Rich, EC, Wartman, SA. Health Care Reform and Funding of Graduate Medical Education.
Journal of General Internal Medicine. 1994: 9:55-57.

Rivo, ML, Saultz JW, Wartman, SA, DeWitt, TG. Defining the generalist physician training.
Journal of the American Medical Association. 1994: 19:1499-1504.


15

system’s new imperatives. But in a competitive environment based on price, teaching hospitals and medical schools face
special challenges because these complex organizations have unique missions that, of necessity, add to their costs. The
costs of these additional missions are borne in our cutrent system by patient care revenues, including payments from the
Medicare program, through a system of cross-subsidization, Patient service revenues have supported graduate medical
‘education and other academic activities, and payments from paying patients have supported charity care patients.

“The Prospective Payment Assessment Commission (ProPAC). in its March 1995 report to the Congress, notes that asthe
competition among health care delivery providers intensifies. the traditional patterns of subsidies across payers and
providers will change (page 5). As the overall costs of medical care have risen sharply. private health care payers have
adopted payment systems-such as capitation. aggressive contracting and discounting-that restrict their payments to cover
only goods and services they believe are necessary and of identifiable, narrowly defined benefit ta their enrollees. These
types of payment arrangements increasingly do not recognize costs associated with the education and research missions
of teaching hospitals

In the newly price competitive environment. there is pressure on private payers to avoid paying higher patient care rates
to fund the additional products of teaching hospitals that go beyond direct patient care. The AAMC believes that ‘eaching
hospitals. who are eager and willing to compete in the marketplace, will at some time inthe short term furure no longer
be able to “make up the shortfall” to fund the costs associated with their academic missions through higher charges 10
patients, Revenue data from hospitals belonging to the AAMC" s Council of Teaching Hospitals show that private and some
public payers support about two-thirds to four-fifths of these additional costs primarily through increased charges for
services However, as ProPAC notes, ". increasing competition i the private sector is making it harder for teaching
facilities vo obtain the higher payment rates needed to cover the added costs of their graduate medical education programs”
(page 7)

In the absence of a marketplace where all insurers or sponsors of patient care programs support their fair share of the
academic mission of teaching hospitals and (eaching physicians, the Medicare program's historical, explicit payments 10
teaching hospitals in support of their added responsibilities take on crucial importance. Even though Medicare payments
support only a portion, between one-fifth and one-third-of the costs associated with the academic mission, teaching
hospitals rely heavily on the two Medicare payments with an educational label: ihe direct graduate medical education
(DGME) payment and the indirect medical education (IME) adjustment. Reduced Medicare support will make it more
difficult for teaching hospitals to sustain their additional missions.

‘The AAMC believes that Congressional decisions on Medicare payment policy should be made in the context of their
impact on the entire health care system. As ProPAC indicated in its Match 1995 repor:

Medicare's payment policies must be considered in the context of changes occurring inthe financing and delivery of healthcare.
‘Among the most sigificant of these ar¢ the growth of captated payment methods and managed care techniques tn the private
‘insurance market... Important factors contributing to these developments include constraints on payenents Irom private payers
and increased competition among providers and payers (page 3).

While the academic medical community understands the Federal government's need and commitment to reducing the

budget deficit, and the growth in Medicare and Medicaid expenditures, teaching hospitals and teaching physicians would

be particularly harmed by reduced Medicare support just when they are undergoing major change. 1 am pleased to appear

before you today fo comment on three issues relating to Medicare Part A payments of crucial importance to teaching

hospitals

+ the role of Medicare payments for DGME costs in support of residency training.

‘© the importance of the Medicare IME adjustment to the financial viability of teaching hospitals: and

‘+ the methodology for calculating the average adjusted per capita cost (AAPCC), the rate that the Medicare program
pays to risk contractor HMOs

Even under normal circumstances these three issues would be important, but they take on especially critical dimensions
inthe current environment. For example. while many proposals to change Medicare payments would affect both teaching
and non-teaching hospitals. substantial reductions in IME and DGME payments would harm teaching hospitals
disproportionately. seriously threatening their financial stability and affecting access to care and quality of care received
by Medicare beneficiaries and other patients, Additionally. failure to address the way in which DGME and IME payments
and the disproportionate share (DSH) payment are mcorporated in the AAPCC calculation poses a threat to the financial
status of teaching hospitals

urge the members ofthis subcommittee to consider carefully its Medicare payment policy recommendations. Teaching
hospitals and teaching physicians play critical roles in our health care delivery system, and they could be damaged severely
tunless changes are crafted carefully and are based on an extensive understanding of the service, education and research
missions of academic medicine.

Direct Graduate Medical Education Payments

Hospitals that train health professionals have multiple functions. In addition to providing medical care to individual
patients, these hospitals provide the resources for the clinical education of physicians, nurses. and allied health
professionals. To provide this formal, experientially-based clinical training, hospitals incur costs beyond those necessary
for patient care. These added direct costs include: salaries and fringe benefits for trainees and the faculty who supervise
‘them; the salaries and benefits of administrative and clerical staff in the graduate medical education office; and allocated
nstituional overhead costs, such as costs for electricity and maintenance


36

think today, clearly, it is a top-down structure. I think that has
also driven specialties.

My former business was teaching in college, and I always loved
to teach specific areas and narrow specialties. Graduate focus is a
lot more fun than teaching GE courses. And I think most people
pet a satisfaction out of working in narrower structures. And they

ring people on, and if there is no limit to that, you wind up having
the structure itself specialized.

But if the students were looking with less of a reference to the
marketplace than Perhaps we would like—to the degree that the
students are the ones who spend their dollars where they think it
makes more sense, I think you get a “small d” democratic struc-
ture, but also one that is more market oriented.

What is your reaction to that?

Dr. LUDDEN. I react very positively to that general set of ideas.
I think that anything that goes beyond your original statement,
which was let you guys figure out what to do with it, which I think
is something that has been tried and does not work and just in the
ways that have been described here, that the kind of thing that you
are Suggesting— that is, to have the funding follow the resident—
would be very positive and would allow us to be able to work on
developing the kinds of innovative programs that are not just what
primary care physician spots are open next year, but what kind are
going to be open in 10 or 15 years.

Chairman Tomas, And if you make it the 3-year provision, then
it is in part up to those folks to figure out how, if they want to go
beyond that, they have got to come up with funding to do that. But
we know that we get them as far as we think it is essential that
they need to go for society. And if they want to go for themselves,
they go beyond that.

Dr. SHINE. My response to your first formulation—you asked the
question—my answer would be yes. I think the things that you out-
lined would make a significant and profound difference.

Second, I do have some concerns about the mechanisms with re-
gard to how you carry out the proposal you have just made in the
sense that you have to hold the people who are in charge of the
training or the education responsible for the outcomes of the edu-
cation.

And the question again is: If the financing is separated, you have
got to figure out how we connect these in terms of making sure
that the overall educational venture is, in fact, a satisfactory one.

I would just point out to you that if you have some flexibility
with regard to the rules about where people can train, a lot of the
things that are happening in the market now and are happenin,
with public policy will encourage, the “top-down” people to respond.

In New York City, for example, the cuts in Medicaid are clear-
ly—they are inevitably going to move to much more Medicaid man-
aged care. They are going to have to take care of those patients in
a much better way outside of hospitals.

If there were flexibility in terms of the ways to pay for it and
if those institutions in New York City had the opportunity, I would
be very surprised if they were not prepared to enter into a very ac-
tive program of residency education in Medicaid managed care in
the city of New York.


48

PPS payments, In 1994, teaching hospitals received $34 billion in PPS operating
payments for the services furnished to Medicare enrollees (Chart 1). They also
received payments for their capital costs. outpatient and other services they furnished,
and direct medical education costs.

Of these hospitals, about 230 are classified as major teaching hospitals. Major
teaching hospitals are defined as those with 25 or more interns and residents per 100
beds. Major teaching hospitals represent 4 percent of PPS hospitals, but were
responsible for 10 percent of discharges and 17 percent of payments in 1994
(Chart 1).

The Medicare program provides two types of extra payments to hospitals with
graduate medical education programs. First, teaching hospitals receive an adjustment
to their PPS payments to reflect the added patient care costs associated with
operating an intern and resident training program. This indirect medica! education
(JME) adjustment accounted for about 5.7 percent of total PPS operating payments in
fiscal year 1994, or about $3.8 billion (Chart 2). ‘As you can see in this chart, the
amount of the IME adjustment steadily increased between 1989 and 1994,

Medicare also pays teaching hospitals an additional amount, separate from the
PPS payments, for the direct costs of maintaining graduate medical education
programs These payments (referred to as DME or GME payments) cover resident
salaries and benefits, the salaries of supervising physicians, office space, and other
overhead, These payments totaled about $1.4 billion in 1994. In addition to the
allowed salaries, physicians in teaching hospitals who directly supervise interns and
residents can bill. under Part B of Medicare, for the services furnished by the residents
that they are supervising

In addition to these Medicare payments based on teaching status, many teaching
hospitals also receive disproportionate share hospital (DSH) payments, related to the
amount of care they furnish to poor patients (Chart 2). Teaching hospitals received
about 67 percent of the $3.4 billion in DSH payments in 1994. The amount of DSH
payments also has increased rapidly in recent years.

Indirect Medical Education Payments

Medicare's IME adjustment is a major source of revenue for teaching hospitals.
More than 21 percent of Medicare's PPS payments to major teaching hospitals, and 6
percent to other teaching hospitals, comes from the IME adjustment. The amount of
the payment depends on a hospital's teaching intensity, measured by the number of
interns and residents per bed. Currently, per case payments increase about 7.7
percent for each 10 percent increase in teaching intensity. This increase in payments
is substantially higher than the observed relationship between Medicare's operating
costs per discharge and teaching intensity. The most recent ProPAC analysis
indicates that, on average, a 10 percent increase in teaching intensity is associated
with a 45 percent increase in Medicare operating costs per discharge. This difference
belween the observed cost relationship and the actual payments amounted to about
$15 billion in additional payments to teaching hospitals in 1994,

For several years, the difference between the payment increase and the observed
increase in costs has led the Commission to recommend a reduction in the amount of
the IME adjustment. In ProPAC’s Report and Recommendation to the Congress,
March 1, 1995, the Commission recommends a reduction in the adjustment from 7.7
percent to 6.7 percent for each 10 percent rise in the number of interns and residents
per bed. This is equivalent to a 13 percent reduction in the amount of the IME
Payments. If enacted, payments to teaching hospitals would decrease about $500
milion. ProPAC believes that this should be the first phase of a three step process
which will bring the teaching adjustment in line with the additional patient care costs
teaching hospitals incur. We chose this phased reduction approach to allow teaching


117

accurately described it, is a reward for the profile of the patient
more than, you know, just the teaching structure.

Then with the disproportionate share, it just makes sense be-
cause of the urban locations. As I said in my opening statement,
that is where most of them are.

But the hospitals are relatively less significant in the new struc-
ture, and perhaps the profile of the patients and what is being
done is becoming less significant, so we have got to make it more
relevant, and we move that structure, and if that is the case, then
the old-fashioned funding mechanism needs to change as well.

To the degree that things remain the same, the funding system
makes sense. I think our problem is that they are not remaining
the same, and we have got to figure out a way to begin to shift that
funding structure that does not produce the Federal Government
quotas and divisions in the teaching areas and, in fact, rewarding
some beyond what they should have been rewarded and not re-
warding others sufficiently because of the location if we change the
funding structure.

So I think we are sensitive to the problem. It is just that it is
going to be an enormously difficult political problem, which is not
partisan, by the way. You heard the gentleman from California. It
is not partisan. It gets into some regional aspects—States, teaching
hospitals in their States, and the profiles that those hospitals have
developed, and that if you change the formula, you change the win-
ners and the losers.

And so all of that will be entering into our decision, notwith-
standing the fact that the fundamental basis for funding medical
education is eroding because hospitals themselves are becoming
less the focal point.

You folks are essential to our coming up with a program that. ac-
tually is better and actually does solve the problem and does not
exacerbate problems that we either know or do not know about.

So I apologize for not hearing your scintillating testimony either,
but you need to know that we read all this stuff as well, and I
thank you.

Mrs. JOHNSON OF CONNECTICUT. Mr. Munson, I know that we
are only giving a minute-and-a-half summary of something that is
much more important than that. But your summary does worry
me.

Now your comment that the private sector is not taking its soci-
etal responsibility, it is true that their premiums are focused pri-
marily on the health costs of the patient they have insured. And
then, through taxes, they would maintain that they are taking
their societal responsibilities, send the government the money that
the government needs to do whatever government thinks is impor-
tant.

Now it may be that they ought to be paying a premium tax di-
rectly, so that we can fund medical education, and that is not a
concept that I think is beyond grasp or adoption.

But to then say that the government is doing a better job does
worry me terribly, because the disproportionate share thing, we
guess at that.

Outliers? Finally after you bent our arms, we did acknowledge
that if someone is in the hospital way beyond what the DRG ex-


53

Prospective Payment Assessment Commission

Chart 2. Medicare Indirect Medicat Education and
Disproportionate Share Payments, Fiscal
Years 1989-1994 (In Billions)

IME Payments DSH Payments
Percent =t Percent of
F sca: Amcznt Tota: PES Amount Total PPS.
tear In Evions: Payments In Bltons; Payments
989 sit 24%
30 16 23
1991 22 at
1992 22 40
1993 27 4g
1994 87 34 84

Note: IME = inatect mecical eaucation. DSH = disproportionate share.
SOURCE. Prospective Payment Assessment Commission, Medicare and

the Amencan Heaith Care System Report to the Congress.
June 1989, 1990, 1991, 1992. 1993, and 1994


138

Chairman THomaSs. Thank you very much, doctor.

Dr. Jones, if you would allow us to catch this vote and then come
back, we would be pressed if we gave you the full time for your tes-
timony, and I want to, so if you would allow us, the subcommittee
will stand in recess until we hurry back.

[Recess.]

Chairman THomas. The subcommittee will reconvene. And, Dr.
Jones, you may proceed.

STATEMENT OF CHARLES L. JONES, D.P.M., PRESIDENT,
AMERICAN PODIATRIC MEDICAL ASSOCIATION

Mr. Jones, Thank you. Mr. Chairman, members of the sub-
committee, I am Charles Jones, president of the American
Podiatric Medical Association.

As one who has devoted much of his professional life in
postdoctoral podiatric medical education, I welcome this oppor-
tunity to appear before this subcommittee today on the subject of
graduate medical education, a vision for the future.

It is my purpose, Mr. Chairman, to acquaint the subcommittee
with podiatric’s role in GME and why continued Federal participa-
tion in graduate medical education is vital if high-quality health
and medical services are to be maintained and strengthened.

Since January 1, 1973, following the Social Security amendments
of 1972, postdoctoral residency programs in podiatric medicine and
surgery have benefited from both direct and indirect GME pay-
ments under Medicare. Based on our best available information, we
estimate that as of November 1994, 210 teaching hospitals with
800 residency slots in 29 States and the District of Columbia re-
ceived Medicare payments for the direct. costs of these programs.

Additionally, 46 VA hospitals and 3 military hospitals addition-
ally train 160 podiatric medical residents, although these training
programs are funded by those Federal agencies, not Medicare.

Suffice it to say that we believe very strongly that podiatric med-
ical residency programs must continue to have access to funding,
including access to any new funding mechanisms that ultimately
replace or supplement that currently in effect under Medicare.

Among other things, completion of an approved residency pro-
gram is now seen as an essential component of training of a doctor
of podiatric medicine. A 1992 resolution adopted by the American
Podiatric Medical Association house of delegates, for example,
makes clear that colleges of podiatric medicine should prepare their
graduates for entry-level postgraduate study, not for entry-level
practice.

Equally important, an increasing number of States have begun
to require a minimum of 1 year postgraduate education or resi-
dency for licensure as a doctor of podiatric medicine. As of 1994,
35 States imposed such a requirement.

The basis for any change in GME financing schemes begins with
the well-known fact that there are considerably more allopathic
medical residency positions than there are graduates of U.S.
schools of medicine with these excess positions being filled by for-
eign medical graduates.


49

hospitals time to make the necessary changes in the way they operate and to seek
additional funding, if possible.

Graduate Medical Education Payments

Medicare also pays teaching hospitals a share of the direct costs of maintaining
graduate medica! education (GME or DME) programs. These payments totaled about
$1.4 billion in 1994, Direct costs include resident's salaries and fringe benetits,
salaries for supervising faculty, and institutional overhead that are not included in PPS.

GME payments are based on a hospital's per resident costs in a base year,
updated to the current year. Hospital-specitic per resident costs in 1990 ranged from
less than $10,000 to more than $100,000 (Chart 3). Consequently, Medicare per
resident payments also vary widely across teaching hospitals. Payments are
somewhat higher if the resident is in an initial residency rather than in a second
residency, or in a primary care rather than a specialty program.

One of the primary factors driving GME (and IME) spending growth is a continuing
increase in the number of interns and residents (Chart 4). Virtually all of the growth in
recent years is due to increases in the number of residents who graduated from
foreign medical schools. There are large differences across states in the number and
rate of growth of residents. This increase in the number of residents is especially
troublesome in view of the growing concem that this country has an adequate supply
of physicians, but too many specialists and too few primary care physicians.

Disproportionate Share Payments

There are now about 40 million people in this country without health insurance.
Many of these individuais receive hospital care that is subsidized from other sources
of revenue. The hospitals with the fargest share of low income individuals qualify for
Medicare and Medicaid DSH payments, In 1994, Medicare DSH payments totaled
$5.1 billion, with about two thirds of these payments going to teaching hospitals. The
federal share of Medicaid DSH payments was $10.7 billion and the combined federal
and state share was $186 billion in 1994, althougn we don't have specific information
‘on payments to teaching hospitals. In addition, the private sector has shared in
subsidizing care to the uninsured through payments that are higher than costs. This
subsidy from the private sector, however, may diminish as competition intensities.
Therefore, as Congress seeks additional ways to slow the growth in Medicare and
Medicaid spending, it is important that reductions in DSH payments be carefully
targeted so as not to further disadvantage hospitals that treat the largest number of
uninsured patients.

The Financial Condition of Teaching Hospitals

The Medicare program has more than adequately compensated teaching hospitals
for the costs of treating Medicare patients. Since the first year of PPS. teaching
hospitals’ PPS margins have exceeded those of other hospitals. Further, over the
years the gap between the margins of teaching and non-teaching hospitals has
widened (Chart 5). in 1993, major teaching hospitals had the highest PPS margins of
any group of hospitals, 11.7 percent (Chart 6). In contrast, the PPS margin was 0.5
percent for other teaching hospitals, those with fewer than 25 interns and residents
per 100 beds, and minus 4.0 percent for non-teaching hospitals.

Total hospital margins, which compare all hospital costs and revenues, show a
very different pattern (Chart 7). Despite Medicare PPS payments that are almost 12
percent above costs, the total margin for major teaching hospitals in 1993 is only 2.7
percent, the lowest of any group of hospitals (Chart 8). The reasons for these lower
total margins are difficult to disentangle. One definitely includes the large amount of
uncompensated care many of these hospitals furnish. Others could include


18

payments could be teaching hospitals. medical schools, muiti-specialty group practices or other organizations that incur
traning costs. The AAMC strongly encourages the formation of format associations, or graduate medical education
consortia, 0 assure the continuity and coordination of medicat education and to serve potentially asthe fiscal intermediary
in disceibuting payments across various training sites However. the AAMC does not support payments being awarded
cicectly to staining programs. since ultimately the organization of which the program is a part must determine the
tustituional commitment to graduate medical education,

The AAMC urges Congress to consider modifying the statutory requirement that only hospitals may receive Medicare
DGME payments and to permit other entities to receive the payment if they incur the cost of training. A payment
methodology would have to be developed based on the costs of training at those sites. To explore the issues inherent in
suck » change, the AAMC would support an effort to design a research and demonstration project to encourage the
deve enent of new integrated training sites and/or GME consortia, Under the project, the Administration could
experiment and monitor the impact of allowing non-hospital sites to receive DGME payments if they run the taining
progcams and incur the costs.

However. shilling residency training (0 non-hospital sites may aegatively impact the level of a hospital's IME payment
‘Many policy makers believe tha the IME adjustment in the Medicare inpatient PPS serves asa disincentive to conducting
graduate medical education in non-hospral. ambulatory sites. They argue that the current rules governing the count of
4 hospital's trainees for IME payment purposes provide an incentive to keep residents in certain areas of the hospital
Hospitals are allowed to count only residents in the PPS-telated units of the hospital, oF is outpatient department. If a
teaching hospital sends a resident for 2 training experience rotation 10 2 nursing home or a clinic in a rural area, for
example, the hospital may not count the time thatthe resident spends in these settings for IME payment purposes.

The AAMC encourages the elimination of barriers to graduate medical raining in non-hospial, ambulatory sexings and/or
{nner city and rural sites while maintaining the current institutional PPS payment structure. ‘The Medicare (ME
adjustment. which compensates teaching hospitals for thetc higher operating costs due 10 severity of illness. the provision
of a broader scope and greater intensity of services. and the presence of physicians-in-raining is inpatieni-based. To
address this apparent barrier to development of non-hospital, ambulatory training Congress could, for example, allow
hhospita's to count hospital “sponsored” residents in non-hospital setings for IME payment purposes. To maintain the
budget neutrality of such a change in the counting rules, Congress could require a freeze on the number of inpatient
residents thatthe hospital coufd count for IME payment purposes, setting a limit on the aggregate payment. The AAMC
would be pieased to work with the committee staff to develop this proposal further and to formulate other budget-neviral
policy options

Weighting Pavments by Specialty. For several years, some policy makers have proposed changes in Medicare payments
tor DGME costs that are intended £0 provide incentives to encourage the training of generalist physicians and to eliminate
the variation mr hospital-speeific pet resident amounts, Additionally, these proposals would reduce the Medicare program's
role in GME funding

For example, Medicare DGME payments could be based on a per resident amount that would then be weighted based on
the specialty area that a resident is pursuing. Thus, che Medicare program would make a higher payment for a resident
ina generalist specialty than for a non-generalist resident. Such a proposal if adopted, would replace the current hospital
specific Medicare payment methodology witha system based on fewer multiple rates. ‘Thus. a hospital's toal direct GME.
payment would he based not on is costs, but on the specialty mix of is trainees. Some policy analysts believe that these
types of proposals would not only eliminate the variation in direct GME payments. but also would offer incentives to
procuce more generalist physicians. The proposal would attempt to accomplish this policy goal by paying relatively
favorabte amounts for generalist residencies, and substantially less favorable payment amount forall other residencies.

The Association opposes proposals that are intended to stimulate the production of generalist physicians by weighting
DGME payments by specialty. Although the AAMC strongly supports more individuals entering generalist practice, the
Association does not helieve that this proposal would achieve its intended objective of encouraging the training of mote
generalist physicians. Proposals (o weight Medicare DGME payments by specialty would have a negative effect on most
hospitals’ DGME payments, depending on the tiospital's specialty mix of resident trainees

Additionally, data on career choices of medical school graduates indicate that medical students’ selection of residency
training programs ts affected not by Medicare payments to hospitals, but by market conditions and personal suitability 10
a particular specialty, At present, there are more generalist training positions offered to medieal school graduates than
there are interested students to fill them. The task at hand is not to increase che number of generalist training positions,
bt to increase the attractiveness of the training positions already available

In ts March 1993 report tothe Congress the Physician Payment Review Commission (PPRC) concluded that weighting
DGME payments to hospitals is undesirable The commission indicated that there was already a sufficient number of
existing generalist training slots, and weighting would have litle influence on hospital management's and residency
progam directors’ decision making,

‘Changes in physician manpower supply. pressure from both federal and private payers 1o constrain the growth in health
care expenditures, and changes in medical care delivery have produced significant tensions for residency and fellowship
training programs. At the same time, the Association recognizes the frustration of government policy makers in assuring
the public has access to an appropriate specialty mix of physicians. The AAMC supports strategies 1o develop additional
seneralist physician manpower, but proposals 1o weight Medicare DGME payments based on specialty, if enacted, would
‘only contribute to the instability of GME funding, Strong residency programs require continuity of effort and stable


88

financing of GME costs of non-federal hospitals to the degree that state Medicaid programs
actually contribute to the financing of GME costs. Although exact figures are hard to obtain,
the federal government, in the aggregate, finances approximately one-half of the total direct
costs of GME in the country.

The methods of financing GME largely dictate the current nature of the GME system. As
noted above, the great majority of GME costs are financed from hospitals’ patient care
revenues; thus, programs tend to be hospital-based. Over the years, the allocation of these
funds has been heavily influenced by program directors, service chiefs, and department
chairs, who have been primarily interested in providing resident physician coverage for
increasingly specialized impatient services. As a result, the GME system became heavily
oriented toward inpatient-based, highly specialized training in tertiary care institutions. The
current methods of financing GME have made it difficult to establish primary care GME
programs in settings other than hospitals, such as non-hospital based ambulatory settings and
tural health clinics.

Improving GME Financing

During the past decade, government concerns about the long-term financial integrity of the
Medicare program and attendant changes in the financing of health care in both the private
and public sectors have focused a great deal of attention on the financing of GME. The
sequence of events that led to this situation reveals the compelling reasons for reform in
GME financing. In 1983, the Congress, prompted by the need to control the rate of growth
in Medicare expenditures, reformed Medicare policies governing Part A payment to hospitals
and introduced the Diagnostic Related Groups-based Prospective Payment System (PPS). In
constructing the DRG payment methodology, the Congress specifically excluded the costs of
GME from the calculation of the DRG payments. Under PPS, teaching hospitals received a
separate payment, the Direct Medical Education (DME) payment, to cover Medicare's share
of the institution's medical education program costs. It should be noted that the DME
includes not only the costs of GME, but also the costs of nursing and allied health education
programs. With respect to GME, hospitals are allowed to claim costs in three major
categories -- the salaries and benefits paid to resident physicians, salaries paid to faculty for
supervising resident physicians and administering GME programs, and general overhead
allocated to GME programs. There is great variation in the costs claimed by individual
teaching institutions for DME, and this is largely attributable to the accounting method used
to determine GME costs. Although Medicare's standard cost reporting methodology is still
used to calculate an institution’s medical education costs and the amount of the DME, the
1985 Comprehensive Omnibus Budget Reconciliation Act (COBRA) modified the payment
methodology to limit payment for GME costs. Under these new rules, the GME payment
amount cannot exceed, on a resident full-time-equivalent (FTE) basis, an institution's FTE
amount for FY 84, corrected for inflation.

In addition to the DME payment, teaching hospitals also receive a second payment --the
Indirect Medical Education Adjustment (IMEA)--not received by nonteaching institutions.
Although many analysts have treated the IMEA as though it were solely due to the costs of
medical education, this is not the case. When introducing the PPS, the Congress stated
clearly that the IMEA was intended (1) to serve as a proxy for an intensity-of-illness-factor
that could not be incorporated into the DRG payment and (2) to cover the costs of medical
‘education that could not otherwise be identified and included in the DME. The academic


43

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129

Chairman THomas. Thank you very much, Ms. Johnson.
Dr. Kalkwarf.

STATEMENT OF KENNETH KALKWARF, D.D.S, DEAN, DENTAL
SCHOOL AT THE UNIVERSITY OF TEXAS HEALTH SCIENCE
CENTER AT SAN ANTONIO, TEX., ON BEHALF OF THE AMER-
ICAN DENTAL ASSOCIATION AND THE AMERICAN ASSOCIA-
TION OF DENTAL SCHOOLS

Mr. Katkwarr. Thank you very much for the opportunity to tes-
tify today.

My name is Ken Kalkwarf. I am dean of the Dental School at the
University of Texas Health Science Center at San Antonio, and I
am here today on behalf of the American Dental Association and
also the American Association of Dental Schools.

It is my pleasure to discuss the need for continued and expanded
Medicare support for graduate dental education. For almost 30

ears, Medicare payments for uate medical education have
Been vital to meeting the dental health personnel needs and en-
hancing the quality of care for Medicare beneficiaries.

The Association’s first. recommendation is for the continuation of
GME funding for hospital-based graduate dental education pro-
grams.

Dental residents trained in hospitals have always been counted
in GME funding. It is critical that this support continues. GME
funding for dental residents is essential to meet the oral health
needs of Medicare beneficiaries.

There are many oral health conditions that must be addressed
prior to medical treatment of the elderly, the disabled, or the medi-
cally compromised. Bacteria from untreated oral infections com-
plicate management of systemic disease and compromise success of
medical therapy.

The hospital-based dental programs at my institution train resi-
dents in general dentistry, pediatric dentistry, and oral and maxil-
lofacial surgery. The residents within these programs provide con-
sultations for and treatment of patients receiving chemotherapy,
head and neck radiation, organ transplants, joint replacement, and
cardiovascular surgery, as well as providing consultations for pa-
tients with infections or chronic diseases.

In these GME-supported programs, dental and medical residents
learn to work together as primary team providers.

The Association's second recommendation is that dental residents
be included in direct GME inflationary updates, This would correct
a current inequity. In the direct GME formula, primary care dental
residency programs do not receive inflationary updates. Without
these updates, it becomes difficult to sustain primary care dental
residency programs.

Dentistry has few alternative sources of revenue. Many dental
residents pay tuition for their postdoctoral primary care training.
As a result, primary care dental residents may have educational
debts greater than their medical colleagues. The excessive debt
burden discourages some students from even applying for
postdoctoral training.

The Association’s third recommendation is that GME funding be
extended to cover nonhospital graduate dental programs. Only


113

The trend in many cases is for the consortia to make
increasing use of ambulatory care settings for teaching
purposes. We believe that the funding programs should
recognize these consortia on an equal basis and fund them
accordingly. With proper funding, these consortia will prove
to be extraordinary programs for the training of another
generation of osteopathic physicians to provide high quality
medical care.

3, Enrollments

The last issue of Graduate Medical Education that I
would like to address is the subject of recommended
enrollments in medical school. The AOA has advocated that
osteopathic graduate medical education programs be funded on
a separate but proportional basis with respect to allopathic
programs. Certain organizations and individuals have gone on
to recommend that the total number of funded residency
positions be limited to the aggregate number of osteopathic
and allopathic medical school graduates.

As I indicated earlier in my testimony, the AOA
generally concurs with this position, but notes one
particular reservation. While some parties have urged that
the number of residencies should be tied to the aggregate
number of students in a particular “base year,” we believe
that the base year concept is not appropriate insofar as it
fails to recognize that the osteopathic profession continues
to grow and develop. While the number of residency positions
should be tied to the number of graduates, such measure
should contain a reasonable provision for growth in such
numbers.

Over the past several years, the number of physicians
graduating from colleges of osteopathic medicine has
regularly increased, in part as a result of federal plans
developed in the past to expand primary care capacity in the
United States. Use of a base year would not account for
enrollment growth in osteopathic medical schools and could
deprive the osteopathic profession of funds needed for the
education and training of our graduates. With the base year
cap, graduate medical education programs would not have the
funding to allow for program expansion as the number of
graduates of osteopathic medical schools grows. In effect
the use of a base year would punish the profession that is
currently producing a proper balance of specialists and
primary care physicians, which balance is deemed critical for
reform of the health care system

Some additional clarification is necessary with respect
to the growth of osteopathic medical schools. First, we
believe that the continuing growth of enrollment in
osteopathic medical schools serves the nation’s needs
Osteopathic physicians, with their balance of specialists and
primary care and practice in underserved communities, are the
type of physicians needed in this country. A fair division
of federal funds which allocates separate and appropriate
amounts to osteopathic graduate medical education will
enhance our ability to expand and improve the postdoctoral
training component of our educational system.

Finally, it should be noted that the significant growth
in numbers of residents is not due to growth in enrollment in
U.S. medical schools so much as to the increasing presence of

“Between 1980 and 1995, the number of osteopathic
physicians per 100,000 people in the United States increased
from 8 to 14.


122

Nursing commends Congress for its increased focus on nurse
education issues. It is clear that the U.S. health care system has
an increasingly urgent need for primary care providers.

Funding must be made available to strengthen advanced practice
nurse programs and to establish new programs to prepare those
primary care providers so urgently needed.

Nurses are well positioned to fil many of the gaps in the avail-
ability of primary health care services. Advanced practice nurses
are trained to provide from 80 to 90 percent of the necessary pri-
mary care services of the Nation. Advanced practice nurse edu-
cation includes the preparation of nurse practitioners, clinical
nurse specialists, certified nurse midwives, and certified nurse an-
esthetists. These advanced practice nurses are prepared as expert
clinicians to deliver primary care and other services vital to the
Nation’s health care needs.

Since its inception, the Medicare progr m has paid a portion of
the cost of training health professionals. Graduate medical edu-
cation expenditures for nursing education are intended to reim-
burse a portion of the cost of nurse education to promote quality
inpatient care for Medicare beneficiaries.

Thus, Medicare has traditionally made payments to hospitals for
the training of nurses in hospital-based nurse education programs.
A majority of these programs are hospital-based programs that
grant a diploma, rather than a bachelor of science degree that is
granted by most university-based nursing education programs, or
an associate degree granted by community colleges.

As the need increases for community-based and primary care
providers, nursing will be forced to expand the number and capac-
ity of its graduate level education programs. These programs do not
currently receive Medicare funding.

In order to quickly expand the number of these expert clinicians,
there must be an increased Federal commitment to graduate nurse
education, a commitment not subject to the uncertainties of the an-
nual appropriations process.

We urge this committee to redirect. a portion of the annual Medi-
care funds currently being used to reimburse diploma nursing edu-
cation over a 3-year phase-in period to graduate nurse education
programs.

owever, since there is also a continuing need for 4-year BSN-
prepared nurses to play a variety of critical roles in the evolving
health care system, we believe that the current Medicare funds re-
imbursing hospitals for those programs must be maintained.

We also believe that funding must be available to the 72 existing
programs offering what is termed an “RN to MSN” program. In es-
sence, these are accelerated nursing education programs that en-
able diploma and associate degree nurses to become master’s pre-
pared and hence, better able to meet the primary health care needs
of the Nation. These programs allow for a readily available pool of
skilled health care professionals to become educated as advanced
practice nurses in a short period of time.

A graduate nurse education program would help many graduate
nursing students who are currently attending school part time due
to financial constraints to become full-time students.


127

Despite the need for nurses to care for sicker patients in the hospital setting and the
need for nurses to provide primary care in the community-based settings, the majority of
newly graduated nurses (65 percent) graduate from associate degree, community colleges
or diploma programs. This mix of nurses by educational background does not reflect the
needs of the changing health care market.

THE EVOLUTION OF MANAGED CARE

‘The health care delivery system is a rapidly changing environment that needs an provider
infrastructure to better deliver coordinated quality care in cost effective manner.
Medicare has always paid for the training of providers in the hospitals, As health care is
increasingly moving to ambulatory care sites and health maintenance organizations
(HMOs) are charged with the task of educating the "provider of the future” it follows
that new systems must be developed for Medicare to provide clinical training for
practitioners in these settings, Managed care plans are hiring new practitioners and
developing teams of practitioners including nurse practitioners. Managed care plans are
attracting practitioners whose training they have not subsidized. Managed care plans
currently neither contribute to this training nor do they qualify for training dollars.

Some managed care plans train in-house at their own expense. New systems such as
community partnerships will have to be developed between the managed care networks,
teaching hospitals and nursing programs. Policy makers must begin to shift a significant
amount of training to ambulatory sites in order both to match the training to service and
to provide practitioners and site role models for future clinicians to follow.

The delivery of health care serves in this country has clearly moved to ambulatory sites.
Changes in hospital admission, use of various ambulatory facilities as well as health
expenditures reflect this shift. It is even possible for an increasing number of surgeries
to be performed in the outpatient setting. The training of the health practitioner in an
inpatient sector is outmoded, In the 19th century individual apprenticeships, training and
‘education moved to group experiences in hospital settings as public hospitals increased in
number. After World War II, education become linked to inpatient care and research as
Medicare financed support center on inpatient specialty services. Despite the clear and
increasing demand for more primary care providers, academic health centers continue to
train specialty care physicians and nurses, Because advanced nurse training focuses on
the integration of services and developing teams of providers, these practitioners are
better suited to community based primary care settings (National Governor's Association
Report 1994).

‘HOW THE PROGRAM WOULD WORK

Medicare funding should be used to meet the health care needs of the future by
retargeting the eligible entities for this funding to be educationa} programs rather than
health service providers. ANA proposes that Medicare funds under the Graduate
Medical Education program which are currently used to reimburse diploma nursing
education be re-directed to graduate nurse education programs that are post-
baccalaureate, advanced practice programs accredited by a national accrediting body and
linked by a written agreement to an academic institution that is accredited by a national,
state, and/or regional accrediting body. A formula- driven payment would be established
for the training of the clinical training of advanced practice nurses taking into account
the number of annual full-time equivalent participants in the program and the national
average of casts of such programs in educating such a participant. Advanced pra
nurses currently train in a variety of settings including hospitals, skilled nursing faci
home health agencies, nurse managed care centers, ambulatory care facilities, health
maintenance organizations public health departments and community health centers.
Nursing programs and students currently incur the costs for the support of the clinical
training of the advanced practice nurse education, Yet, these students are providing
direct health care in a manner similar to medical residents. Funds should be available

ies,



151

Chairman Tuomas. And do you think you would be helped if
there was a clear focus on a bank of specialists available to back
up the gatekeepers in their decisions as to which path an individ-
ual should take in terms of whether or not it is, first of all, mental,
physical, and then whether or not dental would assist?

? would assume that to the degree we have the opportunity to
fall back on—in fact, rely on—second opinions, if you will, within
the managed care structure, that you folks would then be seen to
be more valuable than you would otherwise.

Mr. KaLKwarr. One thing we have to remember is that in den-
tistry, as compared to medicine, the majority of our practitioners
are general practitioners; 80 percent of them are general practition-
ers. So we do not see the same type of mix in the relationship on
the dental side that we do on the medical side at this point in time.

Chairman THomas. But when I say “specialty,” I really mean
specialty as dentists versus others, and that perhaps some of that
dental work might be necessary to deal with, you know, sympto-
matic relief rather than others.

What about podiatric medicine? How is that fitting in in man-
aged care?

Mr. JONES. Throughout the United States, there are quite a few
podiatrists on panels and in managed care. But proportionally, they
are really squeezed out. And they are especially. squeezed out if the
managed care organization has financial incentives to the primary
care physician, because they do not refer, no matter what.

I have attended several meetings where now the primary care
physician is expected to treat most of the common medical condi-
tions—I am not talking about just feet—for at least two or three
or four visits until they are assured that they need other triage.

Well, if you are going to keep the patient for three or four visits,
the average practitioner outside is not going to get that patient at
all.

Another thing that they are doing, another wrinkle that is com-
ing, is that the family practice people are hiring physician assist-
ants and nurse practitioners to administer the more common care,
billing at a lower service code, and that lowers the cost.

So there are many factors out there that are affecting the ability
of the ordinary practitioner to participate in managed care.

Chairman THOMAS. But you are not opposed, are you, to someone
who is adequately professionally trained to perform a service, that
if it is not necessary to have a medical degree to perform, that they
ought to be allowed to perform it, are you?

Mr. Jones. As long as it is quality work and you are not, you
know, going to endanger the patient.

Chairman THomas. Of course.

Mr. JONES. I think there are concerns now, and I think some of
the panelists this morning said that the primary care physician is
not trained in all the conditions. And the managed care organiza-
tion is suggesting that they go back for a mini-residency, so that
they are more adept at treating these things.

And I think you will see that medically, legally, they are going
to make some mistakes, which would be normal, and as soon as
they lose—as far as podiatry, as soon as they lose a couple of legs—
and a leg now is worth about $1 million here in the States—I think


155

‘We also encourage the Subcommittee to consider three GME policy changes that make sense and
that can be accomplished within an overall policy of spending reduction.

+ Indirect medical edueation adjustment: Consider redesigning the adjustment to
eliminate the tie to inpatient beds, a tie which seems inappropriate as both the appropriate
site of care, and the training needs of residents, move to outpatient settings.

+ Adjusted average per-capita cost (AAPCC): Redefine the adjustment, used to
calculate payments to Medicare risk-basis HMOs, to remove from the area cost figures
the cost of graduate medical education. By and large, HMOs are not supporting GME
programs and assuming that they do produces excessive payment.

+ Direct medical education base year: Per-resident amounts derived from the costs each
institution had in 1984 are becoming increasingly outdated and inappropriate, For
osteopathic training programs, the 1984 base year produces serious inequities.
Osteopathic hospitals in 1984 relied much more heavily on volunteer faculty than they do
today. Now they need to make much greater use of paid faculty and they need to provide
competitive stipends for physician trainees. Use of the 1984 base period makes this
difficult, since it takes no account of the relatively greater expenses that osteopathic GME
programs now incur. We have consistently urged, in testimony before public bodies such
as COGME and the Physician Payment Review Commission, that this problem be
addressed and we again recommend that per-resident amounts be based on an adjusted
national average of per-resident costs.

Thank you for the opportunity to present the views of the American Osteopathic Healthcare
Association.


CONTENTS

Page
Press release of March 14, 1995, announcing the hearing ..

WITNESSES.

Prospective Payment Assessment Commission, Stuart H. Altman, Ph.D
Chairman ....

American College of Surgeons, Seymour I. Schwartz, M.D
American Dental Association, Kenneth Kalkwarf, D.D.S
American Medical Association, William E. Jacott, M.D
American Nurses Association, Gwendylon E. Johnson.

American Osteopathic Association, William G. Anderson

American Podiatric Medical Association, Charles L. Jones 138
‘Association of American Medical Colleges, Eric B. Munson 7
Carter, Michael A., University of Tennessee 62
Hantt, Ruth S., George Washington University, Washington, D.C 37
Harvard Community Health Plan, John M. Ludden, M.! 14
Heyssel, Robert M., M.D., Seaford, Del 19
Shine, Kenneth, M-D., Washington, D.C 7
SUBMISSIONS FOR THE RECORD
American Osteopathic Healthcare Association, statement .. 154
American Psychological Association, statement ., 156
American Society of Plastic and Reconstructive Surgeons, statement 164
Mayo Foundation, statement .... 166
Society of General Internal Medicine, statement 167
University of Minnesota, William E. Jacott, letter 171

«ay


145

reality is that doctors of podiatric medicine "often serve as the
entry point into the health care system for patients with systemic
diseases that manifest themselves by symptoms in the feet," as
emphasized most recently in the Eighth Report to Congress on Health
Personnel in the United States, published September, 1992, by the
U.S. Department of Health and Human Services. Doctors of podiatric
medicine also provide a large number of primary care services (as
defined in section 1842(i) (4) of the Social Security Act). In
fact, evaluation and management services accounted for about 24
percent of the Medicare allowed dollars paid to doctors of
podiatric medicine in 1991, Further, the Health Professions
Education Assistance Act, when reauthorized in November, 1988,
specifically included support for new primary care residency
training programs in podiatric medicine. Ten such programs were
initially funded, under which about 44 residents are being trained
each year. Finally, among the three recognized specialty boards in
podiatric medicine is the American Board of Podiatric Orthopedics

and Primary Podiatric Medicine.

In short, it would appear that two of the premises underlying
proposed changes in graduate medical education financing--excess
number of residency positions and practitioner oversupply--do not
apply to podiatric medicine. The third--the need for more primary
care practitioners--may have unique implications in the case of
doctors of podiatric medicine. We believe that policymakers should
be mindful of these distinctions as they weigh the need to alter

support for graduate medical education.

CONCLUSION

To conclude my testimony, Mr. Chairman, the Association does
not envy the difficult but necessary task this committee, indeed,
the Congress, faces in countering the Nation’s enormous debt and
its mounting annual deficits. Sacrifices, we know, will be

required of each of us if those larger issues are ever to be


106

TESTIMONY OF WILLIAM G. ANDERSON, D.O.
AMERICAN OSTEOPATHIC ASSOCIATION

OSTEOPATHIC GRADUATE MEDICAL EDUCATION

Mr. Chairman and members of the Committee, thank you for
inviting the American Osteopathic Association ("AOA") to
appear before this hearing. My name is William G. Anderson
DO, and I am the current president of the AOA. I am
appearing before you today as the representative of the
36,000 osteopathic physicians practicing in the United
States.

The AOA is the national organization for osteopathic
medicine. The AOA is involved in nearly every stage of an
osteopathic physician’s education. The AOA is recognized by
the United States Department of Education and the Commission
on Recognition of Postsecondary Accreditation as the
accrediting agency for osteopathic medical colleges. The AOA
also accredits 136 hospitals and health care facilities in 26
states. Such hospital accreditation is recognized by the
Department of Health and Human Services. Additionally, the
AOA in conjunction with various affiliated organizations
formulates general requirements for graduate medical
education (internships and residencies) leading to specialty
certification through the AOA’s various specialty boards
The AOA also examines and approves osteopathic internship and
residency programs in osteopathic and jointly accredited
(DO/MD) hospitals. The AOA conducts examinations for
specialty certification following the completion of such
training. Finally, the AOA administers an extensive program
of continuing medical education which is required to maintain
AOA membership, specialty certification and licensure in
numerous states.

For nearly 40 years, I have practiced osteopathic
medicine -- first, as a family physician in Albany, Georgia
and later, as a general surgeon in Detroit, Michigan. At
present, 1 am the Associate Director of Medical Education at
Detroit Riverview Hospital.

The Osteopathic Medical Profession

While the subject of my address today is graduate
medical education in general and osteopathic graduate medical
education in particular, I would like to first provide you
with some background information on the osteopathic
profession. There are two distinct but parallel branches of
medical practice in the United States: osteopathic medicine
and allopathic medicine.

Osteopathic medical practice, a reform movement in
medical care, grew out of concepts developed in 1874 by
Andrew Taylor Still, MD. Dr. Still’s philosophy of medical
care focused on "wellness," preventive medicine and the
body's ability to heal itself. Dr. Still studied the
attributes of good health so that he could better understand
the process of disease. He devised a philosophy which
emphasized the unity of all body parts, particularly that of
the musculoskeletal system, as a key element of health. ‘The
unique osteopathic manipulative treatment grew out of this
philosophy. All of these principles -- "wellness," holistic
medicine, Osteopathic manipulative treatment and an emphasis
on family/generalist practice -- have been essential elements
of osteopathic medicine for over 100 years

Today, the majority of physicians in this country are
allopathic physicians (MDs); however, doctors of osteopathic
medicine (DOs) constitute more than five percent of all
physicians practicing in the United States. After years of
struggling for acceptance, osteopathic physicians have


66

a strictly technical sense, if you took the IME out, you should pay
it back to the other hospitals.

Mr. CarDIN. I am not sure I follow you there. The cuts that you
are suggesting on IME would not be redistributed to other hos-
pitals. You are talking about absolute costs.

Mr. ALTMAN. Well, let me—we have recommended these cuts for
a long time. This is about the fifth year we have recommended it.
Up until this year, our recommendations had always been to put
the money back where it came from, to put it back into the average

ospital.

Mr. Carpin. But not this year.

Mr. ALTMAN. This year we are cognizant of the special budgetary
problems that the Congress and the people are facing. And for the
first time, we said: If you are going to make a cut, this may be an
area to cut out.

Mr. CARDIN. Well, then you still lose me on how it works on a
risk contract.

Mr. ALTMAN. Well, no. I think there is a justification for takin,
the indirect out of the AAPCC. But I think the whole AAPC'
structure needs to be readjusted.

Mr. CarDIN. One of the concerns I have about your suggested
cuts, while they are logical in and of themselves, is that we don’t
have a logical system for reimbursing for graduate medical edu-
cation.

Therefore if you take the type of cuts that you are referring to,
whether it is fair or not fair, these facilities are dependent upon
those funds. And if we just try to make a system that is not fair
in the way it reimburses GME and cut the Medicare contributions
without dealing with the overall problems, then we run the risk of
really hurting some institutions that have a special role in our sys-
tem that will not survive in the competitive environment.

Mr. ALTMAN. Well, I do not disagree with that. We have tried to
find a number which we thought was appropriate and balanced.
There is no magic number here. We think the payment is too high
to those institutions.

And I want to make one point. There are big differences within
teaching hospitals. There are some teaching hospitals that are
making significant money on Medicare and are making significant
money overall, and are treating almost zero, or very close to zero
numbers of uncompensated care patients.

And then we have others that are running 20 to 30 percent
where their bottom line is zero. I think we need a better targeting
of that money.

Mr. CarDIN. Absolutely, we agree on that. The formula that we
use, the built-in old distribution cost and everything else, does not
make an awful lot of sense.

I guess my concern is, I am not so sure we should be tinkering
with a system that does not work; we should be restructuring the
system.

Mr. ALTMAN. Well, I would not disagree.

Mr. CarDIN. Thank you, Mr. Chairman.

Mr. ALTMAN. Except I would disagree about changing the whole
structure. The issue is, when you are dealing with the teaching ad-


52

Prospective Payment Assessment Commission

chan }_ Distribution of PPS Hospitals. Discharges. and Payments by Hospital Group, FY 1994

Pavmants tin Buon

‘iumoerct —Pareentet ——-Pareant of

cota Gow nests Payments Toa IME DSH
ae nosciais 5281 00% 100% 366.0 8 4
tan Red 20 ar S75 a7 32
Sure 2n5 2 3 es oo 02
carye uvan as 5a 382 28 24
Einar man 38 a 223 og wt
Rural terra, 7 5 3a 00 oy
Sou community a 2 4a 20 00
Seer um 0 6 a7 30 00
Major taacrung 10 w 2 24 rm
cmar tancring 2 a 228 ta m4
sontencrng o re) 32 oa uM
oun 1 > 500 30 22
Sropnecay 2 1 7 or 03
wan goverment a A 10 oe or o7
Aun goverment 1328 6 « 24 20 ot

SGUAGE, PrePAC sstmaiea base on P-OPAG PPS payment made! and lscal year 1992 MedPAR fe Irom Gata from the

Maain Care Financing Aamnstaaen


101

about key advances in the treatment of myocardial infarction than are cardiologists."?
In fiscal year 1993, there were almost 310,000 Medicare hospital admissions for the
treatment of myocardial infarctions.

3. Impact of Non-Physician Primary Care Providers. The federal government has
simultaneously adopted policies to increase the supply of primary care physicians and
the supply of non-physician primary care practitioners, including physician
assistantsand advanced practice nurses. Those recommending further increases in the
supply of primary care physicians generally fail to take into account the capabilities
and contributions of a rapidly increasing supply of non-physician primary care
providers. Moreover, in determining the number of so-called primary care shortage
areas, the government itself fails to take into account the availability of physician
assistants, nurse practitioners, and other qualified providers of primary care. This
may explain why the Task Force on Human Resources for Health of the Association
of Academic Health Centers has recommended that the Secretary of Health and
Human Services convene a special Advisory Council to assess, among other things,
“whether primary care shortage criteria should take into account the availability of
non-physician personnel.” In any event, given the fact that past government policies
are at least partially responsible for today’s oversupply of physicians, it seems quite
likely that the government will again overshoot 'the mark if it continues to adopt
programs favoring primary care.

4. Lessons from Managed Care. Policymakers have repeatedly been told to use the
physician staffing practices of health maintenance organizations (HMOs) and other
managed care organizations as a guide to the population's need for specialist and
primary care physicians. However, as one study has warned, "HMO patients tend to
be younger and healthier” and "HMO physicians provide only a portion of the
specialty care."* Moreover, another recently published study found that seven Kaiser
HMO plans and three other large HMOs had primary care physician-to-population
ratios of 53.6 and 35.7 per 100,000 enrollees, respectively, compared to the nation’s
gutrent primary care physician supply of 65.7 primary care physicians per 100,000
population’

? John Z. Ayanian et al., "Knowledge and Practices of Generalist and Specialist
Physicians Regarding Drug Therapy for Acute Myocardial Infarction," New England Journal

icine, October 27, 1994, pp. 1136-1141.

> Association of Academic Health Centers, Task Force on Human Resources for
Health, "Avoiding the Next Crisis in Health Care,” 1992, p. 21

“ Richard A. Cooper, "Seeking a Balanced Physician Workforce for the 21st
Century,” Journal of the American Medical Association, September 7, 1994, pp. 680-687.

Jonathan Weiner, “Forecasting the Effects of Health Reform on U.S. Physician

Workforce Requirement: Evidence From HMO Staffing Patterns," Journal of the American
Medical Association, July 20, 1994, pp. 222-230.


26

I would like to comment that I understand the issue of unin-
tended consequences. I used that term in my paper, because what
you have described is, in fact, unintended consequences.

I would emphasize, however, that these institutions are very
fragile. Right now, we know that they receive somewhere on the
order of $2.5 to, I think, closer to $4.5 billion in moneys that come
from the practice of their faculties. And those faculties agreed 15
years ago to use a certain amount of that money to do research and
to teach. Probably two-thirds of that money that they earn net goes
into teaching.

As managed care organizations put the squeeze on academic
health centers and those patient revenues fall away, there is going
to be not only the problem of what they will pay, but the fact that.
faculties cannot earn enough money to subsidize the education.
That is why these GME moneys are absolutely critical.

My view is not whether they should be spent, but do you spend
them in the way that is the most sensible as far as our society is
concerned.

Mr. McCrery. Thank you.

Chairman THoMAS. The gentleman’s time has expired. The gen-
tleman from Maryland, Mr. Cardin.

Mr. CarDIN. First, let me thank the Chairman for holding these
hearings. I think they are extremely important and that the future
of the academic medical center is indeed somewhat suspect today
in the new competitive environment. We need to look at different
ways of reimbursing for graduate medical education. Medicare no
longer will be able to foot the full bill, and the marketplace is not
capable of dealing with these issues. And I compliment all of your
testimonies today.

However, it seems to me that you have acknowledged half that
problem, and that is that the marketplace does not work as far as
a financing mechanism for graduate medical education and that we
need a broad-based financial source. I agree with that.

In the bill that we were working on last year, we looked at a way
in which all health care plans, not just Medicare but all health care
plans, including the self-insured plans and the private insurance
plans, contribute to graduate medical education. We then pulled
these costs out of the rate base, so that all health centers could
fairly compete within the new market.

But on the other side of the equation as to how the graduate
medical education dollars should be used as far as training profes-
sionals for health services, there seems to be no agreement, and
some disagreement, as to what role government should play in
order to make sure that we have more people trained in primary
health care.

Dr. Shine, I am not that impressed by the increase to 23 percent
of medical graduates going into primary health care. The informa-
tion that we have seen is that we need probably 50 percent. It is
going to take a decade before we get the results of the people enter-
ing medical training today in the workplace.

d as all of you pointed out, we need to look beyond just physi-
cian training, and toward training of other health care profes-
sionals in primary health care.


22

Mrs. JOHNSON OF CONNECTICUT. What I am thinking of is, every
State university charges out-of-State students more than they
charge in-State students.

Dr. SHINE. I understand that. The dilemma is a certain number
of those international medical graduates are Americans who went
overseas and are coming back. And the question is again: Does the
fact bat they got their education overseas mean that they
should—

Mrs. JOHNSON OF CONNECTICUT. Well, I am looking at really
noncitizen/citizen——

Dr. SHiNeE. And then there is a separate question of the
noncitizen. And the dilemma there is that in many parts of the
country, those people are, in fact, providing care during their train-
ing which is considered very critical.

And second, there are some extraordinarily talented people who
come that way.

Mrs. JOHNSON OF CONNECTICUT. But they are talented. It is also
a way of exporting a phenomenal level of achievement in American
medicine which is important. There ought to be concern among
Americans to be willing to train foreign medical personnel.

Dr. SHINE. Right.

Mrs. JOHNSON OF CONNECTICUT. But I do think we need to look
to foreign governments for some of the kind of support that our

rovernment provides to the medical training setting for foreign stu-
Gents from countries that can afford it. I mean, it is one possible
way of looking at this. I just thought I would get your thoughts on
it.

Then the last question I wanted to ask, because my time has ex-
pired, this specific issue about having the right to move residents
through outpatient and ambulatory environments: Are you prohib-
ited by Federal law, by Federal regulation, by tradition of
accreditors—what prevents you now from having residents rotate
through those kinds of settings?

Dr. SHINE. The rules with regard to reimbursement are based
primarily on ratios that are connected to beds and which limit the
amount of time that the people can spend offsite.

Mrs. JOHNSON OF CONNECTICUT. OK, thank you. That helps.

Chairman THOMAS. The gentlewoman’s time has expired.

The gentleman from California, Mr. Stark.

Mr. Stark. Thank you, Mr. Chairman.

Dr. Ludden, in your testimony, you indicate that HMOs have a

eat success story, and I suspect that if you live in the Boston or
Cambridge area or if you live in the East Bay of San Francisco
area where you either have your institution or Kaiser Permanente,
that is true.

But if you live in Florida where you have IMC or Southern Cali-
fornia where you have had Paracelsus, the HMO managed care
community has some warts and marks that they might like to live
down. If they were all as good as your institution, we would have
a simpler problem.

But you have been—and you are today complaining a little in
your testimony about the fact, as I read it, that we pass money
through in graduate medical education, and you somehow have to


105

ear basis. Most of us now are operating on the basis of a 1984
Base year funding methodology adjusted for inflation.

We do believe that this reimbursement system for graduate med-
ical education does not take into account the demands that are now
placed on the educational system in the development of consortia
and in the process of paying for the educators.

We certainly would encourage you to consider the 110-percent
cap. Simply cutting the payments will not facilitate the work force
change that is desired.

Thank you, Madam Chair, for giving me the opportunity to
present the concerns of the American Osteopathic Association.

[The prepared statement follows:]


162

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Greenberg, P.E., Stiglin, LE., Finkelstein, S.N., & Berndt, E.R. (1993), The economic burden
of depression in 1990. Journal of Clinical Psychiatry, 54(11), 405-418.

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Gustafsson, P.A., & Kjeliman, N.I. (1986). Family therapy in the treatment of severe childhood
asthma. Journal of Psychosomatic Research, 30(3), 369-374.

Hafen, G.E. (April, 1995) Behavioral Health, Muliken Medical Centers, CA. Personal
Communication.

Linton, J.C. (March, 1995) Robert C. Byrd Health Sciences Center, Department of Behavioral
Medicine, University of West Virginia. Personal Communication

Luckey J. (1987), Justifying alcohol treatment on the basis of cost savings: The offset literature.
Alcohol Health & Research World. Rockville, MD: National Institute on
Alcoholism and Alcohol Abuse.

Kouzis, A.C., & Eaton, W.W. (1994). Emotional disability days: Prevalence and predictors.
American Journal of Public Health, 84, 1304-1306.

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New York: Random House, Inc.



165

The shift of patient care from the inpatient to the outpatient setting justifies the
encouragement of residency training programs to support training in outpatient settings
including clinics, outpatient surgery facilities, and physician office settings. A method of
appropriately and uniformly credentialing and financing outpatient training programs should
be included in any reforms Congress will consider.

3. Provide Antitrust Relief for Workforce Planning

ASPRS supports antitrust relief designed to facilitate workforce planning activities by
the medical profession, including residency program directors, tesidency review committees,
and specialty societies.

Currently, antitrust laws put severe constraints on the ability of specialty societies and
residency program directors to address effectively the issue of workforce planning. Absent
appropriate changes in the antitrust laws, the medical profession may be unable to effect
meaningful and timely change based on the findings from workforce research

4. Conduct Workforce Planning on National Basis

Workforce planning in plastic surgery should be conducted on a national, rather than
state or regional, basis. Due to the nature and size of the speciality of plastic surgery,
workforce planning for the specialty is most appropriate at the national level. We do not
support the concept of using academic consortia to determine physician workforce issues
because, among other things, such a mechanism would likely lead to inconsistent decisions
across various regions and could be dominated by special interests.

5. Limit Number of First-Year Residency Positions to 110% of Number of U.S.
Medical Graduates

This position is consistent with the views of the Physician Payment Review
Commission and the federal Council on Graduate Medical Education, and has been included
in a number of previous legislative initiatives. most recently the Rockefeller/Durenberger bill
introduced in the 103rd Congress. Given the emerging problem of physician oversupply.
Congress should strongly consider reducing the number of medical graduates who enter,
train, and practice, while taking into account and accommodating the impact of any
reductions on medical services to urban and underserved populations

6. Alot Residency Positions Based on Program Quality

If the number of residency positions in any specialty needs to be reduced, the quality
of the training program should be the primary determining factor in the allocation of slots
Determinations of quality should be left to the existing Residency Review Committees and
the Accreditation Council of Graduate Medical Education system.

Conclusion

ASPRS gained a variety of valuable insights through its workforce study, although the
Society's and the specialty's ability to utilize that information to make appropriate changes in.
plastic surgeon workforce supply is limited because of current antitrust prohibitions

ASPRS appreciates the opportunity to testify on the topic of graduate medical

education before the Subcommittee on Health, and would be happy to he a resource as the
Subcommittee and full committee continues its work on this complex issue,

April 3, 1995


169

administered following completion of the generalist fellowship, institutions which train generalists
for academic positions are not eligible for GME funding. Medicare GME policy currently
supports only those fellowships which result in specialization and/or additional board certification,

Medicare policy should allow payment of direct GME funding for training generalist
teachers. Guidelines for program funding should be established by the Secretary of Health and
Human Services. Enclosed is proposed language to amend the Social Security Act in order to
allow payments for fellowship training in a generalist discipline.

Proposed Changes to the Social Security Law to Support Training for Primary Care
Teachers

42 USC and 1395 ww (h)
Sec. 1886 (h) Payment for Direct Graduate Medical Education Costs

(5)(A) Approved Medical Residency Training Program -- The term "approved medical residency
training program* means a residency or other postgraduate training program, participation in
which may be counted toward certification in a specialty or subspecialty and includes formal
postgraduate training programs in geriatric medicine approved by the Secretary and_formai

10

a faculty position in general internal medicine, general pediatrics or family medicine.
(5)(F) Initial Residency Period -- The term “initial residency period” means the period of Board
eligibility, except that

(i) except as provided in clause (ii), in no case shall the initial period of residency exceed an
aggregate period of formal training of more than five years for any individual, and

(ii) period, of not more than two years, during which an individual is in a geriatric residency
or fellowship program or a preventive medicine residency or fellowship program which meets
such criteria as the Secretary may establish, shall be treated as part of the initial residency period,
but shall not be counted against any limitation on the initial residency period, and

(suggested language underlined)


34

only funding the 3 years, positively shape the mix in medical edu-
cation?

Dr. SHINE. I am going to let Bob comment on that.

Could I just, Bob, say that the proposal I made for a freeze——

Chairman THomas. Well, I want to get to that.

Dr. SHINE. [continuing]. Deals with the New York situation. I am
not proposing downsizing.

Chairman THomas. No, I understand that.

Dr. SHINE. But what I am suggesting is—and I think you could
be creative; you could have a situation in which you have a freeze,
that you provide a certain amount of GME money, and that New
York City, for example, to the extent that those institutions began
to develop training programs for nonphysician providers in those
hospitals, may not lose the money; that is, that there be some re-
ward to them for making those transitions rather than—as
know, they have added 3,000 to 4,000 residents in New York City
over a short period of time.

So I think—I am very sensitive to that, and that is why you did
not hear a proposal from me about limiting foreign medical grad-
uates at all.

Chairman THomas. I understand that. But I have a multiple
problem in the area that you discussed, and that is the way in
which medical schools and the teaching hospitals operate, that not-
withstanding the economics driving folks to pick particular posi-
tions, in many situations, given the profile of the patients and the
very location of the teaching hospitals and the significant medical
and technical aspects involved there, it is a little bit like folks
going to college and wanting to take a particular course but finding
out it is closed, and there are openings in other areas, and frankly
you take what is available.

And many times because of the type of programs and locations
of teaching hospitals, you inevitably wind up producing a profile
which is not the most desirable. And then you say: We also want
these same structures in these same locations to carry out the
health care professional training of nondoctors in a context of more
and more managed care, where frankly a lot of the training is more
interpersonal in administrative skills along with working along
with nondoctor health professionals in locations that are not tradi-
tional hospitals.

You cannot do that with where they are and the profile of the
patients that they have. I agree with the idea of a freezing. I want
to pursue the idea of a 3-year limitation. And clearly we want to
release the money and figure out a way in which it finds its home
at where the teaching—whoever it is and whatever they are
doing—is done best.

But we have got to do all three of these things and more. But
I cannot, in the timeframe that we are dealing with. This is where
I unfortunately agree with my friend from California—I would love
to fundamentally change the way in which we finance it, because
it does not make sense. It is part of a historical anachronism that
grew up, because this was a device that was there, and we hooked
it on, and frankly there were political deals made between rural
and urban sites. That is where disproportionate share came from,
because you could pump money into the urban through dispropor-


115

4 Mrs. JOHNSON OF CONNECTICUT. Thank you very much, Dr. An-
lerson.

I regret that I was not able to be here for the whole panel. I had
an amendment on the floor. Those things end up taking a lot
longer than you anticipate.

But I appreciate your testimony, Dr. Anderson. I had not really
factored in osteopathic issues, and I do not know whether, when we
talk about the number of residencies in America, are we talking
about and do we include the osteopathic residencies as well?

Dr. ANDERSON. When I speak of funding 110 percent of the grad-
uates, both osteopathic ‘and allopathie medical schools—and I am
saying right now we are talking about a total of about 19,000 phy-
sicians that will graduate every year ——

Mrs. JOHNSON OF CONNECTICUT. Does the osteopathic system
have its own separate residency program?

Dr. ANDERSON. Yes, it does. Now there are some osteopathic phy-
sicians that are in allopathic programs.

Mrs. JOHNSON OF CONNECTICUT. Right.

Dr. ANDERSON. But there is an osteopathic system of training
residents, yes.

Mrs. JOHNSON OF CONNECTICUT. So you are saying if we look at
caps, it should be across both systems. If we look at residency posi-
tions, we should look at residency across both systems.

Dr. ANDERSON. That is correct. It should be proportional in the
allocation, recognizing the two separate systems.

Mrs. JOHNSON OF CONNECTICUT. Can you accurately factor out
how much of a resident’s time is devoted to training and how much
is devoted to service? This is to the whole panel.

Dr. ANDERSON. That is very difficult. I would say—-and I am a
medical educator—it would be very difficult to separate that out.

I could tell you this. The residents themselves would be very
eager to tell you how much of it is, “scut work” versus education.
But from an educator’s perspective it is difficult to separate these
two out.

Mrs. JOHNSON OF CONNECTICUT. Also since much of life is scut
work, it is hard to determine which is training.

Dr. Jacott.

Dr. Jacotr. I would just like to build on that a little bit. That
is a question that has been asked for many, many years, and we
have tried to look at it from every angle, and you add a third com-
ponent, not just service and education, but then you add research
as the third piece of the academic mission and try to figure out how
they sort out timewise. It is very difficult. I have not seen any
studies that clearly split out that time ratio.

Mrs. JOHNSON OF CONNECTICUT. What we are really trying to do
in government is exactly what the private sector has tried to do.

What exactly are your cost centers, and how does the money
flow? How much is research? How much is training? How much is
service? And what is the Medicare premium? How much of the
Medicare premium is care for seniors for the patient, and how
much is subsidy to training, and how much is subsidy to uncom-
pensated care, and how much is subsidy to the institution, so that
they can carry on their academic mission?


136

contemporaneous report language accompanying the 1992
reauthorization of health professions programs shows that the
committee recognized dentistry as a primary care component of
practice:

The Conferees have tied receipt of Federal scholarship
funds to the completion of primary care training programs
and the practice of primary care . . . After graduation fron
allopathic or osteopathic schools of medicine or dental
school, the individual must enter general dentistry
practice, or will have five years to complete a residency
program in either family medicine, general pediatrics,
general internal medicine, or general dentistry."

The recent IoM report on dental education specifically states,
under the first of eight "Policy and Strategic Principles" that
"[o}ral health is an integral part of total health, and oral
health care is an integral part of comprehensive health care,
including primary care."

Further, if GME policy is further modified to weight" or re~
direct OGME funds toward “primary” care, use of this same
definition would cripple the dental residency training
infrastructure of this country.

While policymakers may be pleased to know that dental education
does not have such a specialty oversaturation problem as in
medicine, we urge that Congress not adopt policies that might
disrupt the balance that has been maintained, and we urge support
for development of generalists.

At the very least, General Dentistry and Pediatric Dentistry
residency training should be included in any primary care funding
preference because they are the dental parallel to family
medicine and pediatric medicine. Oral and maxillofacial surgeons
also play a primary care role when they are the only dental
residents in a hospital, and their training prograns should be
supported.

We would like to work with the committee to correct the inflation
update problem, and with regard to any other funding preferences
that may be proposed.”

Our second recommendation is to correct the inequity that has
long existed under Medicare DGME, by extending support to dental
school-based residency prograns. | This would recognize the role
that dental school-based residents play in treating underserved
populations, including low income and elderly patients. A recent
preliminary study of dental school clinics prepared for the
Anerican Association of Dental Schools (AADS) found that the
median household income of clinic patients was $13,800 -15,600
per year, with two-thirds reporting a household income of $20,000
or less.’ Eighteen percent of the patients were age 65 and over.
AADS estimates that over 600,000 Medicare eligible individuals
are treated each year in dental school clinics. It is sensible
federal policy for Medicare to pay its fair share of these
training costs.

>is the statute 1s anended this year thee stould also be a technical correction to delete referaces
to progres that are “approved by the Council on Dental Education of the anrican Dental Association” (existing
Language fon the Medicare statute and regulations (42 CPR { 405.522 (21). Te Counci! on Dental Education no
longer "approves" prograes. In 1975 the Connission on Dental Accreditation (CO) becae the accrediting agency
for dental, most postdoctoral, and allied dental education prograas.


58

Prospective Payment Assessment Commission

17, Total Margins by Teaching Status, First Ten Years
of PPS

# Major teaching

her teaching
+4 + Non-teaching

vtarga
unPwtom |

1984 1985 «1986-1987 1988 1989 1990 1991 1992 1993
PPS Year
SOURCE. ProPAC analysis of Medicare Cost Report data from the Health Care Financing Admanistration


112

COGME has also recognized that the current reimbursement
formula for direct costs is skewed heavily in favor of the
large academic health centers for a number of reasons
including the ability of the larger institutions to involve a
proportionately greater number of staff members in the
compensated teaching faculty. COGME, therefore, is
advocating that the current formula, which is based on each
institution's actual 1984 costs, be replaced by a formula
based on a national per resident average cost (possibly with
regional adjustments). We join COGME in urging this change.
The updating of the base year and the change to a national
average will create a fairer and more rational system of
determining each institution's level of reimbursement for
direct costs of GME programs

The adjustment in the funding of graduate medical
education should not be limited to the means of direct
funding. We also believe that the system for reimbursement
of indirect costs of GME should be reformed.'? The present
formula is based in significant part upon the training
program's resident-to-hospital bed ratio. Again, larger
academic health centers have the resources to maintain such
ratios at a significantly higher level than their smaller
counterparts. Again, we and COGME urge that this method of
measuring indirect costs of GME be replaced by a formula
employing an updated historic base year experience figure.

Third, the source of funds for reimbursing the direct
costs of GME should be addressed. Presently, such funds are
provided in large part by Medicare/Medicaid and Blue
Cross/Blue Shield. We agree with COGME’s Fourth Report that
“the direct costs of GME be funded by all third-party payers
through the development of a national GME funding pool.*?
With the growth of managed care, it is essential that managed
care groups and all insurers in the private sector pay their
fair share of GME direct costs

One last topic with respect to funding involves the fact
that osteopathic teaching hospitals are typically smaller
community-oriented facilities. Because of the current
funding system’s rewards for larger institutions, the
osteopathic hospitals have not had the benefit of elaborate
resources for payment of faculty and trainees. Yet
osteopathic medicine is developing alternatives. Consortia
of hospitals and colleges of osteopathic medicine have
emerged in various locations to expand and enhance graduate
medical education for training in family medicine, internal
medicine and other specialties within the profession.”

UMedicare Indirect Medical Education ("IME") payments
to each hospital are based on a formula that provides an
increase of approximately 7.7 percent in the federal portion
of the DRG payment, for each 0.1 increase in the hospital’s
intern and resident to bed ratio. GAO/HEHS-94-33 Medicare
GME Payment Policy

“council on Graduate Medical Education, Recommendations
to Improve Access to Health Care Through Physician Workforce
Reform, Fourth Report to Congress and Department of Health
and Human Services Secretary (1994).

“ror example, the COGMET program established by
Michigan hospitals and the College of Osteopathic Medicine at
Michigan State University in Lansing, Michigan and the Family
Practice program established by Ohio hospitals and the
College of Osteopathic Medicine at Ohio University in Athens
Ohio have had particular success in developing graduate
medical education programs in primary care.


16

‘The Purpose and History of she Medicare Direct Graduate Medical Education Payment

When Congress established the Medicare program in 1965. it acknowledged that educational activities enhanced the quality
of care in institutions and recognized the need co support residency training programs 10 help meet the public need for
fully-trained health professionals, In drafting the initial Medicare legislation, Congress stated

Educational activities enhance the quality of care m an institution, and itis intended, until the community undertakes to bear such
‘education costs in some other way. that a part of the aet cost of such activites (including stipends of tramees. as well as
Compensation of teachers and other costs) should be borne to an appropriate extent by the hospial insurance program (House
Bepac.. Number 213. 890 Congress. Ist Sess. 32 (1965) and Senate Repack. Number SO8 PC 1. 85th Congress Ist Sess. 36
(19659)

Similarly, in the regulations governing the Medicare program, the Secretary of Health, Education and Welfare stated

leis recognized that the costs of such educational activites should be borne by the community. However. many communities
have not assumed responsibility’ for financing these prograins and i is necessary that suppon be provided by those purchasing
health care, Until communities undertake to bear these costs, the program will participate appropriately in the support of these
Actvities (82 C.F.R, Section 413.85 [formerly Section 405.421(c)).

Thus, since its inception the Medicare program has assumed some responsibilty for graduate medical education cost
‘making separate payments to teaching hospitals for these costs If there was ever an assumption that the “communt
‘would take responsibilty for its share of these costs. it certainly 1s not occurring 1n the current competitive environment,

Until the mid 1980s, Medicare paid for its share of DGME costs based on the hospital's historical and reasonable costs
as determined by an audit. Reimbursement was open-ended in that a proportionate share of “reasonable and allowable”
DGME costs incurred every year was "passed through” to the Medicare program. DGME payments were also open-ended
in that there was no restriction on the number of years that Medicare reimbursement would pay for support a resident's
‘raining

In April 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (P.L. 99-72),
‘which dramatically altered the DGME payment methodology. The legislation changed the DGME payment methodology
from one based on annual historical DGME costs to a prospective per resident amount. The Medicare program now pays
its proportionate share of @ hosputal-specific per resident amount based on audited costs from a base year and updated for
inflation rather than on the basis of DGME costs actualy incurred. Today. a hospital's DGME payment is calculated by
‘multiplying the hospitals fixed amount per resident by the curtent number of residents and then multiplying that result
bby Medicare's share of inpatient days at the hospital. Other legisiative and regulatory changes have been made since
COBRA, but the basic methodology for calculating the DGME payment remains the same.

Inaddition to changing the payment methodology. COBRA placed limits on the number of resident trainee years for which
full Medicare payment would apply. In a subsequent change, Congress chose to restrict full support to the direct costs
of those residents within the minimum number of years of formal raining necessary to satisfy the educational requirements
for initial board certification, up to a maximum of five years. The five-year count would be suspended, however, for 3
period of up to two years for training in a geriatric residency or fellowship program. Payment for residents beyond either
the period for intial board certification or the five-year level are reduced by 50 percent

‘The change in DGME payment methodology required by COBRA, which the AAMC did no oppose, terminated the
previous open-ended commitment to financing graduate medical education. Although COBRA limits DGME payments.
it still acknowledges the historical scope of direct graduate medical education costs. including the salaries and fringe
benefits of residents and supervising faculty physictans and institutional overhead costs

Proposals to Change Medicare Payments for DGME Costs

Since the unplementation of per resident payments in 1989, policy makers have proposed changes in the methodology (0
encourage residency training in generalist specialties and in non-hospital-based settings. The Association recognizes that
the present system has not produced the number of generalist physicians that society may need in a reconfigured health
care system A 1992 Association policy statement calls for:

an overall national goal that a majority of graduating medical students be commited to generalist careers (family medicine
‘general internal medicine and general pediatccs) and that appropriate efforts be made by all schools so that this goal can be
reached within the shortest possible time

The policy document's foundation rests on the implementation of Voluntary, private sector initiatives. Among them is
creating and maintaining incentive programs aimed at individual medical students, resident trainees, and practicing
Physicians as the best methods of indueing career choices in certain specialties, The Association's policy statement
strongly endorses that private sector organizations and governmental bodies should join together m partnership to eliminate
the many barriers that exist to meeting the need for generatist physicians.

With respect to the role of the Federal government, the AAMC policy statement recommends that the Medicare program
and other third-party payers should adopt other reforms in physician payment designed co compensate generalist physicians
more equitably by reducing the marked disparity in income expectations stemming from our current system of physician
payment, A second recommendation is that payment methods for financing the direct costs of graduate medical education
should not create nor perpetuate bartiers 0 shifting the balance between generalist and non-generalist training,


28

crease that you and I thought needed to be present, they, in fact,
are going to come close to having the work force they need in terms
of generalists.

The dilemma is the fact that the subspecialists begin to grow.
And I would just remind you that in Southern California last year
at UC-San Diego they hired a cardiologist for $70,000 a year, a gas-
troenterologist for $72,000 a year, and a general internist for
$110,000 a year.

Now I believe my medical students—and I still teach at George-
town—are smart enough to know that. And I am less worried about
the ratio, although again the institute waved that flag poing back
to 1978. [ am much less worried about the ratio now as I am about
this enormous surplus of subspecialists.

Chairman THOMAS. The gentleman’s time has expired. Does the
gentleman from Nevada wish to inquire?

Mr. ENSIGN. Thank you, Mr. Chairman.

I come from a little bit of a different background, and so I would
like to inquire just to try to learn this. I am a veterinarian by pro-
fession, and we work a little differently. The teaching hospitals do
get some fovernmental subsidies, but I do not think in the same
way that the practice of human medicine does.

For example, a specialist in veterinary medicine actually makes
less than a general practitioner. But yet we still get the best and
the brightest who want to be specialists simply because of the love
of doing surgery, orthopedic surgery, ophthalmology, whatever it is.

Using that as a backdrop, I just wanted to say that from my ex-
perience, residents and interns were slave labor. I mean, my year
as an intern, I made $14,000 a year and worked 80 to 100 hours
a week, the equivalent of less than $3 an hour.

As I recall, the institutions loved us because the more interns,
or more residents, they had, the better they did, because we were
very cost effective.

I do not understand why it costs more money per resident on
their education.

Do you understand my question?

Dr. SHINE. I am not sure. The fact is that there are a significant
number of institutions in the United States which are using resi-
dents in a way that is better than it was 15 years ago, but is not
inconsistent with the role you described for residents during your
training.

That is the wrong reason for having residency programs. Resi-
dency programs should be first educational and second, they should
prepare people for the kind of practice that they are going to need
to use. And that means how do you help elderly people Jearn to
stay in their home, rather than take care of them in the intensive
care unit.

So I think what we are saying is that the kinds of changes we
want to see happen are ones which have less to do with the acute
day-to-day needs of the hospitals where the training goes on and
more to do with providing care outside of the hospital, providing
care for underserved populations and underserved areas and doing
it in a way that is sensible in terms of the long term.

As far as the subspecialist is concerned, what I am concerned
about is that we are already seeing underemployed and unem-


94

Principle #5

In order to prevent inappropriate growth in the number of GME positions, the AMA feels
that revisions must be considered in the procedures for adding new specialties and for
extending the length of training required for certification in existing specialties. During «he
1980s, the number of resident physicians in GME programs increased by greater than 30%.
‘During the same period, the number of U.S. medical school graduates remained fairly
constant, We conclude that the marked increase in GME positions was largely due to the
proliferation of new specialty residency programs and positions. This trend has clearly
increased the costs of GME in this country.

‘At present, decisions regarding specialty training issues are controlled, for all practical
purposes, by the specialty boards and the ACGME. In some cases, changes in training
requirements have been initiated by a specialty board, and in some cases, by an RRC. Asa
body primarily concerned with GME accreditation issues, the ACGME has not been charged
with the responsibility of balancing the interests of the specialty oriented organizations with
the concerns of government, business, other interested parties, and the public. As a result,
the specialty organizations have been free to increase training requirements, thus increasing
the costs of GME, without concer as to the impact of their decisions on the system as a
whole.

Voluntary accreditation and certification remain an important feature of the GME system in
this country. To maintain this important characteristic, interested parties and the public must
be assured that there is accountability for the decisions made by the RRCs and the specialty
boards. In its first report (1988), COGME recommended that the parent organizations of the
ACGME convene to develop specific ways for dealing with this issue. In addition, COGME
recommended that the American Board of Medical Specialties bring this issue to the attention
of the individual boards. To date. these boards have not dealt with this problem in a
satisfactory manner.

Conclusion

‘The AMA has considered the issues surrounding financing reform in GME and has
developed goals and a set of principles to assist the national debate on this issue. The AMA
believes that such reform is warranted in order to control the costs of GME, to stabilize the
funding of GME, and to improve the accountability of the GME system to society so that
national physician workforce objectives are achieved and maintained.

‘The AMA offers the above articulated principles as guidance to the Subcommittee and
Committee in their evaiuation of GME financing. We thank the Subcommittee for soliciting
our thoughts and recommendations on this highly complex issue of financing graduate
medical education. We look forward to working with other affected organizations and hope
that we can be a continuing resource as the Subcommittee and full Committee develop their
proposals.


9

And I do believe that if managed care organizations and other
payers were required to make some contribution to medical edu-
cation on a percentage basis, that that would have the effect of pro-
viding support and a level playingfield, so that one managed care
organization was not giving an advantage to another by virtue of
paying for some education. And I think we ought to consider that.

ank you, Mr. Chairman.

[The prepared statement follows:]


TT

Appropriate training experiences in ambulatory. community-based non-hospital settings are essential to produce competent
physicians. As hospitals encourage shorter stays by more acutely ill patients, training in ambulatory and long-term care
settings is needed 10 supplement the educational experience provided in hospitals to assure that residems receive
comprehensive clinical raining

The nation's medical schools have implemented programs to increase the awareness and attcactiveness of generalist
medicine. New clerkships emphasize more experience in ambulatory settings. Courses with a primary care focus have
been added during the pre-clinical years. and new curriculum strategies, such as primary care tracks and competency-based
curricula, are being developed and implemented. Role modeling and mentoring opportunities are being provided through
classes. formal mentoring progeams. or the assignment of advisors and the development of primary care interest groups
Schools have convened primary care task forces. appointed new Associate Deans for Primary Care, and developed new
{departments of family medicine and divisions of general internal medicine and general pediatrics.

‘The AAMC is pleased to repor that medical schools’ efforts, in combination with market forces, have been rewarded as
‘medical students’ interest in generalist practice continues to metease. Although data on medical students’ career choice
from as recently as the graduating class of 1989 show a declining selection of the generalist specialties, more recent data
signal that medical schoo! graduates continue 10 notice the changes in the health care environment. In 1994, the
percentage of medical school graduates indicating their intention to pursue certification in one of the generalist disciplines
increased again, Of graduating medical students, 22.8 percent indicated an intent 10 choose a generalist career in 1994
compared to 14 6 percent in 1992 and 19.3 percent in 1993. In addition, results from the National Residency Matching
Program (NRMP). released on March 15. 1995. showed that medical students “matched” into family medicine residency
programs atthe highest rate in the NRMP's 43-year history. Over 2.000 graduating seniors from U . medical schools,
for [5 4 percent of those seeking first-year residency positions, matched into a family medicine residency. This compares
to 14.0 percent of all U.S. sensors in 1994

Personal incentives such as loan forgiveness, (ax benefits, and other inducements. such as narrowing the income gap
between generalist and non-generalist physicians, are more likely to result in greater numbers of US. medical school
graduates entering the generalist disciplines. !f monetary incentives are to be provided. they should be aimed at
individuals. not hospitals and their sponsored residency programs. ‘There are also a variety of federally-sponsored student
loan repayment programs that could be bolstered.

‘Our present system for graduate medical education has much to commend it. The AAMC appreciates the need to study
different payment policy options. However. it is important to note that many options are interrelated in sometimes
‘unexpected ways that, if adopted, could result in unintended consequences, such asthe need for a regulatory mechanism,

‘The need for re-examination notwithstanding. Congress should carefully consider changes in Medicare payment policy
that would reduce the program's current level of support for DGME. and yet fail to encourage the atainment of desirable
public policy goals, such as an mcrease in the number of generalist physicians. This is pariculariy «rue in light of
diminishing support from other payers and the present unlikelihood of establishing an all-payer fund for graduate medical
‘education

In addition 10 proposals o shift the balance of generalist and nongeneralist physicians. policy makers also have expressed
interes in limiting the variation n hospital-specific per resident amounts Many of these proposals are intended 10 limit
the growth ta Medicare expenditures. Among the more frequently mentioned proposals which seem to have caprured the
anerton of some poli makers ae

encouraging the development of non-hospita-hased ambulatory taining sites by allowing entities other than hospitals
(0 receive Medicare DGME payments and changing payment rules forthe IME adjustment:
‘weighting payments by specialty to encourage training in the generalist specialties.
constructing a national average per resident payment methodology that would reduce the variation in hospital-specifc
per resident payments; and
‘limiting payments based on certain types or a defined number of residents

Each of these proposals and their potential impact on graduate medical education 1s discussed below

Encouraging the development of non-hospital-based ambulatory training sites. Increasingly, care that was delivered in
a hospital inpatient setting 1s now being provided in clinics, ambulatory surgery centers, community health centers, and
cther alternate sites._as health maintenance organizations and other forms of managed care delivery systems command
a larger share of the health care delivery market, medical educators have recognized that if physicians are to practice
appropriately in these settings. 1! 8 important for them to be trained in simular settings.

‘Changes are needed to ensure that training sites chosen by residency program directors are selected because they offer
Appropriate educational experiences, not because they are more easily funded. Some changes in Medicare DGME funding
should be considered (o encourage residency training in non-hospital. ambulatory sites, The law regarding Medicare
DGME payments is very explicit in stating that DGME payments may be made only to hospitals. On the other hand, the
law and implementing regulations allow hospitals to receive DGME payments forthe traning of residents in non-hospital.
ambulatory settings (subject to certain requirements). Although an ambulacory site may not at present receive a Medicare
payment directly for any DGME costs it might incur, nothing in the law prevents it from negotiating for a payment from
a hospital for the residents that the non-hosptal site accept.

‘The AAMC believes that the funding for graduate medical education should support residents and programs in the
ambulatory and inpatient training sites that are most appropriate for the educational needs of the residents. The
‘Association believes that Medicare DGME payments should be made to the entity that incurs the cost, Recipients of


83

Average Adjusted Per Capita Cost (AAPCC)

[As the delivery system moves toward capitated payments for covered lives. separating the payment for DGME costs and
for patient care costs attributable to the special roles of teaching hospitals from patient care revenue becomes necessary
‘The AAMC believes that the current method of calculating the Medicare APC. the rate that the program pays to risk
contractor HMOs, results in a payment system that creates an uneven playing field between teaching and non-teaching
hospitals.

‘The AAPCC calculation includes all Medicare fee-for-service expendiures. specifically the DGME payment, the IME
‘payment and the DSH payment. These payments are intended respectively to compensate hospitals for specific missions
(graduate medical education), or for providing services to atypical patients who are severely ill or are of low-income
socioeconomic status

Once these payments have been included in the AAPCC and paid to an HMO, there is no assurance that these dollars are
used for the purposes intended by the Congress. ‘Thus. teaching hospitals are at a competitive disadvantage when they
attempt 10 contract with HMOs because the HMOs receive the same AAPCC atnount regardless of with whom the HMO
hhas a contract. Teaching hospitals have higher patient care costs associated with their additional missions. The Medicare
payment system recognizes these higher costs through the IME and the DSH adjustments and the DGME payment

ProPAC recently noted this problem in its March 1995 report to the Congress:

Medicare's capitated payment under its managed care risk contracting program does not appropriately disinbute payments for
the costs of teaching programs of of caring for a disproportionate share of low-income patients. The capitaed rate reflects the
extra Medicare payments provided to teaching and disproportionate share hospitals in the fee-for service sector, regardless of
‘whether Medicare enrollees receive care in those hospitals. The relationship between HMOs andthe veaching and disproportionate
share hospitals in their service area warrants further evaluation (pages 7-8).

‘The AAMC believes that the IME. DSH and DGME payments should be excluded from the calculation of the risk
payment rates and paid (0 a teaching hospital directly when the Medicare HMO enrollee actually incurs a bed day in the
teaching facility. Simply put if the eaching hospital provides the service it should receive the IME, DSH and or DGME
payments directly whether the service is provided to Medicare beneficiaries under the prospective payment system or
through HMOs with risk contracts

‘The AAMC urges the Congress to address this methodological issue in an urgent manner as part of its package of
proposals to reform the Medicare program. The Association recognizes that while this problem is more prevalent in some
parts ofthe country than in others, it will be increasingly difficult to resolve as national enrollment in Medicare risk-based
HMOs grows. In addition, the Congress should require ProPAC, as part of its analysis, 10 develop a methodology for
removing these costs from the calculation of the AAPCC and for paying them directly fo teaching hospitals when services
are delivered to Medicare HMO patients. The Association is pleased that ProPAC has started to analyze how the
Medicare program pays risk contractors and the deficiencies of the AAPCC methodology. The AAMC believes that
‘modifying the AAPCC calculation would a least panially ameliorate the competitive disadvantage that teaching hospitals
bring to the negotiating table, remove barriers to expanding HMO use among Medicare beneficiaries and strengthen the
existing, risk-based coordinated care program.

Conclusion

‘The AAMC regrets that the possibilty of establishing all-payer funds for the special missions of teaching hospitals and
‘medical schools apparently has diminished in the past year. AC the same time, all evidence indicates thatthe health care
delivery system will continue (o emphasize price competition, challenging the financial viability of teaching hospitals and
teaching physicians. The AAMC is deeply concerned that the fundamental structural changes now occurring in the health
delivery system will undermine the ability of academic medicine to adapt to the new environment and to fulfil its unique
missions.

‘Academic medicine consists of a diverse group of highly complex institutions providing the environment and resources
for medical education and research for the nation and providing both basic and fertiary patient care services, The current
emphsis on re-examining national policies in light of limited public resources places these institutions and their vital
activities at risk if their special roles and nature are not appreciated.

National policy on health care delivery and payment must recognize the unique characteristics and diversity of teaching
hospitals and teaching physicians so that their fundamental missions can be preserved. Reductions in Medicare payments
to teaching hospitals and teaching physicians will undermine the ability of these institutions to fulfill their multiple
responsibilities at the same time they are struggling to adapt to a new delivery environment. Academic medicine Supports
those changes that assure the provision of high quality health care in a cost effective delivery system, a vibrant research
capability and the capacity o educate outstanding practitioners. Academic institutions need the understanding and support
of society to fulfill their obligations, The AAMC looks forward to working with the members of the committee and their
staff 19 meet these common goals


5

the major employers in those areas and the principal consumers of
neighborhood goods and services as well.

omplicating the graduate medical education issue even more is
that the fact that as the health care market moves toward man-
aged care, there is a financial squeeze on such teaching hospitals,
because many of the services these hospitals offer can be more
cheaply provided in nonteaching settings, and so managed care
plans tend to shy away from sending their insureds to these insti-
tutions.

Our efforts to encourage Medicare beneficiaries to elect this
private-sector option of managed care only intensifies pressures on
teaching hospitals. So we are left with the dilemma of how to redi-
rect training Programs, while preserving the best of what academic
health centers offer, in addition to solving the cost and choice is-
sues which face the Medicare problem.

I look forward to beginning our discussion of these issues today
and especially on the ideas of individuals who have thought about
this problem for a long time.

And with that, I would yield to the ranking member, the gen-
tleman from California, Mr. Stark.

Mr. STARK. Mr. Chairman, thank you.

This hearing is propitious. Every list of cuts in Medicare that
have been floated by the Republicans suggests that Medicare sup-
port for teaching hospitals should be slashed. We are about to slas
billions and billions of dollars from children’s programs to pay for
tax cuts for the rich. I suppose one of the good things is that these
tax cuts for the rich will inure to many of the same physicians who
will be out of work when we close the centers of excellence under
the Republican plan to cut a couple of hundred billion out of Medi-

are.

Scheduling the hearing at this point allows us to express our
support for teaching hospitals and opposition to rather mindless
cuts in the Medicare program without understanding how it relates
to the overall medical delivery system in our country.

The issue of indirect medical education adjustment is not really
about formulas or regression analyses or whether we should have
4.5 or 7.7 percent. I might add that every 1 percent we cut takes
a half a billion dollars a year out of these centers of excellence. But
that is not the issue.

I think the issue is, say, that a hospital is performing a mission
in the inner city. It is no accident that two-thirds of our teaching
hospital payments po to disproportionate share hospitals. These
hospitals have the lowest margins of all hospitals. And I am not
willing to attribute that to bad management or lack of entrepre-
heurship or lack of interest in the profit motive.

I am willing to attribute that to a mission that is humane and
may not be understood by the majority, but it is a system that tries
to help everybody without regard to their income.

Along with the pressure that these institutions will feel with cuts
in Medicare spending, these hospitals are also under pressure due
to this push toward private health plans and contracting Medicaid
and Medicare to the so-called profit sector.

What health plan, what Humana, what Prudential, in its right
mind, if they have one, would sign a contract with a hospital whose


ww

course, in order to guarantee sufficient funds, the
allocation must be in appropriate proportion to the number of
osteopathic medical graduates. We suggest that in a separate
allocation system, the number of funded allopathic residency
programs would be determined based on the number of graduates
of allopathic medical schools, while the number of funded
osteopathic postgraduate programs (internships and
residencies) would be determined based on the number of
graduates from osteopathic medical schools.

The AOA proposed the idea of a separate and
proportionate allocation of funds for osteopathic GME to
Congress and the Council on Graduate Medical Education
("COGME"). In response, COGME concurred with the AOA’s
suggestion and recommended that funding for postgraduate
training programs be allocated on a separate basis for
allopathic and osteopathic physicians.'° While osteopathic
and allopathic educational programs both produce complete
practicing physicians, their respective educational models --
from medical school through graduate medical education -- are
different. By guaranteeing a separate funding allocation for
osteopathic postdoctoral training programs, Congress will
help to ensure the continued vitality and viability of
osteopathic medical care.

2. Eunding for Graduate Medical Educatio!

I would next like to discuss the criteria for funding
respective Graduate Medical Education ("GME") programs and
the source of such funds. Currently, there are separate
formulas for reimbursment of direct and indirect GME costs
incurred by teaching hospitals.

Direct GME costs are reimbursed under a formula which is
based on each hospital’s 1984 costs per resident, adjusted
for inflation." Since 1984 there have been significant
changes in graduate medical training, particularly within the
osteopathic profession. Non-salaried volunteer faculty has
given way in large measure to salaried faculty. Osteopathic
programs have grown relative to their allopathic counterparts
and have consequently incurred additional costs for
additional faculty, such as program directors and clinical
supervisors. These costs were already imbedded in the large
allopathic programs in 1964 and, therefore, included with
their base year measure. Because most of our faculty salary
expenses have arisen since 1984, osteopathic programs have
lost ground relative to the allopathic programs, despite cost
of living adjustments. COGME is aware of the fact that a
similar situation exists in the allopathic profession with
respect to the large academic health centers versus smaller
teaching institutions. Consequently, both COGME and the
osteopathic profession are urging that at the very least, the
base year for measuring direct costs be changed from 1984 to
as current a year as possible in order to take into effect
actual changes and thereby create a more level playing field

council on Graduate Medical Education, Recommendations
to Improve Access to Health Care Through Physician Workforce
Reform, Fourth Report to Congress and Department of Health
and Human Services Secretary (1994).

upirect Graduate Medical Education (DGME) payments to
each hospital equal the hospital's updated base-year (1984
costs per FTE resident, times the weighted average number of
FTE resident, times the percentage of inpatient days
attributable to Medicare Part A beneficiaries. GAQ/HEHS-94-
33 Medicare GME Payment Policy.


81

‘Ways and Means Committee Report. Number 98-25, March 4, 1983 and Senate Finance Committee Report, Number 98-23,
March L, 1983)

‘The IME adjustment should not be confused with the Medicare payment for DGME costs. Payments for Medicare's share
of the diet costs of graduate medical education programs are separate from the PPS.

Since the inception of the PPS, the IME adjustment has been reduced twice from its original level of 11.59 percent (a
reduction of 30 percent), and the executive and legislative branches have proposed further reductions in the level of the
IME adjustment. ‘These proposals have been based on calculations using @ variety of regression models, more current
data, and different combinations of variables. In January 1989 the General Accounting Office (GAO) issued a report that
estimated the size of the IME adjustment using various regression specifications and called for a reduction in the level
‘of the adjustment. Every year since 1989, ProPAC has recommended a gradual reduction inthe level of the adjustment

In recent years, however, Congress has indicated that the level of the IME adjustment should reflect the broader mission
and overall financial viability of teaching hospitals to assure access and quality of care for Medicare beneficiaries and other
patients. Similarly, ProPAC has recognized thatthe financial success or failure of teaching hospitals could affect access
to care and quality of care, and in making its recommendations has tried to assure “rough justice” among hospital groups
“Rough justice” refers to a policy objective of assuring roughly comparable total margins for teaching and non-teaching
hospitals.

‘While PPS operating margins! for teaching hospitals are on average higher than those for non-teaching hospitals, teaching
hospitals’ total margins have remained consistently lower than non-teaching hospitals’ total margins. As analyzed by
ProPAC in its June 1994 report and shown in Table A below, data from the minth-year of PPS (1992-93), the most
‘complete information publicly available. show that average PPS margins for non-teaching hospitals were minus 6.4
percent, but total margins were plus 4.7 percent. Major teaching hospitals. however. posted PPS operating margins of
8.0 percent. but their average total margins were substantially lower at 3.0 percent. The average total margin for all
hospitals was 4.1 percent.

Table A
PPS Operating Margins and Total Margins, by Hospital Group, PPS 9
Hospital Group PPS Margin ‘Total Margin
Major Teaching 80% 3.0%
Other Teaching 22 40
Non-teaching 64 47

Source: ProPAC analysis of Medicare Cost Report data from the Health Care Financing Administration.

‘A more recent ProPAC analysis of preliminary and unpublished data from the tenth-year of PPS (1993-94) shows the
‘same relationship between financial margins and teaching status. Major teaching hospitals (hospitals with resident-o-bed
ratios over .25) which are underrepresented in te incomplete tenth-year database, had PPS margins of plus 11.2 percent.
but recorded average total margins of plus 1.8 percent, Other teaching hospitals. those with IRBs of less than 0.25, had
average PPS margins of minus 0.8 percent and total margins of plus 4.4 percent. Non-teaching hospitals had the lowest
PPS margins at minus 5.9 percent, but posted the highest cotal margins at plus 4.8 percent

‘The AMC's Impact Analysis of Reducing ihe IME Adjustment

‘The AAMC is greatly concerned that some poticy makers have concluded that the IME adjustment could be reduced
substantially without threatening the financial viability of teaching hospitals. The AAMC does not agree with this
perspective and believes that a reduction of the IME adjustment would seriously undermine the financial stability of
teaching hospitals. While a review of FY 94 financial data supplied by 91 hospitals belonging to the AAMC's Couneil
‘of Teaching Hospitals (COTH) suggests that some teaching hospitals ae performing well financially. a closer examination
reveals that their tral margins have been relzively stable for three years and are comparable 1o the total margias of non-
teaching hospitals. Increases in the average PPS margin have contributed (0 stable aggregate total margins over the
petiod.

PPS margins for this group of 91 teaching hospitals, all but 19 of which are "major teaching” hospitals, increased in
1994. *Major teaching” hospitals are defined as those having resident-to-bed ratios of 0.25 or greater. Average PPS
margins increased from 3.70 percent in 1992 (o 11.75 percent in 1994, Of the 91 hospitals. 16 (18 percent) reported
lower PPS margins in 1994 than in 1993. While 37 hospitals had negative PPS margins in 1992, only 15 hospitals had
PPS margins less than zero in 1994, More importantly. however, the average (otal margin for this group has remained
fairly stable (between 4.60 and 5.12 percent) over the three-year period

he PPS margin is defined 8 PRS revere (ORG payment aproporconne share payment IME aye oir and “high End Sage Reva Disease [ESRD]
ue" pape en Meare patent opera cot, vad by PPS evene. The PPS marin dfiaoon excuies Medicare revenues aco Seed Wit
‘loi det dial eduaton, PPS exer pte care nas, an Some oer cages. Bese payne or os of hese cou components ect capil) at
‘rade on con eemtursemen is, he marge for these ems canta be psve. ‘Therefor te mins or Meicare aint beneicianes a es tha the PPS
‘maine sown Bi 5


107

secured broad recognition at law’ and in the courts? as
equivalent to our allopathic brethren. The DO and MD degrees
are the only recognized degrees leading to the unlimited
licensure for the practice of complete medicine and surgery.
Despite our success, there still remain some isolated pockets
of discrimination against the osteopathic community, and
osteopathic physicians must continue to fight for equal
treatment.

Significantly, while DOs constitute only 5.5 percent of
the nation's physician manpower, they are often the only
physicians practicing in many rural and underserved
communities. Osteopathic physicians comprise more than 15
percent of all physicians practicing in communities of less
than 10,000 people and fully 18 percent of physicians serving
communities of 2,500 or less. Additionally, DOs comprise ten
percent of all physicians serving in the uniformed services
In all, whether serving in rural or urban areas and in public
service or private practice, the nation’s osteopathic
physicians provide care in nearly one hundred million patient
visits each year.

Osteopathic medicine has recently received attention for
its production of an appropriate balance of primary care
physicians and specialists. More than 60 percent of the
profession consists of primary care physicians who provide a
complete range of services to patients of all ages. This
Statistic is no fluke. Throughout its history, the
osteopathic profession has consistently been able to exceed
the proposed federal recommendations for 50 percent of the
nation’s physician workforce to be comprised of primary care
physicians. Each year, more than half of the osteopathic
medical school graduates choose to enter practice in primary
care fields. A recent study to determine which medical
schools -- allopathic and osteopathic -- produce the largest
percentage of primary care physicians revealed that 15 of the
top 25 and all of the top ten were colleges of osteopathic
medicine.’ The success of the osteopathic profession in

‘For example, Medicare defines physicians as including
osteopathic physicians (42 U.S.C § 1395x(r)); Hospital
accreditation by the AOA is statutorily recognized (42 U.S.C.
§ 1395bb(a); and osteopathic physicians are statutorily
authorized to practice medicine in the Public Health Service
(42 U.S.C. § 209(d)), Medical Corps (10 U.S.C. § 532(b)),
Veterans Administration hospitals (31 U.S.C. § 4105(a)(1)),
and Federal Health Service (5 U.S.C. § 7901(e)).

*See Stern v. Tarrant County Hospital, 778 F.2d 1052
1060 (5th Cir. 1985), cert. denied, 476 U.S. 1108 (1986
(noting that osteopathic physicians and allopathic physicians
have similar training and face identical testing and
licensing requirements); Brandwein v, California Board of

Osteopathic Examiners, 708 F.2d 1466, 1468 (9th Cir, 1993
C'At the present time the differences between the schools of
osteopathy and allopathy are minor”) ; ve

745 F.2d 786, 792, 820-22 (3d Cir, 1984), cert. denied, 470
U.S. 1060 (1985) (noting at footnote 4 that an MD had
testified as to the fact that there was no difference between
graduates of allopathic and osteopathic medical schools in
terms of medical training and ability to provide medical
care, and, at page 820 that the defendant hospitals did not
contend that osteopathic physicians are less qualified, nor
did the hospitals offer any "public service or ethical norm
rationale for their discriminatory treatment of DOs.").

1. Haspel, DO, Osteopathic Graduate Medical Education:
Past, Present & Future (1995) (study completed for the Josiah
Macy, Jr. Foundation).


92

to cover the other direct GME costs. Others have suggested that resident physicians should
generate their own income by billing for their services. The AMA also rejects these
arguments. Resident physicians act in the capacity of advanced graduate students and should
be treated accordingly. Under many circumstances, graduate students receive a stipend and
their tuition is waived if they provide services as a teaching or research assistant. Since most
resident physicians provide patient care services and teach medical students and other
resident physicians, it is appropriate that they receive a stipend and not pay tuition to the
teaching institutions with which they are affiliated. Such a mechanism would raise the total
costs of medical education, leading to rising debt loads for young physicians entering their
practices.

Another important point regarding the patient services nexus for payment is that payments
for these services should go directly to the facility where the training takes place and where
the patient is provided the service. Given current trends, including the delivery of services
in ambulatory and primary care settings, and the consequent emphasis on primary care within
the GME system, it is absolutely essemtial that payment accrue to the facility where the
patient receives services. The AMA continues to support initiatives to develop new
methodologies for the costs incurred in physician training in “non-traditional” sites and
encourages medical education to be provided in settings that will best prepare physicians to
practice in any evolving health care delivery system (e.g., nursing homes, outpatient surgery
or ambulatory care settings, rural settings, and homeless shelter clinics).

Principle #3

While recommending that GME financing reform focus primarily on the methods of
financing direct GME costs, we recognize that this is not the only policy issue related to the
topic of GME financing. Certainly, the financial viability of major teaching hospitals,
particularly those which serve a disproportionate share of uninsured patients, is a legitimate
issue for concern. In this regard, the AMA recognizes that teaching hospitals are particularly
concerned that Congress might legislate decreases in Medicare IMEA payments and thus
further decrease their operating margins. However, as noted previously, the 1990 COGME
report documented that recent decteases in hospital operating margins are rooted primarily in
decreases in non-Medicare revenue margins. The AMA therefore believes that it is
inappropriate to focus attention solely on the Medicare IMEA. The financial status of
teaching hospitals will remain unstable as long as hospital administrators continue to grant
discounts to certain private payors who do not contribute their fair share to the financing of
GME, and until governments develop a more equitable way to cover the costs of
uncompensated care.

‘The AMA believes that efforts to reform GME financing should not be burdened in the
immediate debate by attempts to resolve these very complex issues of uncompensated care
and the effect of discount contracting on the financial stability of some teaching hospitals.
Such an approach would inevitably lead to prolonged discussion that would effectively derail
any attempts (0 deal with the serious problems facing GME.

Principle #4
‘The AMA strongly supports the principle that HCFA should revise the regulations governing

Medicare DME payments to eliminate the extraordinary variation in DME costs that
currently exists among teaching hospitals. The variation in claimed costs -- as much as a


60

Prospective Payment Assessment Commission

Chart 9. Annual Rate of Increase in Medicare Operating
Costs Per Discharge, by Teaching Status

12
= Mace
owe:
= Non-aacning a1 92 34,
e4 |
ate of
vrerease 6
iin Percenn
44°43 43
i
_ |
° 7 T
1983-1984 1984-1990 1990-1993

PPS Years
SOURCE. ProPAC analysis o! Medicare Cost Report data from the Health Care Financing Administration.


56

Prospective Payment Assessment Commission

Chart 5. PPS Margins by Teaching Status, First Ten Years
of PPS

= Major teaching
a4 Other teaching
+ Non-teaching

Magn 1°] NN

{in Percent)
7 NT

“10

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
PPS Year
SOURCE. ProPAC analysis of Medicare Cost Report data from the Health Care Financing Administration.



18

of teaching programs. However, as | noted earlier, the market limits the ability to invite such
financing, and HCHP provides such examples

Over time the demands of the marketplace have reduced the percentage contribution to
the HCP Foundation so that it is well below one percent, with a consequent decrease in the
percentage set aside for teaching. In recent years, the HCHP Foundation has received a
budgeted dollar amount, adequate to maintain ongoing programs, but no longer on a percentage
basis. In 1995, HCHP's Foundation expects to spend over $2.5 million on support for defined
programs in medical education. These programs include graduate medical education but also
include a growing commitment to undergraduate training and to innovative programs focused on
the doctor/patient relationship, nursing education, and, for example, the pregnant teen violence
prevention program.

But. as savings in health care costs become more and more a part of the competitive
marketplace, these contributions are questioned, As the market continues to force HCHP and
other managed care organizations {o become even more cost competitive, the impact on
programs for teaching and research will be dramatic.

Conclusions/recommendations

We seek a highly skilled workforce of health professionals for the future. If we are to
produce that workforce, changes must be made in our graduate medical education programs.

site of training: GME financing should not always be directed
through hospitals. Financing should follow the resident and support clinical education and
training in hospital and non-hospital sites, especially including ambulatory care sites. HMOs and
other organizations should receive direct credit or reimbursement for ongoing expenditures that
directly support medical education, especially including GME

To improve the
imbalance between specialists and primary care providers, an adequate number of residency stots
must be in primary care.

Financing should be designated for non-physician primary care’ The HMO community
recognizes the importance of non-physician practitioners in the provision of primary care, and
believes that some GME funds should be designated to finance the education and training of such
practitioners.

3 Financing for graduate medical education
rmust ultimately be broad-based. and separated from the service delivery costs. Such a separate
financing system is required by the increasingly competitive marketplace, and necessary to
assure that education costs are quantified and justified.

Mr. Chairman, I would be pleased to work with the committee and its staff as you
develop proposals for changes in financing health professions education, and to answer any
questions that you may have at this time.


47

TESTIMONY OF STUART H. ALTMAN, Ph.D., Chairman
PROSPECTIVE PAYMENT ASSESSMENT COMMISSION

Good moming. Mr. Chairman. | am Stuart Altman, Chairman of the Prospective
Payment Assessment Commission. | am pleased to be here today to discuss
Medicare's payments to teaching hospitals. During my testimony, | will refer to several
charts. These charts are appended to the end of my written testimony.

Hospitals wilh graduate medical education programs provide numerous valuable
services, in addition to the routine patient care they furnish. They frequently treat the
most complex cases and are the first to acquire and gain experience with new
technologies and procedures. In addition, they provide much of the clinical training for
the next generation of physicians. It is not surprising, therefore, that they have higher
costs than non-teaching hospitals.

Over the years, the Medicare program has been an important source of revenue to
help these hospitals finance the costs associated with their medical education mission.
Many teaching hospitals also have been abie to obtain higher patient care rates from
private payers to help fund their educational activities. This extra revenue from private
payers, however, is now at risk. Accelerating price competition is placing teaching
hospitals at a disadvantage relative to other hospitals, since many private payers are
not recognizing the added costs of maintaining graduate medical education programs.

In addition to the added pressure on teaching hospitals trom the move to managed
care in the private sector, Medicare's risk contracting program may also disadvantage
these hospitals. Under current policies, Medicare's capitated payment amount, the
AAPCC, includes average payments for medical education. The capitated payment,
however, goes to the managed care organization, and there is no guarantee that they
wili use teaching hospitals or, if they do, that they will provide the extra payments to
these hospitals. This does not mean, however, that managed care pians must
contract with teaching hospitals or pay the rates that they did in the past. Managed
care plans and teaching hospitals should negotiate their best deals. The challenge tor
the Medicare program is to find a mechanism to take advantage of the competition in
the private sector, while appropriately recognizing the added value of teaching
hospitals. We have suggested an approach that | will describe in a few moments.

The growth of managed care and increased competition in the private sector
complicates the decisions you must make to constrain the rapid incre. .@ in spending
for the Medicare program, The Commission believes that teaching hospitals furnish
many valuable services to society and that Medicare should recognize the value of
these services by providing some extra payments to these hospitals. Nevertheless,
there are concerns about the limits to which the Medicare program should bear a
disproportionate amount of the broader social responsibility for ensuring that the
important contributions of teaching hospitals continue. This is not to say, however,
that all the current teaching hospitals are needed or that there is not room for
substantial improvements in the efficiency of these facilities or the number and mix of
primary care and specialty physicians they produce. ! believe, Mr. Chairman, that it is
time (0 reexamine the role Medicare has played in financing graduate medical
education and to consider alternative financing systems for the future.

| will begin this morning by briefly describing the important role teaching hospitals
Play in furnishing care to Medicare enrollees. | will then describe Medicare's medical
education payment policies, focusing on the indirect medical education (IME)
adjustment, and Medicare's contribution to the financial welfare of teaching hospitals.
Finally, | will conclude by discussing some of the problems | see with Medicare's
current policies and some alternatives you may wish to consider.

Payments to Teaching Hospitals
Teaching hospitals are an important source of care for Medicare enrollees. There

are more than 1,000 teaching hospitals, about 20 percent of all acute care hospitals.
These hospitals are responsible for over 40 percent of all PPS discharges and half of


51

They could also ensure that training moved out of the hospital and into community
‘sites when that was appropriate. Current Medicare policies, in contrast, provide
financial incentives to train residents in hospitals, rather than in primary care settings,
since the hospital may lose its IME and GME payments if the resident trains in
another site.

This approach has another advantage as well. Since hospitals would receive
additional payments from the consortia to cover teaching costs, they could negotiate
payments with managed care plans for the costs of regular patient care on an equal
footing with other hospitals. Such competition with other hospitals may also provide
the stimulus for teaching hospitals to improve their efficiency. For this to work, of
course, private payers would have to contribute to the funding for the consortia,
Managed care plans, however, may find this an attractive way to market their services
in a community, if it is known that they have developed relationships with teaching
institutions. | believe that the Medicare program should develop a demonstration
project to further test this idea.

A demonstration aiso could explore alternative ways to direct payments to teaching
hospitals under Medicare's risk contracting program. As | discussed with you in my
testimony last month, numerous improvements are necessary in the calculation of
Medicare's capitated payment, the AAPCC, to enhance pian and enrollee participation
and to achieve savings for the Medicare program. There also are a number of ways
that payments to teaching hospitals could be improved in this program, and ProPAC
would be pleased to work with you as you examine altermative approaches.

| would like to note, however, that providing a special pool to fund the costs of
medical education shoud not absolve teaching hospitals of the responsibility to control
thei costs. As | described. since the beginning of PPS costs per case have grown at
about the same rate in teaching and non-teaching hospitals. All hospitals, however,
Need to continue to improve their productivity and reduce their cost base, and
Medicare's policies should continue to encourage this.

In conclusion, Mr. Chairman, teaching hospitals perform many important social
functions in addition to routine patient care. In the past, the Medicare program
explicitly and private insurers implicitly have subsidized these activities. As
competition in the private sector increases, it is likely that the implicit subsidy will
diminish. It is not appropriate tor Medicare to cover an increasing portion of medical
education costs. Nevertheless, you need to proceed cautiously to avoid sudden
Medicare policy changes that could endanger the most important teaching hospitals.

For the long term, | believe that we must develop new policies to ensure that
government programs and private insurers continue to share the burden of support for
medical education, just as they have in the past. We would be pleased to continue to
work with you and your staff as you seek better ways to pay for the services fumished
by teaching hospitals.

This comptetes my formal testimony. 1 would be pleased to answer any questions
you may have.


80

The AAMC believes that any further [umitasion on Medicare support for graduate medical education should not be
arbitrary or inconsistent with adequate minimal residency training. For example, some have suggested that the Medicare
psicgram should pay only through the period required for initial board cerufication in a specialty or pay only for a three
year period, regatdless of the specialty. Because the initial skills and techniques needed by different specialties requite
“differen lengths of training, the AAMC believes that support through initial board eligibility is an essential minimum
training period that every patient service payer should help finance

ts Marcit 1993 report, PPRC also “rejected as unwise the options of paying only for primary care positions or only
for the first three years of taining” (page 66). While the commission was aware of the need (0 increase the proportion
‘of generalist physicians, it concluded that the nation would continue (0 require well-trained physicians in all specialties,
and that such a policy would not be “sufficiently Hlexible” if changes im the health needs of the population called for
physician’ sn specialties that required more than three years of training.

Ti should be noted that paying only through the period prior to initial board eligibility, or paying for three-years regardless
‘of specially, sould result ina potential imeraction with other areas of Medicare payment policy, notably in the Part B
component. If Medicare Part A payments were limited to the inital board eligibility required to become a competent
practitioner. advanced residents could be thought of as physicians in the early years of practice whose services could be
Supported from the physician component of Medicare. Consequently. i residents beyond initial board eligibility ot beyond
Aheee years could not be counted for Part A hospital payments. then individuals in residency years which would not be
included :a a hospital's payments should or could be allowed to bill under Part B for services rendered.

[As Jong ago a 1976, the Institute of Medicine (JOM), im a study on Medicare and Medicaid reimbursement polices,
recommended a simular payment method, called the “unified method of payment,” for certain institutions. Under this
method, licensed physicians-both teaching physicians and house officers-would be allowed to bill fees for secvices
rendered, The 1OM ceport also maintained that whether the teaching physician or the house officer delivered the service
shovld not affect the level of payment for the service provided. Residents who had not completed the first-year of post
MD/DO raining (or the second-year based on state licensure requirements) would be paid on a Part A basis 10 the
hospital. Such proposals raise questions about the role of faculty supervision in graduate medical education, If policy
‘makers consider imposing further restrictions on payments beyond the current five-year oF initial board eligibility period
then the potential impact on ioral Medicare payments, including Part B payments, also should be understood,

Another proposal made by some policy makers is to limit Medicare DGME payments only to graduates of US. medical
and osteopatic schools. They pout to a growing consensus that US. medical and osteopathic schools are taining an
adequate number af physicians for our nation and that an excessive number of foreign-trained physicians are entering
residency programs in the U.S. where they are supported by patient service revenues. including Medicare payments

4 should be understood that for some hospitals, where residents provide a large proportion of patient services. the
immediate elimination of Medicare support for international medical graduates (IMGs) would cause substantial access and
service problems for Medicare enrollees. One of the :ssues that policy makers would need to address in enacting such
«change would be the implementation of a process and a time table so that patient access to services would not be reduced
precipitously Additionally, a gradual transition period with adequatc, permanent replacement funding would be needed
to enable hospitals and their medical staff to modify programs, personnel. and services while maintaining uccess (0 patient
care.

‘A third proposal advanced by some policy makers would limit Medicare DGME payments to 2 defined number of
residents. One option could be to limit payment 10 the current number of residents in the training system More
aggressive options might be 0 place an aggregate lint on the toral number of positions, for example the number of U.S
graduates plus some additional percentage. Policy makers should understand that this latter proposal requires the
establishment of regulatory mechanisms to allocate the funding among training institutions.

Graduate medical education resis upon a relatively tragile interweaving of multiple institutional capabilities, individual
goals, foregone compensation and personal iniianve. It as a system that could be easily damaged unless any changes ‘0
it are carefully crafted and are based on an extensive understanding of both the nature of the teaching hospitals in which
‘eis conducted and the nature of graduate medical education itself

Indirect Medical Education (IME) Adjustment

‘The Purpose of the IME Adwusument

‘Since the inception of the Medicare prospective payment system (PPS) in 1983, Congress has recognized that the
additional missions of teaching hosputals increase therr costs and has supplemented Medicare inpatient payments to teaching
hospitals with the indirect medical education (IME) adjustment The AAMC believes that the IME adjustment is an
‘important equity factor that recognizes the additional roles and costs of teaching hospitals. While its label has led many
to believe thar this adjustment compensates hospitals sotely for graduate medical education its purpose is much broader.
Both the House Ways and Means and the Senate Finance Committees specifically identified the rationale behind the
adjustment

“This adjustment is provided in light of doubis..about the ably of the DRG case classification system to account fully for
factors such as severity of illness of patients requiring the specialized services and treatment programs provided by teaching
institutions and the additional costs associated With the teaching of residents... dhe adjustment for indirect medical education
‘coms ts only a proxy to account for a nuraber of factors which may lepinmately increase cosis in teaching hospital. (House


142

including access to any new funding mechanism that might ultimately
replace or supplement that currently in effect under Medicare.
Among other things, completion of an approved residency program is
now seen as an essential component of the training of a doctor of
Podiatric medicine. For example, a special consensus panel
convened in March, 1992, by the Liaison Committee on Podiatric
Medical Education and Practice concluded that “One year of
‘postgraduate’ training is necessary to enter either the private
practice of or advanced specialty training in podiatric medicine."
Further, a 1992 resolution adopted by the APMA House of Delegates
makes clear that colleges of podiatric medicine should prepare
their graduates for entry level postgraduate study, not for entry
level practice. Finally, an increasing number of States have begun
to require a minimum of one year postgraduate education or
residency training for licensure as a doctor of podiatric medicine

(DPM). As of 1994, 35 States imposed such a requirement.

Restructuring GME Financing

The basis for any change in GME financing schemes begins with
the well known fact that there are considerably more allopathic
medical residency positions than there are graduates of U.S.
schools of medicine, with these "excess" positions being filled by
foreign medical graduates. For example, the Council on Graduate
Medical Education (COGME) has suggested limiting the number of
residency positions to 110 percent of the number of allopathic
medical school graduates.

In the case of podiatric medicine, however, there are no
foreign podiatric medical graduates, since to practice in the
United States one must have successfully completed a course of
study at one of the seven U.S. colleges of podiatric medicine.
Hence, the profession’s longstanding goal has simply been to
provide an adequate number of residency positions to accommodate
all graduates of its colleges. This goal was finally achieved in

1991; but, as recently as 1988, there were only enough residency


135

Prosth-4, Prosth Max- 5. Only nospatai-supportea aenca1
education programs receive this Medicare payment. Dental school-
based residencies are not part of this reimbursement formula.
Offsite residents can also be counted if the hospital incurs all
or substantially all of the costs of such training.

Medicare Indirect Medical Education (IME): As the Comittee is
aware, the IME adjustment is provided to teaching hospitals to
compensate for factors that increase their costs, such as a more
Severely ill patient population, severity of cases and weakness
of the DRG system in recognizing this, and operating costs
associated with education programs. As with Direct GME, IME
Payments are only made to teaching hospitals, and dental
residents in hospitals count in the formula.’

‘There is movement toward having more training take place in
outpatient or other ambulatory care settings. Innovative dental
programs have been established at some hospitals, where dental
Tesidents rotate through comunity health centers. OBRA ‘93
allows residents in community health centers to be counted under
IME if the residents are under the hospital’s ownership or
control and the hospital incurs all or substantially all of the
costs of services furnished by interns and residents. Therefore,
it is important for dental residents to continue to count in this
formula. The ADA encourages expansions of General Dentistry
training sites. These sites provide primary dental care to the
unserved and underserved population. It is not possible to
promote training in the ambulatory care setting without dental
residents in the formula.

Problems and Recommendations:

While continuation of current Medicare DGME and IME funding is
vitally important for dental education, there are two additional
issues of concern that should be addressed:

(1) Dental programs do not receive an inflationary update under
DGME; and

(2) Dental school-based residency programs receive no GME
support.

‘The Budget Reconciliation law of 1993 (OBRA 1993) defined prinary
care residencies as family medicine, general internal medicine,
general pediatrics, preventive medicine, geriatric medicine, or
osteopathic general practice. This medical-only definition
reflected a goal to steer more physicians into primary care. The
law provided that only these primary care residency positions
would receive an annual inflationary update of the per residency
amount in the Direct GME formula.

Unfortunately, this completely overlooks the critical primary
health care role played by dental residents. For most Americans,
the primary care team includes a physician and a dentist. If
either is unavailable, the patient has an access problem, as
treatment of the entire body must include the oral cavity. The
incomplete definition of primary care used for the inflation
update was taken from a Public Health Service training definition
explicitly limited to a medical loan program. In fact,

‘The citation for inclusion of hospital dental residents in
Medicare OGNE is: 42 CFR (Code of Federal Regulations) § 413.86,
referencing § 405.522 (a).

eThe citation is 42 CFR § 412.105 (g)(i)(A), referencing §
405.522 (a).


13

Let me conclude with two other observations. First, Medicare has been a critically
important source of support for graduate medical education. But all of society benefits
from these education programs. ‘The emtire health care system, including managed care
organizations, clearly require the workforce that is generated through these program and
clearly benefit from their existence and from their quality. Creating some form of all-
payor system, in which all insurers and managed care organizations, as well as Medicare
and Medicaid provide a small percentage of their revenues toward education, would go
far to both spreading the burden and acknowledging the responsibility of all public
concerned parties. Moreover, it would deal with an important problem for academic
health centers as more and more Medicare recipients are care for in managed care
organizations. As this practice increases, direct medical education costs are no longer
paid since these are included in the premium received by the managed care organization
from Medicare. When the managed care organization negotiates with a teaching
hospital, it is under no obligation nor does it ordinarily include in its rates any
consideration of the training capacity. Prudent policy would, at the very least, require
such organizations to include such support in proportion to their Medicare enrollees, and,
as | suggested, from a public policy point of view, I believe the burden should be shared
in relation to all health care coverage.

I want to emphasize the fragile nature of our academic health centers at the
present time, These centers are truly gems nationally and internationally. ‘They are the
sources of the research that has fueled the biotechnology industry, the medical device
industry, and many other productive elements of our society, contributing not only
domestically but representing a large proportion of exports which contribute positively to
the trade deficit. They are important employers and they are critically important to
provide, on the one hand, the most highly specialist care for the most desperately ill in
our society, and, on the other hand, a very large proportion, perhaps as much as 45
percent or 50 percent of the care to poor and underserved. As the private sector
organizes more and more health care into managed care where price is the
overwhelmingly important factor in negotiating contracts with academic health centers,
income streams to these centers for both professional and other services are under
enormous pressure. Faculties in these centers organized practice plans beginning in the
early 1970s, in which they accepted the responsibility that a significant amount of the
money that they earned in billing patients would not go into salaries but would support
education and research, The Association of American Medical Colleges has estimated
that over $800 million per year in patient care revenues goes directly to the support of
research, and another $1.6 billion or more goes for the cost of education, including
medical student intern residency and fellowship education. { believe that this is a gross
underestimate, and that the amount of cross-subsidy from patient care may be closer to
twice this amount. Whatever the figure, the development of increasing price competition
is rapidly reducing the amounts available to these academic health centers for research
and education. They are downsizing. They are developing a whole variety of
mechanisms to accommodate to the changing health care delivery scene. But I believe
all of us should be acutely aware that they are at considerable risk in this whole process
for economic viability in general and, more specifically, for purposes of this hearing, they
are at enormous risk when it comes to maintaining important educational programs. 1
believe that the investment of Medicare monies in medical education is an excellent one
for our society and, if rationalized both in terms of numbers and formulas by which the
reimbursement is provided, is critically important to academic health centers, their
educational mission, and their capacity to provide care in their communities, In the
current deficit reduction mode, 1 would remind you that these educational costs for
Medicare represent less than a one percent investment of our trillion dollar health care
enterprise, There are many opportunities for improving this system, but | urge the
committee to carefully consider the potential long-term benefits to our society of
obtaining more value for these funds rather than simply reducing the amounts of money
available.

Thank you for allowing me to make this presentation.


137

For federal health professions training policy, the ADA
recommends that Medicare’s DGME support be expanded to all
accredited postdoctoral dental programs.

Thank you Mr. Chairman for your consideration of the
Association’s recommendations. I would be pleased to answer any
questions at this tine.


55

Prospective Payment Assessment Commission

Chart 4. Number of Residents, by Type, 1981-1993
(In Thousands)

100

304 + Pamary care

suumver ot |

(tn Thousanas)
404

20

20-4

104

° a a
1981 1983 1985 1987 1989 1991 1993
Year
SOURCE: Selected medical education issues of the Joumal of the American Medical Association.


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELFASE CONTACT: (202) 225-3943
March 14, 195
No. HL-6 .
{OMAS ANNO! 3S U
MEDICAL EDUCATION -- 4 VISION FOI wu

Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of the
‘Committee on Ways and Means, today announced that the subcommittee will conduct the first
of a series of hearings on the topic of graduate medical education. The hearing will take
place on Thursday, March 23, 1995, in the main Committee hearing room,

1100 Longworth House Office Building, beginning at 10:00 a.m.

In view of the limited time avaitable to hear witnesses, oral testimony at this hearing
will be heard from invited witnesses only. However, any individual or organization not
scheduled for an oral appearance may submit a written statement for consideration by the
‘Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

‘Since the inception of the Medicare program in 1965, Medicare has reimbursed teaching
hospitals for the program's share of the cost of training physicians and other health professionals,
and the generally higher costs of operating tertiary-care academic health centers. With the advent
of the Medicare Prospective Payment System in 1983, Medicare hospital payment for graduate
medical training and certain teaching hospital service costs has been separated into direct and
indirect reimbursement for medical education.

Medicare pays for the allowable cost of direct graduate medical education activities at
teaching hospitals, including reimbursement for (raining and related overhead costs, and salaries
and fringe benefits for medical residents and other health professionals, Medicare is expected to
reimburse teaching hospitals $1.9 billion for the direct costs of graduate medical education in
1995,

The Medicare indirect medical education adjustment compensates teaching hospitals for
the costs of the additional tests and procedures which occur in those hospitals related to the
training of medical residents, as well as the fact that these hospitals tend to treat sicker, and
generally poorer, elderly patients who require more intensive services. In order to cover these
‘extra costs, teaching hospitals receive a higher payment per case than other institutions. This per
case add-on is currently set at approximately 7.7 percent for each 10 percent increase in the ratio
of full-time interns and residents to the number of beds in the hospital. In 1995, Medicare is
projected to spend $3.6 billion on the indirect medical education adjustment.

In announcing the hearing, Chairman Thomas said: “A revolution is underway in health
care which has significant implications for the future health manpower needs of the nation as well
as the destiny of our major teaching hospitals. As we consider significant Medicare and health
reforms, the Health Subcommittee will examine carefully current graduate medical education and
teaching hospital policy, and the effect Medicare policy improvements can have on the ultimate
<irection for both graduate medical education and academic health centers.”

FOCUS OF THE HEARING:

This hearing is the first of a series on the topic of graduate medical education with the
goal of developing a Medicare health professions education and teaching hospital payment policy
selevant to the emerging health care system and the long-run medical and financial concerns of
Medicare beneficiaries. The hearing will examine alterative policy directions regarding the


163

Proposals on health care reform in the State of Florida: Hearing before the Agency for Health
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Cynthia D. Beler)

Smith, GR., Rost, K., & Rashmet, TM, (1995) A trial of the effect of a standardized psychiatric
consultation on health outcomes and costs in somatizing patients, Archives of General
Psychiatry, 52, 238-243.

Sturm, R., & Wells, K.B. (1995). How can we make the treatment of depression more cost
effective. Journal of American Medical Association, 273(1), 52-58.

Tulkin, S.R., & Frank, G.W. (1985). The changing role of psychologists in health maintenance
organizations. American Psychologist, 40, 1125-1130.

Wiens, A.N. (April, 1995) Oregon Health Sciences University, Portland, OR. Personal
Communication.

Wiggins, J. G. (March, 1995) Psychological Development Center, Inc., Cleveland, OH, Personal
Communication.

Wilson, 1B., & Cleary, P.D. (1995). Linking clinical variables with health-related quality of life:
‘A conceptual model of patient outcomes. Journal of American Medical Association,
273(1), 59-64.



72

biomedical, and behavioral research and the introduction of new
technologies.

To some degree, that is one of the historical purposes of the IME
Medicare adjustment. At UNC hospitals, for example, we have a
major lung transplantation program, and we may find the cure for
cystic fibrosis one day soon.

Our research moves from the lab to the bedside and then into the
community. I understand that today’s conventional wisdom is that
we are too expensive. We also know that in today’s scientific age,
we are priceless.

Teaching hospitals also serve as sites for the clinical education
of all types of health care professionals, from physicians to nurses
to allied health professionals. At UNC hospitals we have over 400
residents in 20 specialty and subspecialty training programs. We
have 460 more students learning everything from physical therapy
to cancer prevention to rehabilitation counselin;

We are working hard to increase the number of primary care
physicians we train, and we have decreased the number of spe-
cialty positions we offer.

We learned just this week that 59 percent of the 170 UNC grad-
uating medical students have selected residencies in primary care.

We continue to operate the country’s finest demonstration of dis-
persed medical education through our Area Health Education Cen-
ter. Through the area health education system program, students
from all four North Carolina medical schools received training ex-
periences all over the State.

Not only does this program foster exposure to primary care prac-
tice models in rural North Carolina, it also sustains the practicing
professionals who serve as clinical role models in these remote set-
tings.

All these additional responsibilities define today’s teaching hos-
pitals, but they also make our care expensive. Some policymakers
and many payers expect teaching hospitals to be able to isolate the
costs associated with their academic mission from the costs of pro-
viding care. We think that is pretty difficult.

Teaching hospitals finance these additional activities through a
complex and delicate system of cross-subsidized revenues derived
from patient care including payments from the Medicare program.
In particular, teaching hospitals, including UNC hospitals in Chap.
el Hill, depend on DGME and IME payments.

In 1993, UNC hospitals received about $20 million for these two
categories of payment, enabling us to fund, for example, an ex-
panded breast cancer treatment program, losses in the Southeast
United States’ finest burn center, a new laboratory for gene ther-
apy, a new training program in emergency medical services, con-
struction of ambulatory primary care training sites for our primary
care trainees, and placement of clinical work stations in the offices
of rural primary care providers.

Increasing competition is making it more difficult to maintain
our contract with society. In a marketplace where public and pri-
vate insurers are not required to support their fair share of these
responsibilities, the Medicare program’s historical explicit pay-
ments to teaching hospitals take on crucial importance. Reduced


27

My question is, if the Federal Government establishes the finan-
cial wherewithal so that GME can be pulled out of the burdens of
the health centers in their rate setting, so they can use it through
a pooled source, do we not have a responsibility at the national
level to make sure that the training dollars are, in fact, spent to
train more people in primary health care?

Dr. HeyYSSEL. If I could speak to that, Congressman, I have a
problem with setting absolute numerical limits on anything in a
profession which is so dynamic and is changing so rapidly over
time and where there are new entrants into the field in the sense
of providing primary care.

I do not know whether the number is 50 percent or not, who
should be generalists, or whether it is 40 percent or whether it is
710 percent in the long haul. And I do not think that any of us could
make that judgment with a great deal of certainty.

I remember when I first started at Hopkins, the Federal Govern-
ment had special programs to train psychiatrists and radiologists
because there was a shortage. It is the Federal Government who
decided that there is a physician shortage in the late sixties and
led to 15 more medical schools.

So I do not know how in a dynamic, changing society you can
make those judgments, and I think that the marketplace that is
now occurring, plus limiting the amount that you are going to pay
and the length of time you are going to pay, will, in ‘tself, begin
to take care of the problem.

Mr. CarDIN. I agree with you that I do not know what the exact
number is. I disagree in that I do not believe the marketplace will
be the best barometer of who should be trained. If history is any
lesson to the future, we have encouraged the training of more cost-
ly health care professionals, and each one of these individuals have
been able to make a comfortable living under the current system.

Dr, HEYSSEL. Congressman, part of that is the absolute distor-
tion in the fee schedules. You know, not all people are really after
money. But if you come out of medical school with a significant
amount of debt, and you can make significantly more as a proce-
dural cardiologist or as an ophthalmologist or some other thing
rather than as a pediatrician, that is going to drive you a little bit
in those directions.

Mr. CarDIN. No question.

Dr. HEYSSEL. And if we change some of the incentives that drive
people to do those things, I think you would change very rapidly

ow people behave in terms of entering the profession and doing
what they are doing.

Mr. Carpmn. And we have tried that. You have made some of
those changes.

Dr. SHINE. But, Mr. Cardin, if 1 could just comment, in 1978 the
institute issued a report recommending 50/50. So I come from a po-
sition where 50/50 made sense.

The fact of the matter is, first it is clear that managed care orga-
nizations use far fewer physicians, so that if you do the calcula-
tions, the number of generalists we require in an absolute sense is
not 50 percent of the current work force, because, in fact, what is
happening is, their ratios are such that without much of an i
crease—with some increase, but with nowhere near the kind of in-



70

be disproportionately affected. But if you average, it will be an ab-
solute disaster for them.

Mr, Houcuton. Sure. Dr. Hanft, would you like to make a com-
ment?

Ms. Hanrt. Yes. I am quite familiar with New York, particularly
the role both the New York Health and Hospitals Corp. plays in
both care for the indigent and in their very large role in graduate
medical education, institutions like Bellevue and Kings County
Hospital.

I agree with Stuart that any of these changes will have a dis-
proportionate effect on New York. But I would also raise the ques-
tion with New York as to whether they need the number of spe-
cialty training programs they have in the city, whether there can-
not be more of a collaborative effort across the number of medical
schools to share some of those residencies, rather than each one
having their own institutional spread of residencies through all the
specialties.

So I think there is some effort that could be made by the edu-
cational institutions in New York to begin to soften the blow over
time.

Mr. HouGHTon. Well, in order to have that, if I could just inter-
tupt for 1 minute—in order to have that effort made, there has got
to be some sort of incentive.

Ms. Hanrt. Yes.

Mr. HouGHrTon. So it is either an incentive internally or amongst,
the hospitals there or something which we do.

How would you suggest going about that?

Ms. HanrT. Well, as you will recall, some of the suggestions
made earlier to change graduate medical education was the devel-
opment of education consortia. And this is one area where New
York might be a pioneer by getting the Cornells and the NYUs and
the Mount Sinais and SUNY Downstate to really sit down and
begin to decide what kind of work force does New York need, and
how can they, as effective educational institutions, work together
to begin to phase down areas where they may be producing too
many specialists and to be able to establish the kind of training
sites needed for managed care for the community health centers in
New York and for the other service providers in the city and the

tate.

You could—Rochester has done a very effective job in outpatient
training, for example, and in the training of family practitioners.

Mr. HoucHTon. Yes. That would not have any impact on a dis-
proportionate share of funding or something like that because of
the nique nature of the city.

Well, look, the time has gone on, and I really appreciate this, and
maybe we can get some other figures from Stuart on that.

Mr. ALTMAN. We will be glad to get them for you.

. (The information requested was not received at the time of print-
ing.

Mr. HouGHTON. That would be great. And I really appreciate
your time.

Mr. ALTMAN. Thank you.

Mr. Houcuton. And we will have the next panel. Thank you so
much.


146

successfully addressed. But if future generations of American are
to be guaranteed appropriate access to well trained physicians, it
is absolutely essential that we maintain and strengthen our medical
education system, including its residency training component. Post
doctoral residency training, including its supervisory component,
requires substantial time and commitment and must be compensated.
The APMA believes that all third party payers, including Medicare,
should proportionately share the costs of supervision and related
educational costs. This is absolutely essential to help ensure
high quality patient care and to preserve high quality post

doctoral training programs.


63

There is not any form of reimbursement available to cover the
costs of educating nurse practitioners in these very rural clinics in
which they are often one of two providers.

We must change the current system if we are to meet. the origi-
nal aim of Medicare reimbursement in preparing this work force.

To do this, I have two recommendations. First, I believe that we
should stop the current payment for hospital-based nursing edu-
cation programs, completely stop it. These programs prepare people
at less than the college level and are not prepared to enter ad-
vanced practice. They must go on to college, obtain a baccalaureate
degree, and then come into a master’s program. The money needs
to be redirected to meet the needs that we have, and this means
paying for nurse practitioner, nurse midwife, and nurse anesthetist
training programs.

The education of these students often does not take place in any
hospital, and when it does, it takes place in multiple hospitals.

Second, I think that we need to pay the nursing education pro-

ams differently. Nursing education is organized quite differentl
from graduate medical education and does not tie itself to hospital.
based educational programs. Our certification programs do not fit
that as well.

This money could pay stipends for students, cover a part of the
cost of the supervision of these students, and to pay for the costs
of education borne by the primary care clinics.

I believe that if these two changes are made in the current GME
reimbursement system that the Nation would be able to greatly ex-
pand the critically needed number of nurse practitioners, nurse
midwives, and nurse anesthetists who, by the way, provide 85 per-
cent of anesthetic services in rural communities, and. that these in-
dividuals would expand their role in rural and other inner-city and
underserved areas and would not add any new money to the sys-
tem to do that. Rather we would make much better use of the cur-
rent investment that Medicare makes in nursing education.

Thank you.

(The prepared statement follows:]


20

This, in effect, controls the costs, the ultimate costs. And they
have no responsibility for the costs or getting the funding. That is
left to the hospitals.

The issue of sites of education and educational support is also en-
twined in that. As more graduate medical education is conducted
in outpatient settings, as is necessary if we are going to emphasize
primary care, payment through hospitals as the primary source
needs reexamination. In effect, I think we need to form some con-
sortia between those organizations involved in outpatient care as
well as the hospitals.

Funding, then, should be broadened. All payers should contribute
to a pool for GME. They, after all, also profit from GME. The train-
ing of generalists, as noted earlier, is terribly important to man-
aged care organizations as well. So there should be a pool from all
premiums or other sources, as well as from Medicare and Medicaid.

There should not be an attempt, in my judgment, to set numbers
of trainees by specialty, specified sites where training is conducted,
or the mix of specialties in those sites. I think consortia, as I noted,
should be encouraged. I think the marketplace is beginning to have
a real effect on career choices of physicians, as was noted earlier,
and will in the future.

Support should be assured for 3 years of graduate medical edu-
cation, essentially the length of time for accreditation in primary
care specialties. Certain programs, such as general surgery, may
require longer than that and should be supported to first accredita-
tion. And I think really support to first accreditation should be the
general rule.

For specialties or subspecialties requiring longer, I would suggest
that support would have to be found either from the individuals
themselves, which was true in the past, professional fees of spon-
soring training programs, private scholarships, or other sources.

And then finally support should be limited to the number of
graduates in any given year from accredited medical schools in the
United States.

There are many details behind my comments, but I will be glad
to answer any questions. Thank you.

Chairman THomas. I want to thank all of you for your succinct
statements, and obviously there are going to be a series of ques-
tions from us. And we will start with the gentlewoman from Con-
necticut.

Mrs. JOHNSON OF CONNECTICUT. I think your recommendation
that we should limit the number trained is a very interesting one.

Within that envelope, how has this issue of specialists versus
generalists been working out?

I read something recently that indicated that the majority of
medical students now are looking for residencies in some kind of
family care environment or are interested in that specialty.

Is that true? In other words, is the problem of too many special-
ists and not enough generalists being addressed in the real world
out there?

Dr. SHINE. There are two answers to that. First in terms of the
percentage, this year, for example, approximately half of graduat-
ing medical students selected residencies in areas which we would
call general areas. In fact, there will be attrition, because a certain


37

What I am trying to say is, I think there is a potential synergism
that is both top-down and bottom-up in terms of what is happen-
ing.

But incentives right now historically have not been there. If the
incentives get changed, people behave differently, as you well

ow.

Chairman THoMas. Well, I think one of the more positive state-
ments that has been made is that I would love to have these struc-
tures that obviously have produced some of the finest doctors in the
world to continue to work more intensively with nondoctor health
professionals, nurses, and others, so that they are educated in the
same general structure working with each other, so that when they
Move out into the health care world, there is not that historical
hierarchical relationship, almost dictatorial, because that is not the
case in the real world, and it would be very healthy, I think, to
pick that up at an earlier period in their development.

OK. I appreciate very much your testimony. You folks are an
enormous resource for us, given the time and the history that you
have spent, but more importantly your online observations of the
changes that have been made and your attempts to adjust in this
real-world situation.

We will be back to you as we develop some of these themes in
terms of trying to change the funding. It has to change. We want
to understand the changes and deal with the unintended con-
sequences as they come.

How far we can go is unknown now, but we have to move.

Thank you very much.

Our next panel—Ruth Hanft, Stuart Altman, and Michael
Carter—thank you for being with us today. Any written statement
that you have will be made a part of the record, without objection,
and you may proceed as you see fit to inform and educate us in this
area. And we will start with Dr. Hanft.

STATEMENT OF RUTH S. HANFT, PH.D., PROFESSOR, DEPART-
MENT OF HEALTH SERVICES, MANAGEMENT AND POLICY,
GEORGE WASHINGTON UNIVERSITY, WASHINGTON, D.C.

Ms. Hanrt. Thank you, Mr. Chairman.

Mr. Chairman, members of the subcommittee, I am pleased to be
here this morning to talk primarily about the direct support of
medical education through Medicare and other sources and also to
raise the issue related to the difficulty in supporting primary care
and ambulatory care education.

lam a professor at George Washington University. I would like
to highli it ke: Points that are in the more extensive testimony
that I submitted for the record.

Currently the majority of direct support for GME in the United
States comes from public and private third-party payers, the pa-
tient care revenues that flow primarily to the hospitals. These reve-
nues support the salaries and fringe benefits of residents and in-
terns. They support stipends or salaries to the teaching physician,
the supervising physician, and they support the various ancillary
services such as supplies, classrooms, et cetera.

Medicare makes a specific direct education payment to teaching
hospitals based on the average per-resident cost at that specific


157

‘medical care, the importance of psychological interventions designed to assist cancer patients in
dealing with diagnosis and treatment has increased (Fawzy. 1995).

Interventions developed by psychologists have proven effective in the management of different
health problems, including: asthmatic episodes, irritable bowel syndrome, vasospasms associated
with Raynaud's Disease, dyspnea with chronic obstructive pulmonary disease, severe headaches,
and muscle spasms, insomnia and other sleep disorders, gastrointestinal ulcers, post-mastectomy
and heart attack. These services have developed in conjunction with the shift in medicine from
the treatment of infectious disease to the management of chronic disease. They are health care
services provided daily by clinical health psychologists, and fundamental to the provision of
quality, cost effective health care, Belar (1994) has argued convincingly that these services relate
to the emotional and behavioral aspects of many medical problems, including:

(a) coping with illness and stressful medical procedures,

(b) the impact of stress on disease,

(©) compliance with medical regimens,

(d) the management of pain

(©) the regulation of psychophysiological symptoms,

(the physician-patient relationship, and

(g) the prevention of disease (through behavior change such a5 smoking cessation,
weight management and safe sex)

Coronary heart disease is the major cause of death and disability in the Western world. One of
the most comprehensive studies of behavioral interventions in severe heart disease patients has
now demonstrated significant and clinically meaningful decreases in LDL cholesterol (37%),
systolic blood pressure (134 to 127 mmHg), angina pain (90%), and vessel blockage on
angiogram in 18 of 22 patients. Over the same year, the control group receiving standard
medical treatment experienced 2 165% increase in angina pain, and angiograms revealed that
nearly half of the patients had increased artery blockage (Ornish, 1990).

Research related to asthma, the major cause of disability in children, is also illustrative, Research
has demonstrated that a course of family therapy focused on the behavioral management of
symptoms, plus systematic relaxation training, resulted in improved pulmonary functioning,
increased compliance with medication, decreased use of steroid medications and decreased
number of days impaired by illness in comparison to children not provided family treatment
(Gustafsson, 1986). Other controlled research (Wilson, 1994) has demonstrated a 49% decrease
in medical office visits for acute asthma two years after a group behavioral treatment. The
systematic group treatment was also significantly more effective than individual education and
information alone (Belar, 1993).

Case Study: Jack W. Finney, Ph.D., a psychologist at the Virginia Polytechnic
Institute and State University, has developed a model of health care based on the
recognition that parents first discuss the health and the mental health problems of
their children. with primary cafe providers. A small group of children often use
a disproportionate amount of medical services without discemible benefit, usually
because; care seeking is related to unrecognized and untreated psychosocial
problems.: Therefore, early detection of; and intervention with, these problems
should’ provide better care. fof the children and an alleviation of strain on:the
resources of thie health ‘care’system: A psychological intervention service was
established within: & large. Health Maintenance, Organization. Brief: targeted
therapy: was'pfovided for parents and children with-comimon difficulties such as
bebavior: ptoblems, ‘school ‘problems, toileting difficulties,. and. psychosomatic
problems: The meatment Wi ss acesful ‘for a majority of the children and: high

parent satisfaction -OF greatest interest, childfen.in this program
Scecasedis vera uss Yneical services: "This offset effect (¢reucton in
the-usevof- medical: care affer thental health treatment) also has been reported in
studies with adillts, "and clearly documents’ the value of psychological services in
a comprehensive primary care program.

Behavioral Medicine: The Role of Psychologists in Interdisciplinary Teams
Psychologists are found at every step of the primary care ladder, from primary prevention through
health education, 10 secondary prevention with outpatient services, 0 tertiary prevention in
inpatient programs with medical as well as psychiatric patients. They are accepted and used
widely throughout the country by physicians, nurses, and other members of the health care team


57

Prospective Payment Assessment Commission

Chant 6. PPS Margins, by Hospital Group. First Ten Years of PPS (In Percent)

eso Smee, ToS) _Fe52 PPS FPSa FOSS FPSB PPS?
Sinosotms er ee ar,
‘660 sa 9 470290 92 1417 a8
3 a3 a 33029 30 3) 30 te
61 ne 430017 093 98 9819
0 sor S223 100 27) 3a 5
04 38 ry er arr)
as 22 190-3913 38
“4 oa 29°39 «483 4a 40
930 039 72 ae R93
2 a 8 8) 520 2B tO
rr a ss eT?
49049 3B 9 ttt
ee ee er er tat
46004903200 a3 5? Rt 8
Burm goverment : 52) 93 2f 27 40 43 47 568 48

SOURCE >PAC anaes of Uecware Com Regan cate Imm fe Heaim Care Financing Aamniaiaton


23

pay this out of your pot, and because your competitors do not, you
are at a disadvantage.

Am I reading what you are saying right?

Dr. LuDDEN. Yes.

Mr. Stark. But I think you are wrong. You are a recipient of a
block grant, and that is a term you are going to hear more of, un-
fortunately.

In the adjusted average per capita cost (AAPCC) you actually re-
ceive funds the same as other institutions, because the way in
which we reimburse you through Medicare, we lump in your share
of the graduate medical education or indirect medical education, so
you are really receiving it in your capitated payments.

Now it. may not be enough and you may wish it were more, but
the fact is, that is how the system is designed. And I just suggest
that we maybe ought to change that system for how we reimburse
managed care under Medicare, but I do not think that it is fair to
say that you are not getting the funds.

I am also concerned that HMOs have to avoid contracts with
teaching hospitals, do they not? They cannot afford them.

Dr. LUDDEN. Have to avoid them?

Mr. Stark. Have to avoid them, sure, or price them so low that
basically you will not be very attractive.

Why would you ship out, if you were a Kaiser Permanente—I do
not know enough about where you would ship—why would you con-
tract with Stanford or UC-San Francisco?

Dr. LUDDEN. We have—Harvard Community Health Plan has ex-
tensive contracts—in fact, 30 percent roughly of the Brigham and
Women’s Hospital is filled with Harvard Community Health Plan
patients every day.

Mr. STaRK, You have a unique relationship there. But do you
send any to Johns Hopkins?

Dr. HEYSSEL. They should.

Mr. StTarK. Of course, they should. We know that, do we not.
({Laughter.]

Mr. Cardin has informed me of that. But my point is, it does
seem to me that the stand-alone HMOs, Kaiser, cannot afford to
deal with Stanford, and in their minds, and I think rightfully so,
they do not think they have to. They have a broad range of staff,
of specialists. And that does not help Stanford very much. As the

‘MOs grow in our area, there are fewer and fewer, as they get big-
ger and afford more comprehensive staffs, who want to go there
and pay the higher rates that the teaching hospitals, out of neces-
sity, have had to charge.

How do we solve that?

Dr. LUDDEN. Well, I think a number of us were talking about
this requirement for really broadbased financing of GME, that is,
broader than simply even Medicare, but broadly across the popu-
lation, so that we can separate out the public good educational re-
quirements from the service requirements.

As I tried to say, Brigham and Women’s can compete very well
on quality and cost alone, as long as you take out the requirement
that they also provide all sorts of education in the middle of it.

Mr. Stark. Doctor—if I may, Mr. Chairman, just as I finish—you
are preaching to the choir.


144

developed as part of the Health Professions Requirement Model, a
Federal econometric study. In comparison, the actual 1991 ratio

was about 5.0 podiatric physicians per 100,000 population.

Much more recently, the Bureau of Health Professions of the
U.S. Public Health Service contracted with the National Center for
Health Statistics to obtain baseline data on foot care needs in
the general population. This was done as part of the 1990 National
Health Interview Survey. This survey of 46,476 households,
comprising 119,631 individuals, found that one of every six
Americans suffered from foot problems in the twelve months
preceding their interview and one of every sixteen Americans deemed
their problem serious enough to consider getting professional care.
However, more significantly, only 55 percent of those who
considered their foot problem serious enough to warrant
professional care actually received such care. Of these, 47
percent were seen by a doctor of podiatric medicine for an

estimated total of more that 14.5 million patient visits.

In comparison, podiatric physicians accounted for 4.5 percent
of all the medical and surgical services provided to Medicare
patients by all physicians in 1991. Doctors of podiatric medicine,
in fact, provide the majority of footcare services needed by
Medicare beneficiaries, and this population continues to increase
by about 2 percent each year. For example, in 1991, doctors of
podiatric medicine performed 98.5 percent of nail debridements,
82.3 percent of hammertoe operations, 72.5 percent of
bunionectomies, and 55.4 percent of rearfoot surgery required by

Medicare beneficiaries.

The third premise underlying proposed changes in graduate
medical education financing and related initiatives is that there
are too many specialists and not enough primary care practitioners.
While podiatric medicine is not included in the list of primary

care specialties cited in a variety of Federal statutes, the


90

hospitals under PPS. primarily because of the Medicare IMEA payments received by
teaching institutions which have been used to offset these costs.

Rational reform of GME financing will occur only if there is constructive dialogue on
important GME issues among members of the medical profession, government officials, and
representatives of business and the insurance industry. The AMA would like to use this
‘opportunity to articulate overall goals for GME financing reform and propose a set of
principles that can serve as a framework to guide discussions of GME financing reform.

Goals

‘The AMA believes that reform should achieve long-term stable funding of GME to ensure
that all graduates of U.S. medical schools will be able to obtain, at the very least, GME
leading to eligibility for initial board certification and result in increased accountability for
the total number and specialty mix of GME positions, the appropriateness of the site of GME
training, and the appropriateness of both the content and length of training requirements.

The AMA believes that these goals can best be achieved if discussions of GME financing
reform are guided by the following set of principles:

Principle #1 All third-party payors should participate explicitly and in a uniform
way in the financing of GME.

Principle #2 ‘The financing of GME should continue to be linked to the financing of
patient care services and payments should accrue to the actual facility
providing those services,

Principle #3 Efforts to reform GME financing should focus primarily on the
methods of financing the direct costs of GME, with any changes in
IMEA phased in gradually so that alternate sources of funding can be
identified.

Principle #4 ‘The Health Care Financing Administration should revise the regulations
governing Medicare DME payments to eliminate some of the variation
in GME costs claimed by teaching hospitals.

Principle #5 ‘The procedures used by the ACGME RRCs and the Specialty Boards
for adding new specialties and those for extending the fength of training
required for certification in existing specialties should be reviewed.

Discussion
Principle #1

‘The AMA believes strongly that all third-party payors should participate explicitly in the
financing of GME in order to ensure stable funding for GME into the future. We also
believe that there should be a uniform system across the country for contributing to GME
financing. Medicare is at present the single largest payor for GME and has a methodology
in place for identifying an institution's total direct GME costs. Accordingly, the AMA
recommends that all payors be required to adopt the Medicare approach for determining their


172

ich may offer aati

provement in methodology

We also discussed, under “Principle #1." an option whereby Medicare could make its participation
in GME financing contingent on individual hospitals requiring the participation of all payors with
beneficiaries hospitalized in each institution. Such an approach might be less viable, depending on
the sophistication of a given market. Our point ss that teaching hospitals will have to find
Innovative ways to negotiate with these payors

In our discussion of "Principle # tated that "the AMA believes that efforts to reform GME
financing should not he burdened in the immediate debate by attempts to resolve these very
complex issues of uncompensated care and the effect of discount contracting on the financial
stability of some teaching hospitals." Our intent here was to express the opinion that such
complicated issues as these will continue to adversely affect the financial stability of teaching
hospitals, In the meantime, there is added urgency to appropriately develop a reasonable and fair
method for GME finanei

“Principle #4" discussion eemarked that “the AMA recommends that HCFA rewrite existing
regulations to define more precisely the laculty salary costs and general overhead costs that may
be allocated to GMI. More specifically, regulations should be promulyated to limit faculty salary
costs to the time faculty are directly involved in the administration of GME programs or in the
supervision of resident physicians under circumstances in which no separate bill is submitted for
professional servives either by the physician or the hospital.” Our intent here was to point out
subject matter in need of attention (i.e, variations in faculty salary costs) and one example of a
imauiner by which to address the subject. Actually. the preferred way to address the issue, in our
View, would be to dh 90 adniinistratively through the mdividual health care institutions, rather than
ough the pramulgation of regulations, The point we were trying to express here relates te the
goal of achieving unitormity in reimbursement methodology for GME

In addition, under "Principle #4." we commented that “at present, decisions regarding specialty
training issues are controlled, for all practical purposes, by the specialty boards and the ACGME.”
It should be added here that the individual residency training program directors also have wide
latitude in making decisions on residency positions and on other specialty training issues, Also,
5 a footnote t0 our recommendation that annual surveys should be conducted to document
variations in faculty and overhead casts among teaching hospitals, the Subcommittee should note
the fact that the American Association of Medical Colleges (AAMC) currently conducts similar
such surveys

ur conclusion stated that "The AMA has considered the issues surrounding financing reform in
GME and has developed goals and a set of principles to assist the national debate on this issue.
‘The AMA betieves that such reform is warranted in order to control the costs of GME, t0 stabilize
the funding of GME, and to improve the accountability of the GME system to society so that
national physician workforce objectives are achieved and maintained.” Our intent here was that
such national physician workforce objectives be achieved and maintained primarily through private
sector initiatives

fn closing, again, we are very appreciative of the opportunity afforded us by the Subcommittee to
submit these comments. As was expressed in our March 23rd Statement, we thank the
Subcommittee for soliciting our thouxhts and recommendations on this highly complex issue of
Financing graduate medical education We look forward to working with other affected
organizations and hope that we can be # continuing resource as the Subcommittee and full
Committee develop their proposals

Sincerely,

Walling 4 wat iD

William E, Jacou/ MD.
Member, AMA Board of Trustees
Associate Provost, Academic Hea

University of Min

h Center,

ittee on Health, Committee on Ways and Means


44

- The development of faculty practice plans has been on a
department/specialty basis similar to the organization of residencies, with the
procedural specialties able to generate substantially higher revenues than
primary care specialties because of the Medicare and private insurance charge
structure. The revenues of these plans flow to the department with some
small percentage flowing to the institution. Conceptually, all education, both
undergraduate and graduate medical education should be an institutional
responsibility. The organization of medical schools on a departmental basis
and graduate medical education on a specialty/program basis, combined with
the departmental flow of hospital and practice plan revenues leave the medical
school institution with a paucity of flexible funds. Institutions that do not
Teceive public appropriations, or where the appropriation is in the form of line
items, unless the institutional percentage of practice plan revenue is
substantial, have little ability to cross-subsidize. Where cross-subsidies are
endemic among the missions of a medical school, they do not operate on an
institution-wide basis in the medical schools for graduate medical programs.
High earning departments and specialties retain the majority of their practice
carni ings for departmental and even division rather than institution-wide
goals.”

In summary, graduate medical education was hospital focused for many years.
With the growth of technology and financing and the increase in the number of
medical school graduates, graduate medical education expanded in numbers and
specialties. Financing from Medicare and private insurance encouraged and
sustained the expansion.

Medical and graduate medical education needs have now changed with the
acceleration of the development of managed care and societal demands for primary
care. This requires expansion of primary care training sites, particularly ambulatory
care settings. There is a mismatch between educational needs to respond to
managed care, the changing delivery system environment, and the method of
financing graduate medical education.


85

bulatory clinic or a nursing home or a rural health clinic, then that
facility should receive the payment.

This has the further benefit of encouraging physician training in
“nontraditional” sites, a subject that was discussed earlier this
morning, with decided emphasis on primary care. Physicians in
training benefit because they are better prepared to practice in any
evolving health care delivery system. Patients benefit because of
the increased availability of care.

The National Resident Matching Program just reported on March
15 that over half of medical student seniors have chosen primary
care as their initial training. Some of these students, however, may
later choose subspecialty training. But it is clear that student
choices are responding to the marketplace. And GME training op-
portunities ought to support these choices.

The AMA recommends that HCFA revise its regulations govern-
ing Medicare direct medical education payments to teaching hos-
pitals. There are some wide variations in claim costs, largely due
to the imprecise nature of regulations currently governing what di-
rect costs are allowable. More parity in payment needs to be devel-
oped. All payers, including Medicare, should be assured that they
are paying legitimate GME costs. This accountability is only fair if
we expect all payers to contribute their fair share to the costs.

In conclusion, Mr. Chairman, the AMA believes that the changes
I have articulated today are warranted in order to control GME
costs. We want to stabilize GME funding so we can assure a qual-
ity national physician work force for our patients.

We appreciate, with your approval, Mr. Chairman, the oppor-
tunity to supply additional comments for the record, and I would
be pleased to answer questions.

Thank you.

Mr. CHRISTENSEN. Thank you, Dr. Jacott. Your full testimony
will be submitted for the record.

[The prepared statement follows:]


62

Mr. JOHNSON. Thank you, sir.
Dr. Carter.

STATEMENT OF MICHAEL A. CARTER, D.N.SC., R.N., DEAN, COL-
LEGE OF NURSING, UNIVERSITY OF TENNESSEE, MEMPHIS,
TENN.

Mr. CarTER. Good morning, Mr. Chairman, and members of the
committee. I am Michael Carter, and I am dean of the College of
Nursing at the University of Tennessee at Memphis. I am also a
family nurse practitioner.

The College of Nursing is a rather unusual entity in that it is
an academic-based nursing program and does participate in grad-
uate medical education because of a relationship with our Univer-
sity Hospital in Knoxville.

We prepare certified registered nurse anesthetists in this pro-
gram, and GME does pay for a part of that. And we began this cer-
tified registered nurse anesthetist (CRNA) program in the thirties,
making it one of our oldest programs.

1 believe, however, that a number of changes are needed, for in-
stance, if the legislative intent of this reimbursement is to be met
in the future. As important as reimbursement is to us in the Col-
lege of Nursing, I cannot tell you the amount of that reimburse-
ment, and that is because the money goes directly to the hospital
for a variety of cost-related issues and not to the College of Nursing
for its budget. And yet I am responsible for paying for the cost of
that program.

I understand that the original aim of Medicare reimbursement
was to promote high-quality care for Medicare beneficiaries. In
1965, it was very appropriate that reimbursement be made to hos-
pitals, since that was where the education took place and particu-
larly that is where most nurses were trained.

But that is not the case today. Most nurses are not educated in
hospital-based nursing programs, but are educated through univer-
sities and colleges and therefore do not qualify for GME.

For example, we have another problem in that our CRNA pro-
gram in the past could perform all of its training in one hospital,
but we cannot do that anymore, because that hospital does not
offer all the services, and it is a major teaching hospital.

An example is that there are insufficient epidural anesthetics for
women delivering babies for our students to be trained in that pro-
cedure, so they must come to Memphis for part of their training.

The situation is far more complicated in training nurse practi-
tioners. We have offered a family nurse practitioner program at the
master’s level since 1973, meaning that we could not participate in
GME for this program. We have graduated hundreds of these pro-
viders who are providing primary health care to thousands of per-
sons in the lower Mississippi delta area of this country, one of the
poorest regions in America.

None of the education of our nurse practitioner students takes
place in a hospital—none of it. They are prepared in community-
based clinics in inner-city Memphis and in rural Tennessee, Arkan-
sas, and Mississippi. This also is where they practice when they
are finished.



86

Statement
of the
American Medical Association
to the

Subcommittee on Health
Committee on Ways and Means

U.S. House of Representatives
RE: Financing Graduate Medical Education
William E, Jacott, MD

March 23, 1995

Mr. Chairman and Members of the Subcommittee:

My name is William E. Jaco, MD. [am a family physician, Assistant Vice President for
the Academic Health Center at the University of Minnesota, and a member of the Board of
Trustees of the American Medical Association (AMA). On behalf of the 300,000 physician
and medical student members of the AMA, I’m pleased to have this opportunity to testify
regarding issues of graduate medical education (GME) financing and physician workforce
planning. My testimony will briefly review how GME is currently financed and some of the
problems that have arisen as a result of that financing system. 1 will then offer guidelines
and recommendations developed by the AMA for improving this system while preserving its
stability and the essential functions of training medical personnel for future generations.

Background Information

Graduate medical education (GME) is an essential component of the formal education of the
physician, Graduates of U.S. medical schools are required to complete at least one year of
GME by all jurisdictions before being able to obtain a license to practice, and 2 or 3 years of
GME in several jurisdictions. Graduates of foreign medical schools are required to have 3
years of GME by half of the 54 jurisdictions and either 1 or 2 years by the other half,
Physicians must successfully complete a GME program accredited by the Accreditation
Council for Graduate Medical Education (ACGME) in order to be eligible for certification in
‘one of the specialties of medicine, for which training ranges from a minimum of 3 years to
as long as 8 years, Physicians may be licensed, however, without successfully completing
all years of an accredited GME program.

During the past two decades, the GME “system” has increased in size and scope. At
present. there are some 7,277 individual GME programs conducted in over 1,500 medical
facilities. Approximately 1014 institutions, of which 85% are hospitals, sponsor GME
programs in one or more of the specialties of medicine. The majority of GME is conducted
in large tertiary care hospitals affiliated with the nation’s medical schools.



121

into making up the total amount of the payments; I think we
should look more at the finished product.

Are we producing—and you made that observation, Mr. Thom-
as—we should look at the product to determine whether or not we
are producing the kind of physician that we need to meet societal
needs.

If we are not doing that, without regard to how much it costs,
we should stop. We should stop.

So when I say look at 110 percent funding, 110 percent of the
positions for our graduates, if that meets the needs, that is where
the funding needs to stop.

Chairman Tuomas. Yes. And a lot of times it is not what, it is
where. And more and more it is where they are getting it. And I
would much rather emphasize an open structure, so that you folks
can get them trained where they need to be trained in terms of re-
flecting what tomorrow looks like, rather than getting into percent-
ages that may or may not be education versus training.

T thank the panel very much.

Dr. ANDERSON. Thank you.

[Pause.]

Chairman THomas. The last panel can now take their place, and
we have got: Gwendylon Johnson, Kenneth Kalkwarf, and Charles

ones.

As I indicated to the other panels, your written testimony will be
made a part of the record without objection, and you may proceed
to educate and inform us as you see fit in the time that you have.

Ms. Johnson, if you will start, then we will move across to Mr.
Kalkwarf and then on to Mr. Jones, if you will begin.

STATEMENT OF GWENDYLON E. JOHNSON, M.A. R.N., C.,
MEMBER, BOARD OF DIRECTORS, AMERICAN NURSES
ASSOCIATION

Ms. JOHNSON. Thank you, Mr. Chairman, and members of the
subcommittee.

I am Gwendylon Johnson. I am a member of the board of direc-
tors of the American Nurses Association. Thank you for the oppor-
tunity to discuss graduate nurse education.

The American Nurses Association is the only full service profes-
sional organization representing the Nation’s 2.2 million registered
nurses.

We are also testifying today on behalf of the American College
of Nurse Practitioners, the Association of Operating Room Nurses,
the Emergency Nurses Association, and the National Association of
Nurse Practitioners in Reproductive Health.

America’s registered nurses deliver many essential health care
services in the United States today in a variety of settings—hos-
pitals, nursing homes, schools, home health agencies, the work-
place, community health clinics, in private practice and in managed
care settings.

Because we are there 24 hours a day, 7 days a week, we know
all too well how the system succeeds so masterfully for some, yet
continues to fail so shamefully for all too many others.


124

TESTIMONY OF GWENDYLON E. JOHNSON
AMERICAN NURSES ASSOCIATION

Good morning, Mr. Chairman and Members of the Subcommittee. I am Gwendylon
Johnson, RN, a member of the Board of Directors of the American Nurses Association.
am here today on behalf of the American Nurses Association (ANA), the only full-
service professional organization representing the nation’s 2.2 million registered nurses,
including staff nurses, nurse practitioners, clinical nurse specialists, certified nurse
midwives, nurse educators, nurse managers and certified registered nurse anesthetists,
through its 53 state and territorial nurse associations.

I am also testifying today on behalf of the: American College of Nurse Practitioners, a
group of nurse practitioner organizations who advocate for universal acce

health care and the removal of barriers to consumer access to nurse pract
Association of Operating Room Nurses, Inc., the professional association of perioperative
nurses representing 47,600 members who are all registered nurses specializing in care of
the patient undergoing surgical and other invasive procedures; Emergency Nurses
Association, a voluntary membership association of nearly 21,000 professional nurses
committed to the advancement of emergency nurse practice; and the National
Association of Nurse Practitioners in Reproductive Health, a national non-profit
membership association representing nurse practitioners who practice in obstetrics,
gynecology, family planning, reproductive endocrinology and infertility whose purpose is
to assure the availability of quality reproductive health services.

We appreciate the opportunity to testify on graduate nurse education. We have long
advocated for high quality, affordable health care for everyone in this nation. America’s
registered nurses deliver many of these essential health care services in the United States
in a variety of settings - hospitals, nursing homes, schools, home health agencies, the
workplace, community health clinics, in private practice, and in managed care settings.
As the health care delivery system continues to evolve rapidly in the coming years, it is
crucial that all available health care professionals be fully prepared to deliver essential
primary care services. To meet the increasing demands on our health care system,
funding must be guaranteed to strengthen existing advanced practice nurse education
programs and to establish new programs to ensure an adequate supply of these primary
care providers.

BACKGROUND

Nurses are well-positioned to fill many of the current gaps in availability of and access to
primary and preventive health care services. Advanced practice nurses are registered
murses Who are nurse practitioners, clinical nurse specialists, nurse mid-wives or nurse
anesthetists who have obtained specialized formal education and training beyond the
education that prepared them to initially become a registered nurses (beyond the four
year Bachelor of Science degree). In most cases, advanced practice nurse education
results in a master’s degree.

Advanced practice nurses are trained to provide from 80 to 90 percent of the necessary
primary care services of the nation. Primary care services include: preventive care and
screening, physical examinations, health histories, basic diagnostic testing, diagnosis and
treatment of common physical and mental conditions, prescribing and managing
medication therapy, care of minor injuries, education and counseling on health and
nutrition issues, minor surgery or assisting at surgery, prenatal care and delivery of
normal pregnancies, well-baby care, continuing care and management of chronic
conditions, as well as referral to and coordination with specialty caregivers.

Of the 2.2 million registered murses in the United States, approximately 139,117 are
considered advanced practice nurses with this type of advanced education and most are
trained to provide primary care services. Some advanced practice nurses are specialized
in tasks that are complimentary to primary care, (i.e., certified registered nurse


31

ones who set the content of the curriculum, not the medical schools,
which I think is what Dr. Shine is referring to.

And I see no real problem with money going to a consortium that
is properly put together. My presumption is it would have to have
a board; it would have to have votes; it would probably have to
have a corporate structure of some sort that could receive funds.

So I see no problem with controlling either sites or the content
under that sort of structure with proper approaches. Medical
schools should be a part of that certainly.

Mr. Crane. Thank you very much.

Chairman Tuomas. Does the gentleman from Texas wish to in-
quire?

Mr. JOHNSON. Thank you, Mr. Chairman.

You all intrigue me with your differences, and I am amazed that
you feel the same way I do. It appears to me from what you are
saying, that you are saying there are too many doctors right now.
Is that true or false?

Dr. SHINE. I think we are at that point, and all of the signs are
that that surplus is going to increase.

Mr. JOHNSON. Then do you think we still need 229 major teach-
ing hospitals in this country? Anybody.

Dr. HEYSSEL. Well, I think 229 major teaching hospitals probably
overstates it somewhat, since the really primary affiliated teaching
hospitals in the United States number something around 115 to
130, I would guess, and then many others have smaller teaching
programs.

1 think the question is whether we need to be training as many
people as we do rather than how many hospitals we have doing it,
number one, and, number two, the question of where the sites of
training really ought to be. And I repeat what I have said before:
I think those sites of training need to be broadened considerably
away from the hospital both for educational reasons and other rea-
sons.

Mr. JOHNSON. Do you think that some of these mobile hospital
units that are now being tested in the Southwest could provide
some training capability as well?

Dr. HEYSSEL. I think that training can occur wherever there is
good medicine practiced.

Mr. JOHNSON. Wherever. Especially with the ability to hook up
via satellite with a good doctor somewhere, it would seem to me
that we could make use of the really good guys in our country to
help train all our doctors.

But it appears to me that—go ahead; excuse me.

Dr. SHINE. One, as far as the number of hospitals is concerned,
the market is going to do a Jot with regard to that. I mean, the hos-
pitals are consolidating. A lot of those hospitals ——

Mr. JOHNSON. Well, it will and it will not. Does it not depend
upon the educational institution involved?

I know the University of Texas, for example, does not want to
give up their two medical centers.

Dr. HEYSSEL. I would bet not.

Dr. SHINE. The point is that out of that 229, I mean, we have
already begun to see consolidations. We have seen it with the Med-


156

TESTIMONY OF AMERICAN PSYCHOLOGICAL ASSOCIATION
Psychologists as Health Professionals

The American Psychological Association (APA) is the largest scientific and professional
‘organization representing psychology in the world. APA’s membership includes more than
132,000 researchers, educators, clinicians, consultants, and advanced students, APA's mission
is to advance psychology as a science and profession and also as a means of promoting human
health and welfare. Psychologists study human behavior and experience and apply that
knowledge to solving human problems. As an association, APA has a long history of
involvement in social policy related to human behavior and human welfare. Beyond their historic
role in basic research on human behavior, psychologists represent a significant force in the
provision of health care services to the public:

»Psychologists provide outpatient services for mental health conditions, and for
general health conditions with a significant behavioral component, in community
agencies, health maintenance organizations, school systems, mental health centers,
counseling centers, and independent individual and group practices

Psychologists provide inpatient services in municipal settings such as federal,
state, county, and city hospitals, as well as at private mental hospitals.

»Psychologists also serve on the staff of psychiatric units in general hospitals.
»Psychologists provide liaison services to medical units in general hospitals, since
many physical conditions are stress related, have a significant behavioral
component, or benefit from assistance with psychological interventions

»Psychologists work in residential reatment centers and in rehabilitation centers,
as well as in many corporate settings that provide mental health or drug and
alcohol services to employees.

Consumers of psychological services include individuals, families, public and privare
organizations, employers, institutions, and third party payers.

‘The purpose of this testimony is to describe how psychologists function as primary care providers
and to explain why psychologists are essential to the provision of quality comprehensive health
care throughout our nation. Accordingly, itis critical that psychologists be included in the
Medicare Graduate Medical Education (GME) program

Psychologists as Primary Care Providers

Psychology, as the science of human behavior, serves a critical role in promoting health,
preventing disease and assessing and treating illness. Not only do psychologists diagnose and
treat recognized mental health problems, they are essential in treating the cognitive, emotional
and behavioral aspects of many general health problems.

Many patients who visit a physician do so because of symptoms they have developed as an
expression of psychological distress (Sobel, 1993). Symptoms such as depression, anxiety,
headache, and exhaustion, are among the most common reasons for a visit to the doctor -- and
all of these conditions are responsive to behavioral health interventions. Indeed, in clinical
practice, at least 30% of patients who see a physician may have conditions for which no
physiological or organic cause is found after routine investigation (Wilson, 1995).

Most major health problems -- heart disease, cancer, high blood pressure, stroke, and diabetics -
are caused by factors which require. biopsychosocial interventions (CMHS, 1994). Successful
health care requires intervention at both the biological and the behavioral aspects. Both the
‘Surgeon General and the Institute of Medicine have observed that 6 of the 10 leading causes of
death in the United States which account for 50% of all mortality, are, in part, behaviorally
determined. Psychology, as the science of behavior and behavior change, is uniquely positioned
to contribute to the solutions of these chronic health problems (Olmedo, 1994).

‘A number of researchers have shown that psychological intervention can contribute significantly
to both psychological and physical health outcomes in patients with cancer (Fawzy, 1995).
Aware of the benefits of these psychosocial therapeutic interventions, today’s patients often
specifically request such services. Interventions that are designed to help the person feel less
helpless and hopeless have the added benefit of encouraging more responsibility to get well and
comply with medical regimens. Further, as survival rates have improved with advances in


7

record, without objection, and you may proceed in any way you see
fit to inform this panel.
Let us start with Dr. Shine, and then we will move across.

STATEMENT OF KENNETH SHINE, M.D., PRESIDENT, INSTI-
TUTE OF MEDICINE OF THE NATIONAL ACADEMY OF
SCIENCES, WASHINGTON, D.C.

Dr. SHINE. Thank you, Mr. Chairman. It is a pleasure to be with
you.

As I indicated in my written testimony, my experience or my
comments are based on experience as a trainer of cardiologists, in-
ternists, and serving as dean and provost of a medical school.

I currently serve as president of the Institute of Medicine, but it
should be clear that my comments today are personal comments,
although the Institute has studied a number of these issues and
concurs, for example, with the observations you have made about,
the importance of generalism.

I want to go directly to the principal proposal that I would like
to make and to try to elucidate that in terms of the issues you
raise.

I believe we should immediately place a freeze, an absolute
freeze, on the total number of graduate medical education positions
funded in the United States and certainly the number of those po-
sitions funded through Medicare, and hopefully, in fact, all posi-
tions. I want to try to convince you that that is a sensible thing
to do.

As you have pointed out, the fundamental problem is both the
question of having an adequate number of generalists versus the
question of the total number of physicians, particularly subspecial-
ists, in the country.

I believe there is evidence that market forces are working on
generalism in a very effective way. Salaries for generalists are ris-
ing. As managed care increases its activities, they are, in fact,
scooping up generalists to a significant degree. Salaries for sub-
specialists are declining. And I believe there is very good reason to
be optimistic.

Tf you look at the data from medical students, you will find that
over the last 3 years medical students who have indicated an inter-
est in careers have gone from 14 percent of graduating students to
23 percent indicating an interest in generalism, and I think these

oung people are smart. They know where the jobs are going to be.
ey know what the market is doing. And I think they will con-
tinue to move into generalism.

The dilemma, however, is that in the absence of any limits, we
keep training more and more physicians, and that surplus involves
lots of people who become subspecialists for a variety of reasons.

. Why will the market not work to control the total number of phy-
sicians?

It will not work for several reasons. First, because institutions,
as you have heard and know, can use resident physicians to pro-
vide care. At the present time, these trainees are a subsidized form
of service, and it is to the advantage of institutions to add more
residents under a variety of circumstances in order to get. the work


139

For example, the Council on Graduate Medical Education has
suggested limiting the number of residency positions to 110 percent
of the number of allopathic medical school graduates.

In the case of podiatric medicine, however, there are no foreign
medical graduates. Since to practice in the United States one must
have had to successfully complete a course of study at one of the
seven U.S. colleges of podiatric medicine.

Hence, the profession’s longstanding goal has simply been to pro-
vide an adequate number of residency positions to accommodate all
graduates of its colleges. This goal was finally achieved in 1991.

But as recently as 1988, there were only enough residency train-
ing positions to meet the needs of about 69 percent of the podiatric
medical college graduates. And this year we again expect to fall
short of being able to fulfill about 10 percent of our postdoctoral
training program needs.

Thus, unlike allopathic medicine, there are no excess residency
positions, and the positions which do exist are filled by graduates
of US. colleges of podiatric medicine.

A second premise some employ in debating the need to alter
graduate medical education payment schemes is that there are too
many allopathic and osteopathic physicians.

The Council on Graduate Medical Education has spent consider-
able time and effort attempting to document physician supply and
demand and identifying the types of allopathic and osteopathic
physicians expecting to be in an oversupply in the coming years.

In contrast, the Council on Graduate Medical Education has not
examined the supply of and demand for podiatric physicians. In
fact, no government body has determined that an excess supply of
doctors of podiatric medicine is in the offing.

In 1981, the U.S. Department of Health and Human Services es-
tablished an ideal ratio of 6.2 podiatric physicians per 100,000 pop-
ulation.

Much more recently the Bureau of Health Professions of the U.S.
Public Health Service contracted with the National Center for
Health Statistics to obtain baseline data on foot care needs in the
general population. This was done as part of a 1990 national health
interview survey.

In comparison, podiatric physicians accounted for 4.5 percent of
all medical and surgical services provided to Medicare patients by
all physicians in 1991. Doctors of podiatric medicine, in fact, pro-
vided the majority of foot care services needed by Medicare bene-
ficiaries, and this population continues to increase about 2 percent
per year.

In conclusion, Mr. Chairman, the Association does not envy the
difficult but necessary task this committee, indeed, has. The Con-
gress faces encountering the Nation’s enormous debt and its
mounting annual deficits. Sacrifices, we know, will be required of
each of us if these larger issues are to be successfully addressed.

But if future generations of Americans are to be guaranteed ap-
propriate access to well-trained physicians, it is absolutely essen-
tial that we maintain and strengthen our medical education sys-
tem, including its residency training component. Postdoctoral resi-
dency training, including its supervisory component, requires sub-
stantial time and commitment and must be compensated.


147

Chairman THomas. Thank you, Dr. Jones. You indicated that
podiatric doctors receive their training in other Federal funded pro-
grams other than obviously through the graduate medical edu-
cation structure?

Mr. JONES. In the V.A. hospitals and the military.

Chairman Tuomas. And, Dr. Kalkwarf, I assume dentists are in-
volved in that as well?

Mr. KaLkwarFr. Yes. We have some individuals who do train
through DOD funding or VA funding.

Chairman THOMAS. A rough percentage?

Mr. KaLkwarF. Approximately half of dental residents will be
provided training through some sort of Federal support, about 44
percent through GME funding, a small percentage of DOD and VA,
and then the other half are funded privately.

Chairman THomas. OK. So about, well, less than 10 percent of
those that get to Federal funding come into those other programs.

Ms. JOHNSON. Approximately.

Chairman THoMaSs. So the bulk come from GME funding.

We have been supplying this graduate medical education funding
obviously since—well, for more than a decade, more than two dec-
ades actually.

Is the thrust of your statement that there are not enough resi-
dency slots for you folk and that we should give more money so
that there would be more slots?

Mr. JONES. There are not enough podiatric residency slots for all
the current graduates. And, of course, then you fall into quality of
program. We have, the profession——

Chairman THOMAS. But if we put more money into it, does that
then produce more slots? If someone is controlling the determina-
tion of who gets what slots, and there are not enough slots now,
why is adding more money going to produce the slots?

Mr. Jones. It would not necessarily do that. We have spent the
last 10 years educating the hospitals to the direct and indirect
costs through Medicare, and that is how we have increased the
number.

Chairman THOMAS. That is my connection. We have got to work
on the folks who are writing programs——

Mr. Jones. That is right.

Chairman THomas [continuing]. In terms of the importance both
of the dentistry and the —

Mr. Jones. That is correct.

Chairman THOMAS. Now in relation to that, where do you folks
fall in this movement toward managed care? Is there—is dentistry
being incorporated as part of that?

It would seem to me that if you have a managed care program
with a decent preventive care program, dentistry is going to be a
key part of that. Am I wrong?

iar, KatkwarF. No. In certain parts of the country, managed
care is starting to play a role. In other parts, it is not. It is lagging
behind the medicine managed care model that we are seeing pro-
gressing throughout the country.


153

Ms. JOHNSON. As a matter of fact, one of the things that we are
focusing on in nursing is the fact that a lot of health care is moving
from the hospital into the community.

In listening to the comments of nurses, one of the reasons that
the BSN-prepared nurse and the advanced practice nurse are such
critical pieces to health care delivery is that a lot of their focus is
on moving that health care from the hospital into the community
and into home health, into the workplace, into familiar community
settings that make it easier to ensure access to health care.

Chairman Tuomas. And not only the traditional caring and sup-
portive role, but the manipulation of various devices, infusion and
others, which I think is a ‘ind of a natural fitting. If you are going
to have somebody drop by the home, they are going to have to have
a degree of that training.

Ms. JOHNSON. It certainly is more cost effective, yes.

Chairman THOMAS. Yes, yes. Does the gentlewoman from Con-
necticut have anything?

Mrs. JOHNSON OF CONNECTICUT. I appreciate your testimony.

And hearing in the context of our responsibility to better fund
medical education the spectrum of training situations that we have
to be certain that the new system will meet, I think your testimony
is evidence of how hard it has been to break into the existing sys-
tem, and really at what risk, your training where it has broken
into what degree it still is at risk, particularly in a period in a
change.

So I think your testimony will be very useful to us and is further
proof that we need to have a more uniform systemic approach to
fostering the development of medical knowledge amongst practi-
tioners and enabling the system thereafter to better integrate
skilled practitioners into systems of care that can deliver appro-
priate and affordable care.

And I appreciate your testimony today.

Chairman THOMAS. With that, I want to thank the panel for your
patience as well. The information was very, very helpful to us.

And the subcommittee stands adjourned,

[Whereupon at 1:35 p.m., the subcommittee was adjourned.]

[Submissions for the record follow:]


46

I want to make very clear, we do not support continuing that
fund necessarily at the current levels. I think the discussion you
had with the previous panel suggests that we may and probably do
exceed the number of physicians we need; we surely exceed the
number of specialists we need.

I personally might support a freeze. I think that is, in fact, gen-
erous. I think the number of residents could even come down.

I am rather surprised. If you look at the numbers, they have
been going like this, and then last year they went like this. So I
think if we went back even to 1992, we might be at a more stable

ase.

What is important is that we take a hard look at what is the ap-
propriate role of government in funding this. Government does
have a role, but it should not be—particularly the Medicare should
not become the sole source of support. It needs to carry its share,
but not be asked to carry it disproportionately. And we at ProPAC
have tried to come up technically with a number that will allow
you to make the appropriate adjustments.

Just one or two more numbers. By the way, in my testimony, I
have given you a lot of information about the changes in the struc-
ture of the direct and indirect medical education, where the money
goes.

It_primarily goes to about 229, 230 of our major teaching hos-
pitals. And these hospitals do disproportionately cover the number
of uninsured in this country, and therefore they do need to be pro-
tected. But not all of them. Some of them actually are providing
very little of such care.

So we would support again this phased reduction down to—from
7.7 down to about 4.7, which would save the country, or use it for
other programs, about $1.5 billion.

Thank you very much.

[The prepared statement and attachments follow:]


6

costs are inflated because of the presence of large numbers of peo-
ple who cannot and do not pay or who provide research in skills
that the average hospital cannot?

Why should these private hospital plans contribute to the cost of
training the next generation of doctors when they can get away
without paying their fair share?

Our unwillingness to require private health plans to contribute
to these costs, which teaching hospitals cannot avoid, may mean
that the very children the Republicans are so worried about assum-
ing the debt of future generations will wake up with no debt and
no medical care either.

This does not mean that the indirect medical education adjust-
ment or the direct graduate medical education adjustment period
by Medicare cannot be changed. It should be. And we Democrats
on this committee proposed such a cut last year.

The difference is, the cut was coupled with a program which as-
sured every American health coverage, so that the debt and charity
care in these safety net hospitals would have been a thing of the
past.

Our bill proposed to require private health plans to contribute to
a pool of funds used to support graduate medical education. The
bill reduced support for nonprimary care residencies and increased
support for primary care residencies.

Mr. Chairman, this approach is the right one to reducing Medi-
care’s support for these hospitals, and is as valid today, even more
valid in the absence of health reform, than it was in the previous
Congress.

So I conclude with a plea, Mr. Chairman, that the debate center
around these issues and the role of teaching hospitals in our health
care system and the appropriate way to assure that all benefits
from them should be the central question and not ways to raise
money to give tax cuts to the rich.

Chairman Tuomas. I thank the gentleman.

Our first panel—and I would ask the panelists to come up—will
be Dr. Shine, Dr. Heyssel, and Dr. Ludden.

And to provide an additional introduction of Dr. Heyssel, who is
former president of Johns Hopkins Medical Institutions, is a fellow
who is somewhat familiar with that geography, the gentleman from
Maryland, Mr. Cardin.

Mr. CarpIN. Thank you, Mr. Chairman.

I just really wanted to welcome Dr. Heyssel to the Ways and
Means Committee. I know he is not a stranger here in Washington.

We were very blessed to have Dr. Heyssel in Baltimore heading
up the Johns Hopkins University Hospital for many, many years,
and his visionary leadership in our State really, I think, added to
the reason why Maryland was able to develop such a successful
hospital reimbursement system.

He is a friend. He has helped me personally in developing my
own views on health care, and it is a real pleasure to welcome him
to the committee.

Dr. HEYSSEL. Thank you, Congressman Cardin.

Chairman Tuomas. Thank you, doctors, very much. And I will
tell you that your written testimony will be made a part of the


40

among a number of hospitals Most medical schools have multiple hospital affiliations
including affiliations with Veterans Administration (VA) hospitals Decisions on the
mix and size of residency programs within a hospital are based on multiple factors:

The decision of the hospital to have graduate medical education; the desire of the
chairman of the medical school department or division or the chief of service of the
hospital to have or supervise a program; service needs of the hospital; clinical volume
required for accreditation and faculty availability to supervise the program

While most graduate medical education takes place in teaching hospitals, there
has been growing pressure to shift training to ambulatory care settings, and to
provide education relevant to practice in a managed care environment. It has
become increasingly difficult to provide appropriate graduate medical education
exclusively in the inpatient setting, particularly the tertiary care setting, for the
following reasons:

+ "The shift of locus of many diagnostic and treatment services to

ambulatory care setting;

. Increasing severity of illness in the inpatient setting which narrows the

scope of clinical experience

. shortened length of stay

. the rapid development of HNO’s and other managed care arrangement.

‘However, the methods of financing graduate medical education have been a
major barrier to the shift in the locus of education.

Sources of Financing Graduate Medical Education

History of Support

Until the end of World War IL, the majority of physicians completed one year of
internship and entered general practice. A number of factors changed the picture
dramatically during the subsequent two decades. The advances in technology that
spawned new knowledge and specialties; the demand for an increased number of
medical schools and physicians which stimulated an increased need for graduate
medical education, and the rapid growth of private health insurance that helped
hospitals expand training programs.

‘The growth of private insurance and the passage of Medicare opened a stream of
funds that could be used to support hospital-based graduate medical education.
Hospitals incorporated these GME costs into their charge and cost structures.
Medicare, at its inception, included these costs in its definition of reasonable costs.
‘Two sources of funds helped to support GME; salary support for residents and
supervisory physicians in hospitals and payments for patient care services to
individuals newly covered by public or private insurance. These new sources of
revenue enabled teaching hospitals to expand their residency programs to keep pace
with expanding medical school enrollment, increase substantially the stipends paid to
residents, and pay faculty for supervision of residents. In addition, these funds and
physicians fees charged for services provided an additional steam of support for
schools and faculty.

With the increased flow of third party payments in the 1970s, issues related to
the effect of payment policies on geographic location and specialty decisions of new
physicians began to arise, as well as issues of the equity of the financing as between
sites of training and sources of payment. Specifically, reimbursement from third
party payers has financed a greater proportion of the costs and charges for inpatient
services than for outpatient services. Until recent changes in private health
insurance policies designed to reduce costs, private hospital insurance rarely required
cost sharing by the consumer. In contrast, reimbursement for outpatient services
from third parties is usually structured to include deductibles (payment by the
patient before the third party will pay) and coinsurance (a percentage of the bill paid
for by the patient) and does not cover preventive services. It is therefore easier to
support specialty training oriented toward inpatient care than primary care training
oriented toward outpatient care.



120

dents, and the residents have come out and they are marvelous in
managed care, if that is what the managed care people are looking
‘or.

But I cannot agree with you more that if they want to say some-
thing about the product, then they ought to be paying for the prod-

uct.

Chairman THomas. Well, but beyond that, I think we need to
focus on medical training and education in terms of producing the
complete product for the marketplace. And we are going to have a

anel following you folk, who will be focusing on other aspects of
Realth care professionals. And clearly as managed care utilizes
more and more other health professionals who are not doctors,
there needs to be a coordination between them.

It makes sense to do more of that during the education and
training process rather than on the job. So I think if we are realis-
tic, the profile of who is going to be trained in these centers is
going to change as well.

And to the degree that we have too many doctors not of the right
type and that we need more folks who are not doctors, you can be
ing the right thing with a shrinking universe, or you can be
doing the right thing with a larger universe of all of the kinds of
people that we prepare and work with.

That is another thing I think we need to try to do, and that is
direct the funding, one, to the environment in which it needs to go
and, two, to the broader population universe which will be nec-
essary in the future.

That is all uncomfortable for everybody, because it is a signifi-
cant change, foremost in terms of the impact of the changes on the
doctors themselves.

So this is a challenge for all of us. But to the degree that the
Federal Government is going to fund medical education for the ra-
tionale being a societal good, then we are going to make sure that.
the product is not misplaced in terms of its emphasis and its need
in the marketplace.

It is changing. And we appreciate your testimony. And we are

oing to move in the direction of trying to provide more realistic
fanding in realistic ways that allow you to produce realistic folk to
serve in the realistic structure of tomorrow.

Dr. ANDERSON. Could I make just a comment?

Chairman THomaS. Certainly, doctor.

Dr. ANDERSON. I would certainly hope that the managed care or-
ganizations would take note of what you have said relative to the
responsibilities that they should assume. As long as they have the
strong bottom line orientation that they have, and there is no de-
mand placed on them—that is, there is a sufficient pool out there
that they can weed out the doctors that do not have that training
in managed care—I would like to see a requirement made of those
who benefit to participate in graduate medical education. That cer-
tainly would include the HMOs,

Chairman THomas. If they are not listening, we will deliver the
message anyway.

Dr. ANDERSON. Thank you. I hope you do that.

Second, I think to attempt to dissect out now what portion of a
resident’s time is spent in training, we know the elements that go



19

Chairman THomas. Thank you very much, Dr. Ludden.
Dr. Heyssel.

STATEMENT OF ROBERT M. HEYSSEL, M.D., SEAFORD, DEL.,
FORMER PRESIDENT, JOHNS HOPKINS HEALTH SYSTEM

Dr. HEYSSEL. Mr. Chairman, Congressmen, ladies and gentle-
men, I am Robert Heyssel. I was for 20 years president and CEO
of the Johns Hopkins Health System.

Chairman THoMaSs. Doctor, I would tell you that the microphones
are very unidirectional, so you need to get right in front of it.

Dr. HEYSSEL. OK, thank you.

In Baltimore, Md. I thank you for the opportunity to give my
view on graduate medical education.

In the mideighties, I chaired a task force funded by the Common-
wealth Fund of New York, looking into and examining the health
and the future of the academic health centers. Then as now, our
concern was the maintenance of the mission of education, both un-
dergraduate and graduate, and patient care and discovery in those
institutions, which I believe are the best in the world and really
the basis for our excellent medical care in this country.

A prominent part of that report, which was called “A Prescription
for Change,” dealt with issues surrounding graduate medical edu-
cation. In preparation for this testimony, I looked at that again,
and there is very little that I would change, either in terms of the
findings or the recommendations with regard to graduate medical
education.

phat was published in 1985, and not much has happened since
then.

There were a number of issues identified then which are with us
now. The first issue is cost and how those costs are paid.

Most of the direct and indirect payments for resident education
is from hospitals themselves, which in turn add those costs to inpa-
tient bills, Medicare, and where they can, private payers as well.
That source of payment is in jeopardy from both government pay-
ers and private insurers, as all payers seek lower cost hospitaliza-
tions and alternatives to hospital care. This is particularly true of
managed care organizations in this country.

Second is the issue of size and specialty distribution in graduate
medical education. As managed care becomes a dominant means of
financing and controlling the costs of medical care, we are probably
producing more physicians than the country will need, fewer gener-
alists, and more specialists and subspecialists of certain kinds than
we need.

Third is the issue of the control of graduate medical education.
As amply documented in the 1985 report, which incidentally I have
asked the staff to make available those portions of the report relat-
ed to graduate medical education, the control of funding of grad-
uate medical education is separate from the control of the length
of the training programs, the content of those training programs,
and requirements for accreditation of programs, all of which are set
by RRCs and the Accreditation Council on Graduate Medical Edu-
cation.


“4

Chairman THomas. Thank you very much, Dr. Shine.
Dr. Ludden.

STATEMENT OF JOHN M. LUDDEN, M.D., SENIOR VICE PRESI-
DENT FOR MEDICAL AFFAIRS, HARVARD COMMUNITY
HEALTH PLAN, BOSTON, MASS.

Dr. LUDDEN. Thank you, Mr. Chairman.

I am John Ludden. I am senior vice president for medical affairs
at the Harvard Community Health Plan (HCMP) where I have
practiced psychiatry for more than 20 years.

HCHP, as you may know, is now a partner in what is the largest
and oldest HMO in New England, a nonprofit HMO. We have just
about 1 million members, and we have 16,000 physicians. And per-
haps most interesting to this committee is our long-term relation-
ship with some of the Nation’s preeminent teaching hospitals at
Harvard and related to Dartmouth as well as to Brown.

I would like to concentrate on about three different areas.

One, I would like to review again some of the background of the
current professional education and graduate medical education
from the HMO perspective, to talk a little bit about the HCHP ex-
perience as a model of a teaching HMO and to add to some of the
recommendations which you have already heard for future action.

In my view, education is a classic example of a public good and
not a marketplace commodity. GME, as you have stated, is nec-
essary, so that our society can educate physicians for the future to
take care of our children and grandchildren. But this marketplace
is changing and has changed radically, and it calls for changes both
in how we finance GME and what that GME does.

And furthermore, to add to that difficulty, I would just like to
comment that changes in GME also require changes in under-
graduate medical education which are more significant and, believe
it or not, even more difficult to finance.

Well, as you have already heard, GME comes to us primarily
through cross-subsidies from service dollars that are received by
teaching institutions and physicians, and Medicare has been the
main focus for that at the Federal level.

As we compete in a marketplace of HMOs in a region like New
England—and I think this is true in other HMOs—we are increas-
ingly having difficulty doing what we, as HCHP, already do on a
voluntary basis, to support and finance GME.

We do not experience difficulty from our major teaching hospitals
in their providing to us cost-effective and high-quality care, some-
times at underlying costs that are lower than those of some of the
larger communit; Sospitals, that is, until] you add in the require-
ments that they face for medical education.

As you have already heard, the changes in the health care mar-
ketplace also call for changes in the supply and the skills of profes-
sionals,

Obviously you have already heard about the importance of re-
cruiting and finding and training more generalists. What you may
not have focused on yet is that physicians in the new world of
health care require an expanded set of skills.

HCHP and other HMOs have found recent graduates of GME
programs incompletely prepared for primary care practice. Because


training of future health professionals, the medical manpower needs of the evolving health care
system, and the financing of teaching hospitals. Current Medicare payment mechanisms for
‘graduate medical education and teaching hospitals will be reviewed.

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U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C,

20515. If those filing written statements wish to have their statements distributed to the press and
interested public at the hearing, they may deliver 200 additional copies for this purpose to the
Subcommittee on Health office, room 1136 Longworth House Office Building, at least one hour
before the hearing begins,

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GOPHER. HOUSE.GOV, under "HOUSE COMMITTEE INFORMATION’.


132

consultations, mostly unreimbursed, on medically necessary oral
health care needs.

Medically Necessary Oral Health Care

For the Medicare population, there are many oral health
conditions that must be addressed prior to medical treatment.
Medically necessary oral health care is a direct result of, or
has direct impact on, an underlying medical condition. It
includes care directed toward control and/or elimination of pain,
infection, and reestablishment of function. There are a variety
of serious diseases and conditions that can be complicated where
oral health is not properly attended to.

+ Por those receiving radiation therapy, a dental
abscess or infection frequently becomes
uncontrolled and destroys the surrounding bone or
even the jaw itself, leading to mutilation and
Sometimes death. Rampant decay is a common
complication due to the destruction of the salivary
glands.

+ Bacteria from oral infections can spread
through the blood stream and attach to heart
valves of those with congenital or acquired heart
defects and to other prosthetic replacements in
patients. This results in deatn fifty percent of
the time.

+ For diabetics, any infection can be life
threatening, because the infection exacerbates the
diabetes and precludes control of elevated blood
sugar levels. In this context, it is important to
remember that periodontal diseases and dental
caries are the most common infections in adults.

+ For those with a blood disorder, gingival (gum)
bleeding can be life threatening. Persons at risk
Anclude hemophiliacs and those with HIV disease.

+ Renal transplant patients, those on chenotherapy,
and anyone with an immune deficiency are
vulnerable to the uncontrolled progression of the
herpes simplex virus (fever blisters). The virus
can spread to the brain and spinal cord in those
who are immunosuppressed. when uncontrolled, this
often results in death.

+ For patients on chemotherapy, oral infections can
spread unchecked through the blood stream because
of the absence of natural defenses. Mouth
infections are the most conmon infections in
chemotherapy patients and are therefore a major
cause of life threatening disease in these
patients.

Unfortunately, many of the above services are provided without
reimbursements from federal fundings or any other sources.
Because Medicaid dental services for adults are optional rather
than mandated, some states provide no dental coverage for adults
and most of the remainder provide only emergency treatment or
very limited restorative services. In addition, more states are
considering eliminating adult dental services as the country’s
economic situation continues to strain state budgets. New York
State would be an example.


110

that all properly trained physicians should have knowledge of
primary care and specialty care areas in order to be able to
provide complete medical care. This unique program has
achieved an appropriate balance of primary care physicians
and specialists. Among osteopathic physicians currently in
practice, more than sixty percent are primary care
physicians.

While osteopathic physicians have developed and refined
this educational model over the course of time, the federal
government plays an essential part in its continued success
through funding of graduate medical education. A variety of
legislative proposals have attempted to address the
significant questions of how many and what type of physicians
will be needed in the future.’ Questions of how best to
fund Graduate Medical Education must be considered as part of
this process. At present, federal funding is intended to
foster development of an appropriate number of physicians in
different practice areas.

The AOA supports the government’s efforts to encourage
more physicians to practice in primary care fields.
policy is developed, we must hope that osteopathic programs
receive an appropriate portion of available funds. Without
continued support for osteopathic training programs, our
graduates will lose the benefit of an osteopathic graduate
medical education that has been proven to be very valuable in
meeting health manpower needs. For osteopathic practice to
survive, the profession must be able to maintain its distinct
educational program beyond the medical schocl level. The
simple fact is that osteopathic education requires more than
the medical school experience; complete training in the
osteopathic approach to medical care requires continued
application of osteopathic principles and procedures in
osteopathic postdoctoral training programs.

The question of how many graduate medical education
positions should be funded is one issue which this committee
may consider. Many organizations and individuals have
recommended that the total number of funded residency
positions be limited to the aggregate number of osteopathic
and allopathic medical school graduates. While the AOA
generally concurs with this position, we believe that the
number of funded GME programs should’ be designated separately
and proportionately for osteopathic and allopathic programs.

DOs comprise a small, but distinct minority of
physicians. If funds for allopathic and osteopathic graduate
medical education are intermingled, there is some danger
that, through either deliberate or inadvertent actions
osteopathic programs would not receive sufficient graduate
medical education funds. This would be particularly the case
if the osteopathic allocation was buried within a single
allopathically dominated allocation formula. However, if the
funding is separately earmarked for osteopathic and
allopathic use, then there is assurance that the necessary
funds will be available for osteopathic programs, which
already comply with the federal mandate for primary care.

With a secure and separate source of funds, osteopathic
physicians will be able to maintain a complete osteopathic
medical education system, which produces an appropriate
primary care/specialty balance and physicians who bring
primary care to areas which sorely need such care. Of

°see, e.g., the proposals contained in the proposed
Health Security Act, H.R. 3600, 103d Cong., ist Sess. §§ 3002
et. seq. (1993)


69

tainly would not want to upend the current environment. Those
residencies operate quite differently than the standard residencies
in the large academic health centers.

Mr. CHRISTENSEN. Thank you, Mr. Chairman.

Mr. HouGHTON [presiding]. Thank you, Mr. Christensen.

Dr. Altman, gentlemen, it is nice to see you. Thank you very
much.

I just have one specific question I was going to ask before I was
crowned here to take the chair for the moment.

I am particularly interested in New York City, and as a matter
of fact, I am surprised that when Mr. Christensen asked the ques-
tion, you did not say immediately New York was the obvious place
Where the greatest hospitals should exist and be protected. [Laugh-
ter.

It is not that I am parochial or anything like that.

But anyway, getting to the thrust of my question, health care in
New York obviously is really dependent upon the Medicare GME
payments, probably much more so than the average.

0, you know, people like myself—and I know Mr. Rangel and
others—would worry about the impact of this whole reformation in
freezing limits and limiting the number of residents, eliminating,
foreign medical graduates, limiting payment for the first 3 years,
cutting indirect adjustment—a big, big difference, because New
York is different than Chicago, Boston, or Houston.

So I hate to see just a scythe go through the whole process and
average it out where there is an undue concentration of teaching,
research and residency which has to be protected.

Maybe all of you would like to make a comment on that.

Mr. ALTMAN. Well, I have looked quite extensively at the special
interests of New York, and there is absolutely no question about
it, that for many of these issues there is New York and the rest
of the country. It is not even like: Well, there is New York and Chi-
cago or New York and Boston. There is New York.

And it flows in several important dimensions. One is on the di-
rect side. The amount of payments per resident is the highest in
the country in New York. New York depends more heavily on the
number of foreign-trained residents than any other part of the
country. They receive a much larger proportionate share of the in-
direct teaching and the disproportionate share payments. There is
absolutely no question that if you look at the numbers in New
York, the impact of Medicare policy has a disproportionate impact
on the current delivery system.

IT will be glad to share those numbers with you. You probably
know them. I am sure the medical——

Mr. HoucHuTon. No, I would like to see them.

Mr. ALTMAN. And how you deal with that is a complicated issue.

I am not a big believer in averaging. I do not think averaging
makes sense in this area. I think we ought to decide from a policy
point of view where you want the system to go. And, you know, in
defense of New York and Boston and Philadelphia, the Nation
looks to them to train physicians that go out all over the country.

So I would not average at all. That does not mean that those
areas are not going to be affected if you cut back and probably will


24

It has long been a mystery to me as to how Medicare got stuck
with supporting graduate medical education. It was an after-
thought, as near as I can read, in the legislative history in 1965.
But the fact is, we have.

And the idea that the cost, whatever that is, ought to be—for the
benefit that the public derives, ought to be spread more fairly
across the spectrum, I agree with you.

I am not sure politically we would be able to do that. I mean,
we have a structure that is so historic—even with the new Con-
tract With America, I do not think we are going to be able to
change that, so we are going to fuss with it and adjust it. And
maybe we can do that slowly. So I think in the short time—5, 10
years—we are still going to have to find a way to subsidize, sup-
port, reimburse under the structure we have.

Could we erase it and start over?

T would agree with you. But I am afraid that we are locked into
this, and we have to worry now about cutting too much out, so that
Dr. Heyssel’s alma mater can continue to survive.

Dr. SHINE. Mr. Stark, I would just point out that that association
with Medicare does provide an opportunity, that as risk-based
managed care develops for Medicare patients, looking at the way
in which those organizations which choose to take care of Medicare
patients, choose to support graduate medical education, is one of
the things that I think the committee could look at very carefully.

Chairman THOMAS. The gentleman’s time has expired. The gen-
tleman from Louisiana, Mr. McCrery.

Mr. McCrery. Thank you, Mr. Chairman, and thank you, gentle-
men, for testifying today.

Dr. Shine, I am intrigued by your recommendation to freeze all
positions in graduate medical education.

When I am home in Louisiana in my town meetings and the
issue of health care and rising health care costs come up, I often
have one or two lawyers in the audience, and they will stand up
and say: You know, the answer to the problem here is to quit re-
stricting admission to medical schools, and you need more doctors.
If you had more doctors out there, there would be more competi-
tion, and you would get prices down and costs down.

How do I answer them, and how does that gibe with your rec-
ommendation?

Dr. Sune. I think there are three or four answers.

First, both the State and the government do not make the kind
of investment in the education of a lawyer that it does in the edu-
cation of a physician.

Mr. McCrery. Thank goodness.

Dr. SHINE. Second, by virtue of the subsidy, if you will, for edu-
cation that comes through Medicare, we are using public dollars in
order to influence the work force. And the question then becomes:
Is the outcome one that you want?

Third, medical providers are, in and of themselves, cost genera-
tors. Whether you are in managed care or any other area, the fact.
is that the more doctors you have, the more services are provided
by doctors, and they are the Most expensive.

The issue from my perspective in this regard is: How do you
move the system so that, in fact, we are using a spectrum of pro-


143

training positions to meet the needs of about 69 percent of
podiatric medical college graduates. But this year we again expect
to fall short of being able to fulfill about 10% of our post
doctoral training program needs. Thus, unlike allopathic medicine,
there are no "excess" residency positions; and the positions which
do exist are filled by graduates of U.S. colleges of podiatric

medicine.

Assuring a match between the number of residency positions
and the number of podiatric medical college graduates has been
complicated somewhat, due to a decline in the applicant pool, by

relatively recent fluctuations in first year enrollments in the

nation’s podiatric medical colleges. For example, while first year
enrollments gradually rose throughout the first half of the 1980's
to peak at 815 in 1986, the number of such students had declined to
561 by 1990. Of note, the Seventh Report to the President and the
Congress on the Status of Health Personnel in the United States,
March 1990, argued that one reason for the declining enrollments
was "applicant awareness of an insufficient number of residency

slots to accommodate graduates."

A second premise some employ in debating the need to alter
graduate medical education payment schemes is that there are too
many allopathic and osteopathic physicians. The Council on
Graduate Medical Education has spent considerable time and effort
attempting to document physician supply and demand, and identify
the types of allopathic and osteopathic physicians expected to be

in under - or oversupply in the coming years.

In contrast, the Council on Graduate Medical Education has not
examined the supply of, and demand for, podiatric physicians. In
fact, no government body has determined that an excess supply of
doctors of podiatric medicine is in the offing. In 1981, the U.S.
Department of Health and Human Services established an ideal ratio

of 6.2 podiatric physicians per 100,000 population. This ratio was


10

‘TESTIMONY OF KENNETH SHINE, M.D.
NATIONAL ACADEMY OF SCIENCES

Mr. Chairman, Ladies, and Gentlemen:

My name is Kenneth Shine, M.D. I currently serve as President of the Institute of
Medicine (Institute) of the National Academy of Sciences. As Chief of the Cardiology
Division at the UCLA School of Medicine, I was Program Director for a subspecialty
training program in cardiology. As Chairman of the Department of Medicine at UCLA,
I was the Program Director for training in ail aspects of internal medicine, including
general internal medicine. As Dean and Provost at UCLA, I was responsible for training
programs in all of the medical and surgical specialties. I helped to develop an
outstanding program in family medicine residency at UCLA. For many years, that
program was one of the few that was physically based at the care facility of a major
tertiary care academic medical center. As Clinical Professor of Medicine at Georgetown
University School of Medicine, { continue to teach and see patients with interns,
residents, and fellows. Although the Institute ond many organizations with which I have
belonged have issued a variety of statements with regard to graduate medical education,
my comments this morning are my own, and I do not represent any organization or the
Institute in making these remarks.

In many ways, the system of graduate medical education in the United States is
the envy of the world. This is reflected, among other things, in the large and rapidly
growing number of international, i.e. foreign, medical graduates who seek their training
in American teaching hospitals. ‘The funding of this program has depended critically on
medical education payments through the Medicare program. Such payments have been
critically important to our society in many ways. They have provided salary support to
young medical graduates, many of whom now leave medical schoo! with debts of
$100,000 or more--debts that have the pernicious effect of encouraging graduates to seek
careers in highly compensated and technologically driven aspects of medical care, often at
the expense of the country’s needs for generalist physicians. The payments allow
economically disadvantaged and underrepresented individuals to obtain graduate medical
training, Payments through the Medicare program have allowed hospitals to provide
outstanding care to Medicare recipients, to poor and underserved populations, and to the
very sick patients with complex illnesses who require all of the technological and
personpower skilis of these institutions.

But the reimbursement system has had a series of unintended consequences. It is
these consequences that f wish to address. I shall make the following recommendations.

1) The number of graduate medical education positions funded through DME and
IME money should be frozen at current levels. If possible, the total number of
graduate medical education positions irregardless of funding sources should be
frozen at the same time.

2) _ Institutions should be in a position to assign residents to activities in the gutpatient
or ambulatory environment at local and at distant sites, including community
health centers, community-based centers for care of the elderly, managed care
organizations, urban and rural locations.

3) Within the reimbursement formulas, some disincentives for subspecialty training
and increasing incentives for generalist or primary care training should be
luded.

4) Assignments of residents should be based on the need for experiences which offer
an adequate balance between generalist and subspecialty care, preventive as well
as curative care services, and as part of multidisciplinary groups of health


141

‘TESTIMONY OF CHARLES L. JONES, DPM
AMERICAN PODIATRIC MEDICAL ASSOCIATION

Mr. Chairman, Members of the Subcommittee:

I am Dr. Charles Jones, President of the American Podiatric
Medical Association, and a private practicing podiatric physician
in Chicago, Illinois. As one who has devoted much of his
professional life in post doctoral podiatric medical education, =
welcome this opportunity to appear before this subcommittee today
on the subject of Graduate Medical Education (GME) -- A Vision for
the Future. It is my purpose, Mr. Chairman, to acquaint the
subcommittee with podiatric medicine’s role in GME and why
continued Federal participation in graduate medical education is

vital if high quality health and medical care services are to be

maintained and strengthened.

Podiatric Medicine and GME

As you noted in the press release announcing today’s hearing,
Medicare has since its inception reimbursed teaching hospitals for
the program’s share of costs for the training of physicians and
other health professionals. But it was not until the Social
Security Amendments of 1972 that podiatric physicians became
eligible for Medicare’s GME benefit. Since January 1, 1973, post
doctoral residency programs in podiatric medicine and surgery have
benefited from both direct and indirect GME payments stemming from
Title XVIII. Based on our best available information, we estimate
that as of November, 1994, 210 teaching hospitals with 800
residency slots in 29 states and the District of Columbia received
Medicare payments for the direct costs of these programs.
Additionally, forty-six Veterans Administration hospitals and three
military hospitals additionally train 160 podiatric medical
residents, though these training programs are funded by those
Federal agencies, not Medicare.

Suffice it to say that we believe very strongly that podiatric

medical residency programs must continue to have access to funding,


29

ployed subspecialists. We had a recent situation in which several
managed care organizations laid off large numbers of subspecial-
ists.

To have a system where you were trained as a subspecialist in
veterinary medicine and then find there is not any work, it seems
to me, is a tragic misuse of public resources in terms of what the
future holds.

Dr. HEyssEL. If I could comment, that is the reason to limit
again the amount of length of time and support you are going to

ive as well as limiting the number of slots you are going to fund
‘rom whatever pool you get it from.

But I also cannot help but remark Dr. Shine, when you said the
Institute of Medicine liked the 50/50 ratio, it was also the Institute
of Medicine and the committee that I served on that said we need
4 beds per 1,000 population in this country in the seventies, which
number seems a little offbase today given the changes.

Dr. SHINE. We guessed the direction but not the velocity.

Dr. HEYSSEL. That is right. [Laughter]

Dr. LuppEN. I just want to make the point that the HMO pri-
mary care practice frontline, it has to do with the skills and train-
ing, not the number of procedures or the number of services that
can be done by something which maybe used to be slave labor but
certainly is not now.

And that is a terribly important change in the way all of these
developments work, so that we concentrate more on putting to-
gether those skills. And that really is a different world than it used
to be 5 or 10 years ago.

Mr. ENSIGN. Right. Well, during residencies, your pay is very,
very low compared to what your services are worth, maybe not at
the beginning, but at least your latter couple years of your resi-

lency.

But it was looked at as a tradeoff, that you are getting that expe-
rience, and you are providing a very valuable service, and you are
learning. That is the reason that you are exposed to the specialists
and the senior specialists, ‘and that was a tradeoff in the
residencies.

I guess my whole question about this is, is it necessary to sub-
sidize number of spots, and how do you do that across the country?
Who gets what spots where?

Dr. HEYSSEL. Well, that has always been the dilemma. I guess
you could do it at the Federal level and apportion it some way. You
could do it at the State level and apportion it some way. And that
always seemed to me to get us into the problem of—what should
1 say—indirect control of who got the slot preferences and so forth.

The other way you could do it is, we know how many medical
students are graduating every year, and we know how many years
we are willing to support their training after that in graduate med-
ical education. Why not give them a voucher that goes with the
student from this pool of money and let them apply wherever they
would?

Dr. SHINE. Could I just point out, in terms of my proposal to
freeze, 1 am talking about freezing in place; those institutions
would have the same number of physicians as an institution that
they have now. But if they want to add generalist positions—and


166

STATEMENT OF THE MAYO FOUNDATION
COMMITTEE ON WAYS AND MEANS, HEALTH SUBCOMMITTEE

MARCH 23, 1995

‘The Mayo Foundation is an integrated health care system, with clinics. hospitals. and
other health care entities located in five states. These include Mayo Clinic Rochester. Saint
Marys Hospital. and Rochester Methodist Hospital, in Rochester, Minnesota; Mayo Clinic
Jacksonville and St. Luke's Hospital, in Jacksonville, Florida; and Mayo Clinic Scottsdale. in
Scottsdale, Arizona. We have also merged with Mayo regional practices and hospitals in
Minnesota. lowa, and Wisconsin, We serve patients from all fifty states and many foreign
countries. We are engaged in research and education, with over one thousand residents in
raining at multiple locations.

As the Congress develops policies for graduate medical education. we believe that
serious attention must be given to separating funding for education from patient care revenue
In the past. teaching institutions were able to cross subsidize education programs from patient
care revenues. In today's world of managed care and market competition. this ability is
severely limited, We strongly support a market-based health care delivery system. and see
many efficiencies coming trom this competition. However. for competition to work there
must be a level playing field. In order to create such a level playing field, societal poods.
such as research and education, should be funded by all the participants in the health care
system

In the long run. a separate funding pool must be created for graduate medical
education. This pool could be funded by a surcharge on all health premiums, and distributed
on a per resident basis to the programs that incur the costs of the education. In the short run.
it is imperative that the government maintain a fair level of Medicare funding for graduate
medical education through the DGME and IME payments.

We suggest that the DGME payment system be simplified and made fairer by making
several changes. First, a uniform payment level should be established. There is neither
fairness nor good policy sense in the tremendous variation in per resident payment levels that
exists today. Second, the payments should be made on a per resident basis. regardless of the
type of setting in which the resident is training, Good education policy requires that residents
receive more of their training in non-hospital settings. yet the payment mechanism is limited
to hospital-based training. Moreover. integrated health care systems are working to make sure
patients are treated in the most efficient setting. and the lines between hospital and clinic are
often not clear.

We also urge you not to establish graduate medical education funding on a state basis
Mayo participates in a national and international education market. We recruit residents and
students from all parts of the country, and train them to meet national needs, Any attzmpt to
apportion residency training funds on a state-by-state basis will seriously disrupt this market
‘The Mayo Graduate School of Medicine (our residency training program) is one of the
largest. and we believe one of the best, training programs in the country. However. 11 is
based in Rochester. Minnesota, a city of less than 75,000 population. If residency funding
were to be distributed by state or region based on population, we would have to shut down
most of our programs. In this arena, we believe that a working market will allow the best
training programs to survive. and poorer programs will shut down for lack of trainees


98

career choices made by individual medical students. In addition, many residency positions
in primary care training programs go unfilled year after year, [1 makes little sense for a
Congress that is concerned about budget savings to increase federal funding to encourage
hospitals to establish yet more residency positions that are likely to remain unfilled,

Indeed, recent studies of the nation's physician workforce have concluded that our
problem is not so much an undersupply of certain kinds of physicians as it is an oversupply
of physicians in general, as well as a poor geographic distribution of physicians. (A paper
is attached that more fully outlines some of the issues associated with policies directed at
increasing the supply of primary care physicians.) It is the College's view that Congress
should focus its attention on policies that are directly aimed at controlling the size and
specialty mix of our nation's physician workforce, rather than on indirect efforts to achieve
these goals through program financing mechanisms. Such policies also hold promise for
reducing total Medicare spending for direct graduate medical education costs.

The College agrees with proposals that have been made that would limit the total
number of physicians being trained, perhaps to 110 percent of U.S. medical school
graduates. We also agree that broad goals should be set regarding the number of
generalists and specialists to be trained. We do believe strongly, however, that quality
should be the major factor in determining which residency training programs will be funded
and how actual residency slots will be allocated among each specialty.

In the surgical specialties, the number of individuals being trained has been
restrained by such quality considerations for many years, No surgical training program can
add new residency positions unless patient mix and volume assure that specific training
criteria are met. ‘This limits both the number and the size of surgical training programs.
Inaddition, smaller training programs with relatively few residents are held to the same high
standards as larger programs.

In fact, the number of physicians trained in the surgical specialties has remained
relatively constant for more than a decade. In the 1982-83 academic year, there were 21,133
residents across all the surgical specialties; in 1992-93, the most recent year for which
complete data are available, there were 20,976. In general surgery, the number has actually
decreased steadily, from 8,683 in 1982-83, to 7,788 in 1992-93. Further, it is worth noting
that the total number of surgeons being trained each year in some specialties is actually
quite small (e.g,, 53 in colon and rectal surgery, 39 in pediatric surgery, and 89 in vascular
surgery in 1992-93),

Of course, there is a regulatory overtone to the idea of federal physician workforce
controls that may not appeal to some policymakers. However, while there is growing
sentiment in the medical community that the number of residents should be constrained in
some way, there is also a general belief that antitrust laws preclude physicians from
establishing and imposing any limits on their own initiative, ‘The residency review
committees for the various specialties and the Accreditation Council on Graduate Medical
Education believe that they do not have the authority or the antitrust immunity needed to
impose such limits. A federal mandate to do so would address some of these concerns.

It is worth noting that Congress has often established commissions and supported
studies of our nation’s physician workforce, but it has never given these entities the authority
to implement any workforce policies based on their findings.

Of course, while physician workforce controls are a possible solution to problems
involving overall physician supply and specialty mix, they do not address the persistent
geographic maldistribution of physicians. As you know, federal efforts to address this
problem have met with limited success. However, it now appears that market pressures may
indeed hold some promise for alleviating, if not completely correcting, this situation. Many
medical and surgical specialists located in areas where managed care has become a
dominant market force, such as southern California, are finding that there simply are not
enough patients available for them to maintain their practices. As a result, we are hearing


140

The American Podiatric Medical Association believes that all
third-party payers, including Medicare, should proportionally share
the cost of supervision and related educational costs. This is abso-
lutely essential to help ensure high-quality patient care and to pre-
serve high-quality postdoctoral training.

Thank you.

[The prepared statement follows:]


91

share of the direct costs of GME. We recognize that an all-payor system for financing GME
was a controversial issue argued in the context of comprehensive health system reform last
year. But it is equally clear that private payors are not paying theit fair share to support a
system from which they continue to profit.

It may be virtually impossible to develop mechanisms ensuring that all payors contribute to
GME as long as individual teaching hospitals are free to negotiate payments for patient care
services with individual payors without any restrictions. As a means of maintaining "market
share,” teaching hospital executives have demonstrated a willingness to provide discounts to
certain payors, with the consequence of diminishing -- sometimes quite significantly -- the
institutions’ operating margins. Given past experience, it is difficult to believe that teaching
hospital executives would be willing to voluntarily negotiate separate GME payments or
allow a portion of their negotiated payment to be designated for GME in order to comply
with this principle, Accordingly, we believe that a new approach to financing GME is
needed.

Medicare could make its participation in GME financing in individual hospitals contingent
upon the participation of all payors whose beneficiaries are hospitalized in teaching hospitals.
This approach would place on teaching hospital executives the responsibility for obtaining
from various payors their agreement to participate in GME financing as a condition of having
their beneficiaries use the services of the institution. Since the Medicare methodology would
be used to calculate each payor's fair share of the institutions’ GME costs, there would be 10
requirement for profonged negotiations on the terms of the payment.

Principle #2

Before reaching the conclusion that the financing of GME should continue to be Jinked to the
financing of patient care services, the AMA considered the proposals advanced in recent
years that alternative sources of funds should be identified to cover GME costs. The interest
in identifying alternative sources of GME funding can be traced directly to concerns about
the continued use of Medicare Part A Trust Funds to pay medical education costs. The most
frequently mentioned alternative sources of funds that might be available to finance GME
include general tax revenues, medical schoo! budgets, and faculty practice plans. The AMA
believes strongly that GME costs should continue to be paid from revenues intended to cover
the costs of patient care services,

This recommendation is based on the fact that surveys of resident physician activities have
shown that resident physicians spend approximately 75% of their time involved in direct
patient care activities. Resident physicians undoubtedly provide some services that would
otherwise be provided by the patients’ attending physicians. In these cases, the resident
physician is acting as a surrogate for the supervising attending physician who bills for these
services. The attending physician, in return, supervises the resident physician's education.
This quid pro quo arrangement is perfectly appropriate as tong as the attending physician is
not also compensated by the hospital for supervising the resident physician's education (see
Principle #4). However, resident physicians also conduct patient care activities that
supplement those that would normally be provided by attending physicians. It is appropriate
to pay for the services of resident physicians.

Some commentators have suggested that resident physician salaries should be eliminated and
that resident physicians, because of the educational nature of their training, should pay tuition


i

providers, including advanced practice nurses, physician assistants, and community
health workers.

5) Hospitals should be encouraged to develop alternate providers, advanced practice
nurses, physician assistants, and health workers to provide service in urban
municipat hospitals, rather than depend on GME to provide services.

‘There is increasing evidence that we are educating and training far 100 many
physicians for our country’s needs. Professor Weiner at Johns Hopkins has estimated
that we will have an excess of 163,000 physicians in the period between the year 2000
and the year 2020, the vast majority of whom will be subspecialists (151,000). Evidence
for the surplus of physicians is already apparent in the number of subspecialists who are
currently being Jaid off by managed care organizations or who are being told that they
must be retrained as primary care providers. In some cases, no such retraining is
offered, but the effectiveness of training to turn a subspecialist into a primary care
provider remains in doubt. As the efficiencies of managed care are felt, requirements for
subspecialists are diminishing rapidly. tn this sense, market forces are at work and, in
many respects, these market forces are constructive. For example, the beginning salary
for generalists is rising steeply as organizations bid for their services. In southern
California, the starting salary for a general internist has risen by 35 percent to 40 percent.
Similar kinds of changes have taken place around the country.

Market forces do seem to be having a significant effect upon the choices of
medical students as they think about the kinds of training and careers to which they
aspire. This is reflected in the increase in the number of graduating medical students
who, according to the Association of American Medical Colleges, have indicated their
interest generalist careers. From 14 percent of graduating students indicating a generalist
imerest three years ago, the number has increased to 23 percent and is likely to continue
to rise as these students understand the job opportunities and income possibilities.

However, market forces alone will not solve the problem of the increasing
physician surplus, and the current organizational structure of the IME and DME
programs have much to do with this problem. First, the current law provides that
institution may add additional residents to accredited programs largely at their own
initiative. Under these circumstances, the amount of both DME and GME monies,
which they receive, is increased. The effect is that public monies are used to subsidize
salary and support of residents, who then provide services to patients in these institutions.
Given the health care needs in large urban centers, hospitals have been rapidly adding
residents. In 1988-89, there were 84,273 total number of physicians in graduate medical
education in the United States. By 1993-94, the number had risen to 104,59, an
increase of 20,000 physicians with an average increase of 3.9 percent per year. Since the
average physician practices for 35 years to 40 years, the effect of this is to add 140,000 to
160,000 physician years of service to the nation’s health care system, which are costs to
be borne hy the overall health care system. Even though individual compensation
salaries or reimbursements may decline in response to market forces, the addition of a
large number of individuals, who will be in surplus as a consequence of a cost
reimbursement approach through the GME. support, is illogical. Although the number of
graduates of American medical schools has been relatively constant over the last decade,
the number of foreign medical graduates in graduate medical education has increased
from 7,227 in 1988 to 18,593 in 1994. This is an increase of approximately 11,300
physicians, accounting for approximately half of the increase in total graduate medical
education positions. Which leads to the second important point. Although market forces
will decrease reimbursement, so long as there are unlimited numbers of positions
available, international medical graduates still will find opportunities and incomes in the
United States attractive enough so that they will continue to fill this rising number of
positions.

While increasing the supply of physicians has praduced some marginal
redistribution of physicians to smaller communities, in fact, the need for physicians in


97

STATEMENT
of the
AMERICAN COLLEGE OF SURGEONS

to the

SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

presented by

Seymour I. Schwartz, MD, FACS
Chairman, Board of Regents

RE: Graduate Medical Education

March 23, 1995

Mr. Chairman and members of the Subcommittee, I am Seymour I. Schwartz, MD,
FACS, Chairman of the Board of Regents of the American College of Surgeons, and
Professor and Chairman of the Department of Surgery at the University of Rochester
Medical Center in Rochester, NY. I am pleased to appear here today on behalf of the
College to provide our views on Medicare funding for graduate medical education. In
particular, 1 intend to focus my remarks on the issues of Medicare payment for direct
medical education costs and on physician workforce requirements and controls.

First of all, I want to stress that federal financial support for graduate medical
education must continue if our nation is to maintain its world preeminence in producing well
trained and highly qualified physicians, Further, the College strongly believes that all
federal and private health care financing programs should fully support this system. We are
very concerned, for example, about reports that Medicare HMOs may ot be passing on to
teaching institutions the federal funds they receive to support graduate medical education.

We are aware, of course, of the budgetary pressures that Congress has faced in recent
years and the reasons why entitlement programs like Medicare make attractive targets for
spending reductions. However, you should be aware that, because of reductions already
implemented in Medicare payments to hospitals and physicians, compounded by continuing
payment decreases by private third-party payers and the increasing trend toward managed
care, teaching programs are becoming even more dependent on Medicare financial support
and are less able to compensate for any funding shortfalls through payments they receive
for services provided to non-Medicare patients. This a particular problem for those
specialties with longer training periods, such as the surgical specialties, which already receive
reduced financial support from Medicare beyond the first five years of training.

Proposals have been made that would further limit Medicare direct graduate medical
education support to just the first three or four years of residency training. The College
‘opposes such proposals. Generalist physicians can not meet all of our nation’s health care
needs. Those specialties with the longest training periods ~ such as neurosurgery, which
typically includes seven years of residency training -- are just as critical to the health care
needs of our nation as those with the shortest residency training. Furthermore, the quality
of programs that train our nation's medical and surgical specialists is as important as the
quality of those that train our primary care physicians; both types of programs should be
funded for their full residency periods.

In an effort to increase the supply of primary care physicians, proposals have also
been made that would use money saved by limiting Medicare support for specialties with
longer training programs to increase the amount provided to primary care residency
programs. As we have noted in past testimony, the College has long doubted that paying
hospitals more to establish primary care residency positions will do anything to influence the


5.

ici

102

International Comparisons. The average American must, by now, believe that the
primary care physician-to-population ratios in the United States are considerably
below those in other countries frequently held up as having model health care
systems. However, as emphasized in a study by U.S. and British researchers
published in the New England Journal of Medicine, the ratio of primary care
physicians to the general population is the same in the United States and the United
Kingdom. A more recent study notes that “the percentage of physicians in the
United States who practice one of the primary care disciplines is 36 percent to 38,
percent, values quite similar to those in Europe."®

Trends in Surgical Residency Positions, The tone and temper of recent discussions
about physician residency programs might prompt some policymakers to conclude
that the number of surgical residencies must be rising dramatically. ‘The fact is the
number of surgical residents has been quite stable for many years. For example, in
the 1982/83 academic year, there were 21,133 surgical residents while, by 1992/93,
the number had actually fallen to 20,976.

Non-Primary Care Shortages. Some policymakers nay have been led to believe that
the only physician "supply" problems are in the primary care arena. However, the
advisory body charged with reviewing physician supply and demand issues, the
Council on Graduate Medical Education, has specifically concluded otherwise. For
example, the Council has noted that shortages exist in general surgery and warned
that "falging of the U.S. population will increase demand for surgical services, and
the number of physicians in general surgery is inadequate to meet a growing need
for trauma services and for surgical care in rural areas."

Medicare Support for Surgical Residency Programs, The American College of
Surgeons supports the concept of limiting the number of physician residency positions
and setting broad goals regarding the number of generalists to be trained. However,
the College insists that any mechanism for addressing physician supply issues must
explicitly include a policy of adequate funding for all residency positions through the
entire course of the training period. As it stands now, Medicare generally pays less
than its share of the costs of training surgical residents, primarily because the
program limits funding to a maximum of five years, which is shorter than the amount
of time required to train most surgeons.

“Richard A. Cooper, Seeking a Balanced Physician Workforce for the 21st Century,"

ris ation, September 7, 1994, pp. 680-687.
Council on Graduate Medic Education, Improving Access to Health Care Through
W. q , October 1992, p. 22.


118

pected, you might need additional reimbursement. There is still a
lot of question about whether it is fair to have the outlier kick in
at day 90 or day 80, but the outlier controversy is real.

DRGs? You can hardly believe what my constituents think about
DRGs when they get it. When they come into my office with a Med-
icare bill that shows that their costs—and I am making up the fig-
ures—were $1,000, and the hospital got paid $2,500, and they have
to pay 20 percent of the $2,500 or fix the numbers so that the 20
percent comes out bigger than the actual payment, this does not
strike them as rational, as fair, or as real.

So while the DRG system was a sort of desperate response to
desperate circumstances on the part of the government, and the
concept of reimbursing on average did help us through a crisis, this
is not a model that interests me for the future.

I think for the future we have to get much tougher in the public
sector. We have to figure out what care is being given and how it
is being given, or we have to move public recipients of every type
into the choices the private sector offers. If we do the latter, then
we have to think about how do we cover those who do not have any
insurance? How do we pay for medical education?

But it is that latter debate that really interests me a lot more.
The current reimbursement structure I consider to be of the same
ilk of public policymaking that decided that under Superfund we
were going to charge people to clean up things that they did that
were completely legal at the time they did them, regardless of
whether or not they have the money to clean it up now or regard-
less of whether or not we are going to take all their pension sav-
ings, their home, their mortgage, their everything else.

I mean, I do not see the public reimbursement fund structure as
any model on which to base the future. So it troubles me that you
would make the comment that the private sector is offbase and the
public sector is onbase, when I think the reverse is actually my re-
ality.

Mr. Munson. OK. You have said a lot, and you have left a lot
to respond to.

I did not mean to suggest that the Medicare reimbursement sys-
tem is perfect or that all the regulations and formulae are perfect.

On the contrary, what I did mean to imply is that the various
elements of reimbursement contemplate important societal con-
tributions that teaching hospitals make—education, care for the se-
verely ill and injured, and then the disproportionate share program
for poor people.

Mrs. JOHNSON OF CONNECTICUT. Right.

Mr. Munson. So all I was saying is that the program, in its en-
tirety, contemplates some things that are very important to society
and to teaching hospitals.

I do not believe that the commercial managed care HMO prod-
ucts, albeit, yes, they do pay taxes, but that does not help offset
their portion of direct medical education which occurs in our places.

During my remarks, I mentioned the paradox of these same com-
panies who want to hire one of our products, namely primary care
doctors. We produce a lot of those. They want to buy them, but
they do not want to pay the cost of production. Medicare histori-


65

Chairman THomas. Thank you, sir.

Dr. Altman, would you comment on the fact that he wants to
take the dollars out of the hospitals?

I have been told that some the hospitals around the country,
teaching hospitals, depend on this money, have come to depend on
it—I do not know if that is right or wrong—and could absolutely
fall flat, totally go out of business, if this funding mechanism were
not kept in place. And I am not saying that it ought to be Medicare
necessarily.

Maybe you can suggest some way that government can, you
know, disengage itself, maybe redirect the dollars without it being
Medicare dollars.

Mr. ALTMAN. Well, first, as I understand his testimony, he is fo-
cusing only on the amount of money that is being used for nursing.

Mr. JOHNSON. Nursing. I understand that, but I—

Mr. ALTMAN. And it is only what? I do not know—about $200
million. I mean, I do not want to sneeze at $200 million personally,
but we are talking about a hospital industry that is consuming,
what, upward of $100 billion.

I do not think, in and of itself, that is a lot of money. And I am
not in a position to argue whether the hospitals should not play an
appropriate role. My sense is that they do play an appropriate role
in the training of some types of nurses. But I support his testimony
that nursing, like other parts of medicine, is changing and shifting
out of the hospital.

So I think it is deserving of a review. I am not so sure that the
hospitals should not get a share of it, but whether they should get
all of it or not, he may have a very good point.

Mr. JOHNSON. Thank you. I appreciate that.

Mr. Cardin, do you wish to inquire?

Mr. CarDIN. Thank you Mr. Chairman.

Dr. Altman, if I could get you to respond on one part of how the
indirect medical costs are handled? As I understand it, Medicare
figures in the IMC on a risk contract to a managed care program,
even though the health care plan may very well not be using aca-
demic centers.

Can we make some adjustments in that philosophy—more quick-
ly than perhaps some of the other issues—to try to make it sen-
sitive to whether, in fact, the managed care programs, are using
the academic centers?

Mr. ALTMAN. Well, there is no question that the AAPCC includes
all of the payments that go in the Medicare program to the average
patient in a fee-for-service environment. So it includes this indirect
medical adjustment.

You could make that adjustment. My own personal view is that
while you are taking this project on, that is such a small piece of
the total, I personally would do it differently.

First of all, you have got to be fair to the system. To the extent
that the indirect medical expense (IME) is being paid for—cur-
rently it is being paid for by lowering the payments to the other
hospitals. The total is the same. The way the calculation is made
is that when they calculated the amount of the IME, they took it
out of the base, and therefore they lowered the average amount of
the average payment to hospitals. So in a strictly technical sense,


71

Now I would assume that Messrs. Munson, Jacott, Schwartz, and
Anderson will come to the table.

Thank you very much, gentlemen, for being with us. I am sorry
I am the only one here. There will be others appearing in and out.
You know, this is a rather peripatetic place.

But Mr. Munson is the executive director of the University of
North Carolina Hospitals and speaking on behalf of the Association
of American Medical Colleges.

Maybe you would begin.

STATEMENT OF ERIC B. MUNSON, EXECUTIVE DIRECTOR, UNI-
VERSITY OF NORTH CAROLINA HOSPITALS, APPEARING ON
BEHALF OF THE ASSOCIATION OF AMERICAN MEDICAL COL-
LEGES

Mr. Munson. Thank you, Mr. Chairman.

As you said, my name is Eric Munson. I am the chief executive
officer of UNC Hospitals in Chapel Hill where I am trying to run
a hospital that the basketball team can be proud of. [Laughter.]

I am also representing today the Association of Medical Colleges,
and I appreciate the opportunity to testify on potential changes in
the Medicare program and their effect on our Nation’s important
teaching hospitals.

Specifically I will comment on two Medicare payments to teach-
ing hospitals, the indirect medical education and the direct grad-
uate medical education payments.

Second, I want to call your attention to an issue of urgent and
increasing concern to teaching hospitals, specifically the Medicare
average adjusted per capita cost calculation.

Academic medicine and teaching hospitals are in a period of ex-
traordinary and tumultuous change. My colleagues and I have en-
thusiastically engaged in this revolution in health care delivery.
Further, we are part of a national movement to getting costs under
control, improving the quality of care, and maintaining an ever-
expanding access to care to ali Americans.

written statement includes just a few examples of the strate-
gic initiatives some of us have undertaken to meet these national
challenges.

The teaching hospitals are complex institutions. We have addi-
tional responsibilities in society that make it harder for us to com-
pete in an environment where price is the only driving force.
Teachin; hospitals certainly provide patient care, but our care is
frequently delivered to the most seriously ill, often using more so-
phisticated technology, and to the most disadvantaged persons in
our society.

Everyone of us has an anecdotal experience of an immediate or
extended family member who has benefited from having been re-
ferred to one of our country’s many great academic medical centers.
Your story may involve cancer or organ transplantation or hemo-
philia or cystic fibrosis or a complicated behavioral problem. We all
have our stories, and we must remember these stories when we
think about tinkering with the public program which has enabled
most of these stories to have happy endings.

Teaching hospitals are also on the cutting edge of research and
technology. We provide the environment for the conduct of clinical,


16

TESTIMONY OF JOHN M. LUDDEN, M.
HARVARD COMMUNITY HEALTH PLAN

Introduction

Mr. Chairman and members of the Committee, I am John Ludden, MD, Senior Vice
President for Medical Affairs of the Harvard Community Health Plan (HCHP), HCHP is a
partner in the oldest and largest health maintenance organization (HMO) in New England. Our
recent merger with Pilgrim Health Care creates a healthcare organization providing care and
coverage to nearly one million members through 16,000 physicians and 110 hospitals in
Massachusetts, Rhode Island. New Hampshire, Maine, and Vermont. These include some of the
nation’s preeminent teaching hospitals, including Brigham and Women’s (Harvard), Mary
Hitchcock (Dartmouth) and Rhode Island Hospital (Brown).

1 am pleased to have the opportunity to testify today, and would like to:

© review background on current issues in health professions education from the
HMO perspective:

© describe the HCHP experience as one model for a "teaching HMO;" and

© provide recommendations for future action

Issues

Education is a classic example ofa "public good". Graduate medical education is
necessary if our society is be assured that future generations of physicians will be available and
skilled at providing care for us. our children, and our children’s children.

But, as this committee knows. that education now takes place in a rapidly changing
health care marketplace. That marketplace calls for changes in our current graduate medical
education financing models, the supply and skills of physicians and other practitioners that we
educate, and our educational approaches.

Financing: Graduate medical education has traditionally been financed partly through
cross-subsidies from service dollars received by teaching institutions and physicians. Medicare
has been the principal federal source of such financing for graduate medical education, with
funds flowing (o and through teaching hospitals in the form of indirect medical education (IME)
and direct medical education (DME) payments.

This committee is well aware that increased competition and the rapid evolution of
managed care arc a significant. market-based success story in health care. HMOs like the HCHP
are proud of our role in that change, But we must also recognize that our success in developing
market-based competition for financing and delivering health care services has some
consequences that have to be addressed, And one of them is that our current service-based
mechanism for financing graduate medical education cannot survive. It is increasingly difficult
for teaching institutions and physicians to pass along the extra costs of education to payors as
part of their service delivery. And HMOs that presently try, on a voluntary basis, to support and
finance GME face the same problem -- a competitive market that limits premium increases which
are the source of financing,

ssionaj supply and skills needed: The changes in the health care marketplace also
call for changes in the supply and skills of health professionals.

First, I would reinforee what you have undoubtedly heard from others. We need more
generalist physicians -- and non physician practitioners -- who care for patients on a tong-term
basis with a focus on prevention and health promotion


160

in medica] utilization in these patients during follow-up (Belar, 1993).

Untreated alcoholism and substance abuse illustrate the consequences of failing to provide mental
health services. Cummings found that individuals suffering from alcoholism and substance abuse
‘who sought medical services rather than mental health services resulted in a rapid escalation of
medical utilization with costs skyrocketing by 91% (1990). In another study, Luckey found that
1/2 the cost of treating individuals with alcoholism is offset in one year by reductions in medical
costs (1987). SAMHSA has reported that the economic and social costs of untreated addictive
‘and mental disorders were $314 billion in 1990 -- more than cancer, respiratory disease, or heart
disease (Greenberg, 1993),

Wik respect to surgical patients, an analysis of 191 studies revealed that brief presurgical
psychor gical intervention has been consistently associated with fewer postsurgical complications,
Jess medication usage and an average of 1.5 fewer hospital days (Devine, 1992), Sturm and
Wells have found that the reduction of one functional limitation (e-g.. depression) is associated
with an increase of $2,000 to $3,000 in annual earned family income. "From a public finance
perspective, the increase in employment and earnings is associated with better care is likely to
increase tax revenue and lower unemployment and welfare payments.” (Sturm, 1995)

Psychological interventions developed for health care problems tend to be short-term and focused
in nature, involving techniques as diverse as family therapy, cognitive behavioral therapy,
relaxation training, and other psychophysiological techniques such as biofeedback. Numerous
follow-up studies have demonstrated not only significant improvement in symptoms and quality
of life, but also reductions in subsequent hospitalizations, medical office visits, medication usage
and visits to the emergency room. Studies have shown that patients of physicians who received
such psychological interventions reported significantly increased physical functioning, an
improvement that remained stable during the year after the intervention. Such interventions
reduced annual medical care charges by $289 in 1990 constant dollars, which equates to a 32.9%
reduction in the annual median cost of their medical care (Smith, 1995),

Finally, researchers have noted that a large percentage of subjects with depressive disorders and
panic disorders reported a disability day owing to emotional reasons (44% each). The mean days
missed from work for an emotional reason ranged from 3.2 to 9.4 days, and the mean for
depression was greater than that attributed to all conditions except cancer and cardiovascular
problems (Kouzis, 1994), In addition, the absenteeism rate was from 10 to 33% for high risk
employees compared without risks costing a total of $70.8 million annually in illness costs
(Wiggins, 1995),

‘The Value of Including Psychologists in Medicare GME

The public, managed care organizations, and the government are calling for tight, cost-effective,
widely available, integrated health care teams to provide human and comprehensive services (0
our citizens. Psychologists play a major role in training (over 3000 currently on faculties of
medical schools and residencies), research (a massive health psychology literature used every day
in the primary care field), and direct service (Linton 1995).

It is widely known that the available pool of trainees in psychiatry is diminishing. At the same
time, the number of students completing graduate training in professional psychology remains
stable. Indeed, within the Association of Amencan Medical Colleges, the premier organization
1m medical education, there ure a large number of psychologist members in the Association for
the Behavioral Sciences in Medical Education, along with physician members who come from
specialties such as pediatrics and internal medicine. Yet, there is very little federal support for
psychology education and training (Linton, 1995).

Due to the extensiveness of scientifi preparation and clinical supervision necessary for
independent research and practice, an average of 7.5 years beyond the bachelor's degree is
required to obtain a Ph.D. in psychology. During this time, however, students contribute to the
ever-growing body of knowledge, and provide direct services to patients and their families.
Clearly, financial support plays a major role in attracting individuals to a particular discipline,
Indeed, it is critical in attracting minorities and the financially disadvantaged (Belar, 1994).

Psychologists frequently serve as the behavioral scientist member of multidisciplinary research
teams and are often the principal investigators in these projects. In addition, psychologists work
with physicians and other health care providers on multidisciplinary teams in training hospitals
and Academic Health Centers and in Health Maintenance Organizations. Federal support for


99

that quite a few of these specialists are relocating to smaller communities, often in more
rural states, Many of them have also assumed the role of primary care physicians.

Mr. Chairman, thank you again for the opportunity to express our views on these
issues. I would be pleased to answer any questions you may have.


21

number of those, even though they started in internal medicine,
will end up as subspecialists, and it is more likely that you will be
looking at something in the range of 30 to 35 percent of those peo-
ple ultimately remaining in a generalist or a primary care environ-
ment.

Mrs. JOHNSON OF CONNECTICUT. Is that higher than 5 years ago?

Dr. SHINE. Yes. And that is the reason that I made the point that
I think the trends in terms of the distribution are in the right di-
rection.

The dilemma, from my perspective, is that the absolute number
continues to rise so rapidly that even though you increase the pro-
portion who become generalists, the absolute number of subspecial-
ists just continues to skyrocket.

Mrs. JOHNSON OF CONNECTICUT. Well, we looked at this issue in
the last Congress. One of the suggestions was for the government
to determine how many in each area should be trained.

1 am very uncomfortable with that, and I am interested in how
rapidly you sense the market is redirecting our resources.

I am far more comfortable with the limit on the total number.
And I think that is interesting in the context of Dr. Heyssel’s com-
ment that we should not reimburse for foreign medical education.

Do we subsidize foreign medical students in our system to the
same degree that we subsidize citizen education in our system?

Dr. SHINE. We do not subsidize at a Federal level the medical
students. It is the fact that foreign medical graduates, inter-
national medical graduates, who enter our teaching hospitals, in
fact, get treated the same way as Americans.

I would emphasize that I agree with you about micromanaging
the work force. One of the reasons why I am enthusiastic about an
absolute cap is it still leaves within the various organizations the
flexibility to decide how they are going to do the distribution. It lets
market forces work, but it stops the notion that we are going to
have a lot of very good, talented young people who spend long peri-
ods of time in training who are not going to have work. People
whose training is being heavily subsidized, as your comments sug-
pest, by the States, by the medical schools, by the universities and

y the Federal Government.

That is not a good investment of our resources if, in fact, they
are going to be largely underused subspecialists.

Dr. HEYSSEL. I would comment, I think in that regard that one
of the reasons it is important to limit the length of time that you
are going to support to first accreditation is that right now the pen-
alty for spending 8, 9 years or going onto a subspecialty career in
internal medicine is just not there.

There is obviously a lost opportunity cost, but it is relatively
small, and it is fairly easy to go on and get the training as a sub-
specialist.

Mrs. JOHNSON OF CONNECTICUT. We now subsidize medical edu-
cation through Medicare. Should the subsidy situation be different
for foreign students being trained in our system than for citizens
being trained in our system?

Dr. SHINE, That is going to be hard to do.


50

inefficiencies in providing services and difficulties obtaining the revenue from private
payers to support the extra costs of maintaining teaching programs. For smaller
teaching hospitals the picture is difterent, with their total margins similar to non-
teaching hospitals at 4.6 percent.

Although teaching hospital costs are higher than those of non-teaching hospitals,
their costs per discharge have not increased faster than those of other hospitals over
the past decade (Chart 9). As we have previously reported to you, the annual
increase in hospital costs has slowed dramatically recently. Teaching hospitals have
responded to the increasing cost pressures by slowing cost growth to the same extent
as non-teaching hospitals.

It is important to point out, Mr. Chairman, that these aggregate PPS and total
margins obscure significant variations among teaching hospitals. Even though the
aggregate PPS margin was 11,7 percent in 1993, about 18 percent of major teaching
hospitals had negative PPS margins (Chart 10). This figure, however, is much less
than the 57 percent of non-teaching hospitals with negative PPS margins. Slightly
less than 25 percent of both major teaching and non-teaching hospitals had negative
total margins,

Next Steps

‘As | have described, in 1994 the Medicare program provided $5.2 billion in direct
and indirect graduate medica! education payments plus $2.3 billion in disproportionate
share payments to teaching hospitals. These extra payments have helped many
major teaching hospitais to avoid severe financial stress and to continue to provide
access to care tor Medicare enrollees, while maintaining their teaching mission
Accelerating price competition in the private sector is reducing the ability of teaching
hospitais to obtain the higher patient care rates from other payers that traditionally
have contributed ta financing the costs of medical education. in addition, as
Medicare's risk contracting program grows, teaching hospitals may not be benefitting
as intended from the medical education payments included in the capitated payment.

The growin of managed care in the public and private sectors and the increased
competition among insurers and providers will make your task of determining
appropriate Medicare policies for teaching hospitals more difficult. While | believe that
the reductions in the level of the IME adjustment that ProPAC has recommended are
appropriate, it is likely that many of the institutions affected will have serious problems
adjusting to them. But ! have additional concems that some policy makers are
suggesting even larger reductions or reductions that take effect more quickly. The
‘Commission believes such changes could have very serious consequences for this
nation’s teaching hospitals.

It appears to me that Medicare increasingly is carrying a disproportionate share of
the financial responsibility for training tomorrow's physicians, nurses, and other health
personnel. Some of these costs should be shared with private insurers or financed in
a totally different manner

The challenge, therefore, is to find a way for government and private payers to
share the responsibility for supporting medical education. One approach that | believe
has merit was outlined in Dole/Packwood and other proposed health care reform
legislation last year. This approach would create consortia of hospitals, medical
schools, and perhaps other community groups such as payers and purchasers
involved in graduate medical education. The consortium would receive medical
education payments from Medicare and from participating private insurers and
distribute them as appropriate. It also may be desirable to include IME as well as
GME payments to the consortia, plus the substantial Medicare Part B payments that
teaching physicians receive for directly supervising intern and residents. The consortia
could provide the incentives to train more primary care and less specially physicians.


95

Mr. CHRISTENSEN. Dr. Schwartz.

STATEMENT OF SEYMOUR I. SCHWARTZ, M.D., FACS, CHAIR-
MAN, BOARD OF REGENTS, AMERICAN COLLEGE OF SUR-
GEONS

Dr. Scuwartz. Thank you, Mr, Christensen.

I am Dr. Seymour Schwartz. I am professor and chair of the de-
partment of surgery at the University of Rochester Medical Center
in Rochester, N.Y. I am appearing today as chairman of the board
of regents of the American College of Surgeons with its constitu-
ency of over 60,000 surgeons.

In that regard, we are pleased to have the opportunity to offer
this testimony, and we will focus our remarks on the issues of Med-
icare payments for direct medical education costs, but also on phy-
sician work force requirements and controls.

It is our feeling, strongly so, that the Federal financial support
for graduate medical education must continue if our Nation is to
maintain its preeminence in producing well-trained, highly quali-
fied physicians.

The College strongly believes that all Federal, and as was stated
before, all private health care financing programs should partici-
pate in the support of this system.

Reductions in Medicare payments to hospitals and physicians
have already been implemented. This has been compounded by con-
tinuing payment decreases by private third-party payers and an in-
creasing trend to managed care.

As a consequence, teaching programs have become increasingly
dependent on Medicare support, because they are less able to com-
pensate for any funding shortfalls through payments they receive
for services provided to non-Medicare patients.

This is more of a problem for specialties with longer training pro-

‘ams, such as the surgical specialties, which already receive re-

luced financial support beyond the first 5 years of training.

Proposals have been made to limit Medicare direct graduate
medica) education support to the first 3 years of residency. I was
pleased to hear from Dr. Heyssel that he modified this proposal
with respect to the 5-year surgical program.

The College opposes these proposals. It is felt that the specialties
with the longest training Programs are just as critical to the health
care needs of our Nation as those with a shorter program. Also, the
quality of programs that train our medical and surgical specialists
are as important as the quality of those that train our primary care
physicians.

Recent studies have concluded that the physician work force
problem is not so much that of undersupply of certain types of phy-
sicians as it is of an oversupply of physicians in general. We agree
to that, and would also point out that the larger problem is a poor
Beographic distribution of all categories of physicians.

The College believes that Congress should focus its attention on
policies directly aimed at controlling the size and specialty mix of
our Nation’s physician work force, rather than on indirect efforts
to achieve these goals through mechanisms of program financing.
We also feel that such policies hold the promise of reducing total
Medicare spending for direct graduate medical education.


33

from now, I think is an absolute unknown, because clearly patient
care is shifting out of the hospital. It is shifting to simpler sites.
And there will be consolidations; they are occurring in many parts
of the country now.

So I agree with the point; I do not think in a dynamic situation
you can predict absolutely.

Mr. JOHNSON. Thank you very much. I appreciate your straight-
forwardness.

Thank you, Mr. Chairman.

Chairman THOMAS. Questions? Let me try to pull this together.
Ihave a series of questions to ask.

Dr. Shine, I am really at this point not worried about unintended
consequences. My problem is that looking at the current picture,
one, in terms of the profile of medical graduate training and where
they are and who they are and how it is financed, that we have
got a big enough problem with all of the knowledge that we have
without worrying about the unintended consequences.

For example, the gentlewoman from Connecticut was concerned
about the foreign medical graduates, and you correctly indicated
that a number of them are Americans who got their medical train-
ing overseas.

We also have the foreign-born medical graduates. And if we
begin to deal with that in terms of a limitation, you pretty well can
write New York City off the map, since about 30 percent of the
graduate medical students in New York fit the profile of either for-
eign medical graduate or foreign-born medical graduate.

in addition to that, I agree totally with my colleagues who have
said that it does not make a whole lot of sense to fund graduate
medical education solely out of Medicare, especially when you rely
so heavily on the hospital portion, which is a diminishing institu-
tion, relatively still significant but relative to the other changes.

So when we are sitting here trying to figure out a way in which
we accomplish a clearly desirable societal role—that is, the training
of medical students—how do we create or recreate a funding struc-
ture that does not put government, as the gentleman from Louisi-
ana said, in the role of determining who gets it, and where they
get it. You know, it is almost like an industrial policy for medical
education.

lam t ing to figure out a way to deal with it.

You folks ave offered a couple of solutions, and I want to ask
the relative importance of the options as you have presented them
to guide us.

Notwithstanding our desire to come up with a completely dif-
ferent way in which we fund—let us just assume we are going to
be living with what we have got and we can tweak it a little bit—
I understand the direct medical support. I do not fully understand
the indirect medical support, except it is another way to get money
based upon the patient profiles, and I understand the caseload and
the way in which you get disproportionate share because of where

‘ou are.
¥ If we could say that Medicare—if we did not change anything
else, but we just said Medicare was only going to fund the 3 years,
and that is all that Medicare is going to fund—are we a big enough
gorilla to drive the structure so that you would then, by virtue of


168

All Payer System

The Federal Government's financing of medical education should support training that
ensures generalist physicians as the primary providers of medical services. SGIM strongly
supports the reform of funding of residency training to include contributions from al! payers. The
per resident amount must be sufficient to cover the costs of training. Funding must also cover the
costs of educating residents in all outpatient settings, not just those limited to hospital ambulatory
sites. This is necessary to improve primary care training, which should include more time in
ambulatory settings, training in managed care, and geriatric training. Funds for medical education
should be allocated directly to training programs approved for residency training positions, rather
than teaching hospitals. This will encourage the use of residency training funds for ambulatory
care.

Limit Residency Training/Payments to Residency Programs
SGIM suppor's the following approaches to encourage primary care residencies:

1, Limit the number of years covered by direct medical education and indirect medical
education payments to residency training,

Increased medical education payments should be allocated to general internal medicine and
general pediatric residency programs which develop a primary care curriculum and
establish appropriate ambulatory training sites.

3. In addition to limiting Medicare payments for residency training, the total number of first-
year residency positions should be limited by capping slots at 110% of the number of
U. S. medical school graduates.

4, Establish higher weighting for primary care per-resident amounts.

5. Graduate medical education funds saved through reductions in specialty residency support
should be made available to primary care directors to support loan forgiveness.

‘Transition Payments

Transition payments should be provided to teaching hospitals which are required to reduce
their residency training programs. The GME payment plan should ensure that institutions that
care for disproportionate numbers of disadvantaged patients are funded adequately to ensure that
the necessary replacement staff are hired. Also, we recognize that non-physician practitioners
may be required to replace residents in some inpatient services at teaching hospitals. Mechanisms
should be considered to provide temporary funding to support the introduction of some non-
physician practitioners on certain specialized services. This would provide incentives to promote
the shift to fewer specialty training positions in teaching hospitals during this time of transition.

Support for Training Primary Care Teachers

‘There is an increasing demand to train more primary care generalist physicians, however,
there are not enough teachers to train these generalists.

Current Medicare policy limits direct GME funding to the number of years required 10
become board eligible in a particular specialty, or five years, whichever is shorter. General
internal medicine, general pediatrics and family medicine each require three years of residency
training.

Graduates of the three year residency programs typically spend two years in generalist
fellowships in order to pursue careers as faculty in general internal medicine. Generalist
fellowships are structured to provide the trainee with teaching and primary care research skills.
Since the fellowships are not directed at training subspecialists and no board examination is


133

Under Medicare part B, the dental care covered is extremely
limited (essentially limited to treatment of traumatic injuries,
oral pathology, and jaw surgery). Hospital dental programs
cannot rely on'Medicare patient revenues to support the programs.
As a result, dental residency programs, which serve both the
training function and a necessary patient care function, often
provide free care because oral health services are not
reimbursed.

Dental Residency Training: An Overview

Training for dental school graduates at the postdoctoral level
(after dental school graduation) takes place at both dental
school clinics and teaching hospitals. The programs that are
relevant for discussion of Medicare DGME and IME are the eight
recognized dental specialty programs and General Dentistry
residency training programs. In 1993, the first year enrollment
for all of these programs was 2,447, representing sixty five
percent of the dental school graduates for that year. Unlike
medicine, there are not enough dental residency positions for all
dental school graduates.

‘The postdoctoral programs and their first year enrollment figures
for 1993 are as follows:

‘Type of Program* ist Yr. Enrollees | Length of Training
(2993) (years)
Dental Public Health | 17 Lor 2
Endodontics 155 2
oral Pathology 8 3
Oral Surgery 213 4
Orthodontics 266 2
Pediatric Dentistry | 173 2
Periodontics ies 3
Prosthodontics 201 3-4
General Dentistry 1,224 12

‘8 deseripelon of the various residency programs is appended.

General Dentistry training prograns provide a one to two year
clinical and scientific experience which provides residents witn
additional expertise in various dental specialties and hospital
dentistry. General Dentistry residents learn to care for the
oral health needs of those requiring specialized or complex care,
such as the handicapped, developnentally disabled individuals,
high risk medical patients, and those with infectious diseases.
As a result, graduates of these programs refer to specialists
less often, which is critically important in rural and
underserved areas. Eighty seven percent of those trained in
General Dentistry residencies remain in prinary care practice.

In 1993, there were 1,224 first year enrollees in these programs,
but demand remains high as twenty five percent of the applicants
were turned away.

Dental residency training also differs from physician training in
that approximately one half of all positions are located in
dental schools: the other half are in hospitals. Dental schoo!
clinics are not eligible for Medicare DGME funding. Of hospital
dental training sites, only non-VA, non-DOD teaching hospitals
receive DGME support. In 1993 approximately forty four percent
of all postdoctoral dental residency training positions took
place in hospitals supported by Medicare DGME and IME funding.

What does this mean in terms of federal support? One of the
recommendations of the Institute of Medicine's recent study of
dental education ("Dental Education at the Crossroads", released


WT

Second, we need physicians with an expanded set of skills. HCHP and other HMOs
have found recent graduates incompletely prepared for primary care practice. Because of this,
medical leaders who are part of the Group Health Association of America (GHAA) have defined
a set of core competencies for primary care physicians. Among the skills needed are:

Skills in the cost-effective delivery of quality health care;
Interpersonal and teamwork skills;

‘The ability to provide effective care to diverse populations;
Skills in managing care and making appropriate referrals,

ecco

Educational models and sites: Finally, the graduate medical education financing and
delivery system must adapt to this new environment and produce the physicians with the skills
necessary. The significant shift in services from inpatient to ambulatory settings leaves residents
trained in hospitals ill-equipped to function as ambulatory care practitioners. Educational models
must adapt ~- with more education provided in ambulatory settings such as those available
through HMOs ~ and the financing models must adapt to make payments available to those sites
of training,

HCHP's Commitment to GME

Since its founding in 1969, Harvard Community Health Plan has been committed to
teaching and research: the HCHP corporate mission statement notes: "Our strong service
program also supports teaching, research and community service."

HCHP has been a national leader in defining the role of HMOs in graduate medical
education, HCHP continues its commitment to these areas through its financial support for
programs designed to develop innovative methods of delivering quality care, and to training,
future physicians, Let me provide some examples: our growing participation in medical
education led to the creation of the HCHP Teaching Center and our co-sponsorship, with
Harvard Medieal School, of the Department of Ambulatory Care and Prevention (DACP), the
first medical school department in the country to be established and sited in an HMO. Its
mission: the development of educational and research programs for preventive medicine and for
the practice of medicine in the ambulatory setting.

+ HCHP and the Brigham and Women's Hospital have jointly developed a new
model of primary care training for the practice of adult primary care internal
medicine. The program is specifically designed to allow each resident to achieve
the broad competencies required for successful and satisfying primary care
practice,

+ For 20 years, HCHP has also sponsored primary care residency programs with
the Cambridge and Mt. Aubum Hospitals, and in collaboration with four other
Harvard institutions, sponsors a psychiatry residency program, which is now the
largest in the United States.

+ HCHP has been exploring the possibility of establishing a more comprehensive
training program for primary care pediatricians interested in HMO experience. in
conjunction with Children's Hospital and Boston City Hospital

+ The HCHP Foundation also funds several fellowship programs, including a
‘mental health fellowship, which focuses on applications of brief psychotherapy in
the HMO environment, and the Thomas O. Pyle Fellowship, which focuses on the
appropriateness and effectiveness of medical care

‘These activities have been supported through the HCHP Foundation. funded from
premium revenues. It was originally intended that the HCHP Foundation would receive ! 1/2
percent of premium income, with about one-third of this percentage devoted to the development


61

Prospective Payment Assessment Commission

Chart 10. PPS and Total Margins, by Hospital Group,
Tenth Year of PPS (in Percent)

Percent wi Percent wi
PPS Negative Total Negative
Hospital Grouo Margin Margin Margin Margin
Ail hospitals 03%  Ed.1% 43% 23.9%
Uroan 06 64.4 42 23.0
Rural 18 $3.8 5.0 247
Large urban 13 35 25.5
Other urcan Pr) 3.3 20.1
tural Cererra, cz 6.0 27
Sole community o€ $3 25.9
Other rural 0 42 26.5
Major teacning Ww? 178 27 23.2
Other teaching Os 48.2 46 19.9
Non-teaching 40 57.2 48 24.6
Voiuntary 01 55.1 at 22.2
Proprietary 18 47.8 64 29.0
Urban government 30 522 43 209
Rural government 4.8 55.5 44 27.5

SOURCE. ProPAC analysis of Medicare Cost Report data trom the
Health Care Financing Administration


130

graduate dental programs located in teaching hospitals currently
receive Medicare, direct GME, and IME support. This ignores the
fact that substantial training takes place outside of the hospital.
Dental residents at outpatient clinics provide a significant amount
of uncompensated care to elderly. and low-income patients, but
these programs do not receive GME funding.

We urge the committee to consider providing Federal support to
all accredited postdoctoral dental education programs, including
those providing only outpatient care.

Mr. Chairman, we want to emphasize that oral health is an inte-
gral part of total health, and oral health care is an integral part
of comprehensive primary health care. Therefore, graduate dental
programs are a vital part of meeting the Nation’s health care
needs.

However, hospital dental programs and dental school clinics have
unique financial problems which make delivering this care difficult.
Federal reimbursement for dental services is extremely limited. As
a result, hospital dental programs and dental school clinics have
become a “safety net” for patients without insurance or resources
to pay.

fortunately the increasing amount of unreimbursed dental
care provided by these training programs puts them at serious fi-
nancial risk.

A recent Institute of Medicine report recognized the valuable role
of graduate dental training and its perilous financial situation.
Medicare, DME, and IME are sources of ongoing support for these
residency programs. Any significant reduction in direct GME or
IME support will cripple the Nation’s dental training infrastruc-
ture. In fact, without Medicare GME support, many hospital-based
dental residency programs would close due to the high cost of train-
ing, unreimbursed care costs, and the lack of other funding mecha-
nisms.

In summary, we recommend: First, continuation of GME funding
for hospital-based dental education programs; second, inclusion of
dental residency programs in the direct GME inflationary updates;
and last, extending GME coverage to nonhospital graduate dental
programs.

Through such a partnership with Medicare, these programs can
continue to play their vital role in meeting the Nation’s primary
health care needs.

Thank you.

[The prepared statement follows:]


114

international medical school graduates in American residency
training programs.

Conelusions

Osteopathic medicine provides a vital component of the
nation’s health care services. As policy makers attempt to
encourage wore physicians to enter primary care fields of
practice and provide services to underserved areas of the
nation, we point with pride to our history of serving both
these needs

The osteopathic orientation towards primary care
practices supported by a cadre of well-trained specialists
and history of providing care in underserved communities are
not_the result of a statistical aberration. Rather, these
goals are fostered through a complete osteopathic educational
program. An essential component of osteopathic education is
graduate medical education. The present system of funding
educational programs has resulted in an inequitable
distribution of resources. Osteopathic hospitals are
typically smaller, community-based treatment centers. when
resources are distributed in accordance with the assumptions
present in an outdated base year and without considering
factors such as participation in consortia of educational
institutions, the osteopathic training sites are not provided
with an equitable share of the resources. Without sufficient
funding, osteopathic hospitals are not able to improve their
educational facilities and expand the number of full time
faculty. If the base line measure is replaced with a
national average system of funding and consortia are given
full consideration, then osteopathic programs will be put
onto a level playing field with allopathic graduate medical
education prograns.

We believe that growth in osteopathic physicians will
help to solve current shortages of primary care physicians
maintain an appropriate primary care-specialty distribution
and provide physicians for traditionally underserved
communities. In order to assist the country in meeting these
challenges, we would suggest that Congress and this committee
act to correct the current imbalances in funding for graduate
medical education. Specifically, we would suggest that
osteopathic graduate medical education programs receive a
separate and proportionate allocation of the funds devoted to
postdoctoral education. Funding criteria should be modified
in order to consider the participation of programs in
consortia of educational programs rather than looking purely
at hospital size. Finally, we recommend that funding
allocations be made without reference to any base year in
order to allow for funding to change with the population such
funding serves. With proper support for osteopathic graduate
medical education, osteopathic physicians will be able to
continue our history of providing high quality, primary and
specialty care medical services.

“Between the 1990-91 and 1993-94 academic years, the
total number of residents training increased by 12,737 (from
95,327 to 108,064). However, during the same period of time
the number of United States Medical Graduates training in
United States GME programs only increased by 4,996 (from
79,311 to 84,307). Thus, in four years, the percentage of
International Medical Graduates training in United States GME
programs jumped from 16.8 percent to 21.98 percent. L
Haspel, DO, Osteopathic Graduate Medical Education: Past
Present & Future (1995).


116

This is something that we have never been very good about
doing, but it is something that we are going to have to do, because
I am sure it was said by others as well, but Dr. Anderson men-
tioned it most recently. We are going to have to make change, and
we are going to have to do that through providing seniors with a
lot more options, and to provide them with options, you have to
know what the premium is.

So any help you could give us as we try to disentangle the dollars
and the missions would be appreciated.

Mr. Munson.

Mr. Munson. Thank you for the question. I am also sorry you
missed my spellbinding testimony, but that is all right.

To the contrary, I do not believe that government and Medicare
are doing just like the Brivate sector. I think you have done a very
nice job historically in differentiating the elements of cost that you
choose to pay for.

There are five of them: The PPS payment or the DRG payment
for the actual service rendered; the IME payment to hospitals like
mine, which recognizes the unique severity and comorbidity that
the patients bring to our place; the DGME payment, which is a di-
rect cost of house staff stipends and related. costs; disproportionate
share for those of us that take shares of poor folks; and then
outliers for patients, for example, those in our burn unit that stay
for 200 days with huge burns.

So on the contrary, I do not think you are doing what the private
sector is doing at all. I think you are doing a nice job of identifying,
accounting for, and then paying segmented parts of the cost of ren-
dering care to seniors.

On the contrary, as I said in my testimony, the private commer-
cial sector is trying to avoid almost all of that societal responsibil-
ity.

Mrs. JOHNSON OF CONNECTICUT. Let my chairman jump in here.

Chairman THomas [presiding]. A brief response to that.

Obviously the payment system grew up in part in response to
need and part in response to politics. And you are right; the profile
its.

A vision of a teaching hospital, perhaps Jess so today than ear-
lier, more so earlier than today—and as you are moving out into
the community and clinics and stressing—and I came in on the dis-
cussion between service and training, and my background is as an
educator as well, and you cannot let the students determine when
it is happening, because sometimes in a context that you consider
to be very educational and useful, they consider it to be drudgery.

And, in fact, we heard earlier testimony, and I believe it to be
true, that a lot of the training that is necessary is interpersonal re-
lations, dealing with folks who maybe are not necessarily doctors,
and you need to do that, and that is kind of like a work training
program, which is almost seamless. You cannot separate it.

But our problem is that I do not want to dictate how much the
percentage should be or even get the educational training process
into a 60:40, 70:30 game in terms of how we fund it.

Nor do I think that we can continue the current structure based
primarily on hospitals running money to those folks on the patient
profile through the indirect, which really is, I think, as you more


4

Chairman THomas. The subcommittee will come to order.

‘We want to welcome you to the first of a series of hearings on
graduate medical education. These hearings hopefully will lay a

ase for the development of new Medicare policies on reimburse-
ment for graduate medical education and the payment for services
in teaching hospitals.

These new policies should be consistent with the medical and fi-
nancial concerns of Medicare beneficiaries and the evolving health
care marketplace.

To meet these goals, we will be looking for new ideas and better
ways of using our Medicare resources and, in some instances, re-
peating ideas of 10 years ago that we did not listen to at that time.

The question before us today is: How do we provide incentives for
making the training of doctors and health care professionals more
relevant to the needs of Medicare beneficiaries in the emerging
health care marketplace, which is also consistent with our objec-
tives for maintaining our superior hospital system and containin,
Medicare cost growth. These challenges will obviously be a critical
part of our broader task to preserve and improve the Medicare pro-

‘am.

There is a growing consensus that the Nation needs more pri-
mary physicians and fewer specialists. We know that the mix of
primary care practitioners and medical specialists in training is not
consistent with perhaps even the current and clearly the future
needs of our health care system.

The key objective in reforming Medicare’s graduate medical edu-
cation payment methods is to develop a policy which will encourage
a better balance of generalists and specialists for our health care
work force.

Today, Medicare pays for its share of graduate medical teaching
by training at teaching hospitals, usually for training in tertiary
care academic health centers. Primary care training has generally
not been the principal mission of these academic health centers,
and these teaching hospitals may never be the best locations to
carry on such training, since many experts believe that primary
care training, to a great extent, is better accomplished outside the
hospital in medical offices or clinics.

At the same time, many of the services provided by our academic
health centers depend on residents in specialty training. These
training hospitals provide essential medical services for Medicare
beneficiaries and other Americans which cannot always be easily
replicated in other settings.

In addition, these institutions are responsible for significant ad-
vances for medical science and technology.

In many locations, academic health centers not only serve as re-
gional resources for highly specialized services, such as trauma and
cancer centers, burn units, and neonatal intensive care units, but
also provide much of the medical care needed by the people in sur-
rounding inner-city communities.

Many of the Nation’s major teaching hospitals have historically
been located in inner cities because that was where they were
originally located, and the city changed around them more because
they were built in certain neighborhoods specifically to serve the
urban poor, which means that academic health centers are often


93

tenfold difference ~- can be traced to the imprecise nature of the regulations governing the
determination of allowable GME costs. Under existing Medicare regulations, individuat
teaching hospitals have an inordinate amount of discretion in determining how costs are
allocated. Frankly, the degree of variation that exists undermines the credibility of teaching
hospitals and the medical profession on GME financing issues. In order to incorporate the
Medicare approach for financing GME into an all-payor system, the methodology used for
claiming GME costs must be refined so that all payors, including Medicare, can be assured
that they are paying only legitimate GME costs. This accountability is a fair expectation if
we are 10 expect all payors to contribute fairly to the costs of GME.

In its first report, COGME noted the results of a Congressional Budget Office survey
indicating extreme variation in claimed GME costs by teaching hospitals and recommended
that this issue be studied in more detail. Further analysis indicates that the variation in GME
costs within this group of institutions can be explained primarily by two factors: (1)
variations in faculty salary costs, and (2) allocated overhead costs. Within each of these
categories, the degree of variation cannot be explained by variation in the size and scope of
the institution's GME programs or the nature of the teaching hospital.

During recent years, discussions aimed at determining ways for controlling the total costs of
DME have generally assumed that limitations would be placed on the total number of GME
positions available in the country. Although ill-founded, these discussions have created a
certain anxiety about the availability of GME positions for all graduating students of U.S.
medical schools. Indeed, in order to avoid this situation, several professional organizations
recommended in the mid-1980s that graduates of foreign medical schools be denied access to
GME in this country as a means of controlling GME costs. It is now apparent that total
GME costs can be decreased without cutting positions--provided that steps are taken to
eliminate inappropriate differences in faculty salary costs and allocated overhead costs
claimed by some teaching hospitals.

In this context, the AMA recommends that HCFA rewrite existing regulations (o define more
precisely the faculty salary costs and general overhead costs that may be allocated to GME.
More specifically, regulations should be promulgated to limit faculty salary costs to the time
faculty are directly involved in the administration of GME programs or in the supervision of,
resident physicians under circumstances in which no separate bill is submitted for
professional services either by the physician or the hospital. Similarly, overhead costs
should be limited to those associated with direct support of GME program activities.

General overhead costs should not be allocated to GME. As noted previously, all payors
should then adopt the Medicare regulations in order to ensure consistency in determining and
auditing GME costs and to fairly distribute the shared burden.

We also recommend that annual surveys continue to document the tevel of salaries and
benefits paid to resident physicians in order to ensure that unreasonable variation in salaries
does not develop among teaching hospitals. Similarly, annual surveys should be conducted
in order 10 document the variation in faculty and overhead costs among teaching hospitals.
This should not be construed to imply that variations are not warranted; sites and needs vary
and a St. Paul hospital will not pay the same faculty salaries as will a New York City
Hospital. The results of these surveys should be made available to payors who are
contributing to the financing of GME.


38

hospital in a base year inflated by the CPI, and there is a limit on
the average payment after the fifth year of training. The formula
also includes the ratio of Medicare patient days to total hospital pa-
tient days. And in 1994, it is estimated that Medicare paid $1.6 bil-
lion in direct costs to teaching hospitals.

This is not the only Federal source of support. Federal direct
support also comes from the Veterans Administration and from the
Department of Defense in their support of the residents and in-
terns in the VA and the DOD facilities, and this is about 12 per-
cent of the total residency support in the United States.

A number of States recognize direct medical education costs in
their Medicaid payments and in their Medicaid reimbursement
methodology. States also provide additional support through appro-
priations to their university hospitals and clinics, which is a declin-
ing source of support. Appropriations to county and municipal hos-
pitals also provided support for residency programs. And finally,
title VII of the Public Health Service Act provides about $60 mil-
lion a year for special programs to support primary care education.

Private payers support graduate medical education as well. Al-
though this support is not directly identified, it is incorporated into
the cost or the charge base of the hospital. And as you have heard,
as discounting continues, this source of support will end.

The major problem is that there is no basic source of support for
education outside of the hospital, and as you heard from others this
morning, this is where the education really needs to move to sup-
port managed competition and the managed care environment.

The Medicare program at the moment, except where the hospital
will continue to pay the salary, does not provide support in HMOs,
in public clinics, or in other ambulatory care settings that train
residents and interns.

Thank you very much. I would be pleased to answer any ques-
tions that you might have.

[The prepared statement follows:]


158

(Linton, 1995). Further, with health care reform, there is a growing trend for joint practices
between primary care physicians and psychologists to address the psychological aspects of
medical problems seen by primary care physicians (Wiggins, 1995).

Psychologists currently participate on multidisciplinary teams in clinics and hospitals providing
primary health care services including assessment, consultation and treatment in behavioral
health. Psychologists are also found in medical settings such as pain programs and rehabilitation
settings, providing services to patients recovering from a wide variety of impairments from
cardiac to neurological to muscular to physical trauma, all as an integral part of a primary health
care team. Psychologists perform as part of the primary care team in Veterans Administration
hospitals, and the National Health Service Corps includes psychologists as part of their
‘multidisciplinary teams in the national network of community health centers in underserved areas,
Psychologists also work with family physicians in rural areas as part of primary care teams for
the purpose of treating those suffering from alcoholism and substance abuse (APA, 1993).

Like other health care providers, psychologists provide evaluation, diagnosis and assessment
services for both mental and general health concems. Thus, psychologists are an integral past
of a network of health care providers available to respond to the most pressing health and
community problems of this nation,

Case Study:‘De-Robert Allaii/PhD., a psychologist at'the New:"York Hospital,
Comell: Médicdl:Center,has worked with physicians in treating :post-coronary
patients, Since Coronary Heart Disease (CHD) is the leading cause:of death in
Westem’ countries.» The primaty risk factors for CHD are cigaréite-smoking,
‘lovato tlenerecant Bypsrsin: ac of Wet soe aor

behavioracomporients in most cases. “Behaviotal interventions with’ GHD patents

settee fly
smoking’ cessation, and increased

incorporation}yof'vbehaVioral- counseling :in treatment fora CHD patient are
suppor and represent a valuable addition to the treatrbent regimen
for coronaryepatients.

Role of Psychologists in ‘Training Hospitals and Academic Health Centers

Psychologists provide a substantial share of the teaching, training, clinical supervision and direct
service in Departments of Family Medicine programs that train future primary care physicians.
They contribute similarly in departments of pediatrics, internal medicine and community
medicine.

‘Case Study: ‘The Medicil Psychology Residency Program at the Oregon Health
‘Sciences: University (OHSU), is one of many. residency: programs

throughtthe: Graduate: Medical Education (GME) office in the OHSU'Schooh of
Medicisie. Thies residents in Medical Psychology are appointed each year for a
‘one-year progray: with residents an option to adda second: year to the program.
aera soe interact: with residents. from most of:the:other

Coston ol OHSU" eae 1995)

Psychologists’ Role in Health Maintenance Organizations

Psychologists provide services in a variety of settings including community health and/or mental
health centers, rehabilitation facilities, hospitals and health clinics, public schools, health
‘maintenance organizations (HMOs), and office-based private practices. In multidisciplinary


125

anesthetists administer anesthetics for patients, including intravenous sedations and some
clinic nurse specialists (CNS) specialize in such clinical areas as cardiology, oncology,
stoma care, although other CNSS provide direct patiemt primary care services such as
mental health counseling and gerontological care. With this advanced education, many
State legislatures have expanded the scope of practice of advanced practice nurses to
include such things as prescriptive authority. Furthermore, Federal health insurance
programs [i.e., Medicare and Medicaid in certain cases, Federal Employees Health
Benefits Program (FEHBP) and CHAMPUS in all cases} directly reimburse advanced
practice nurses for their services.

CURRENT NURSING EDUCATION FUNDS UNDER MEDICARE

Since its inception in 1965, the Medicare program has paid a portion of the costs of
training health professionals. Graduate Medical Education (GME) expenditures for
nursing education are intended to reimburse a portion of the costs of nurse education to
promote quality inpatient care for Medicare beneficiaries. Thus, Medicare has
traditionally made payments to hospitals for the "training’ of nurses in hospital-based
nurse education programs. A majority of these programs are hospital-based programs
that grant a diploma rather than a Bachelor of Science degree that is granted by most
university-based nursing education programs, or an associate degree granted by
community colleges. Medicare reimburses hospitals based on a formula payment for a
portion of the cost of these hospital operated nurses education programs including
classroom and clinical training. In cases where the hospital acts as the training site, but
the educational program or institution is separate (but with a written joint venture
agreement with the hospital), only the clinical training costs are reimbursed under
Medicare. As of 1989, no new jointly operated programs have been eligible for
Medicare reimbursement. In 1991, Medicare provided approximately $174 million to
hospitals in support of nursing education costs, and these payments were estimated to
increase to $248 million last year. In 1991, 144 hospital diploma programs received the
majority of this Medicare graduate medical education (GME) funding. Despite this
funding source, diploma nursing programs are rapidly disappearing. In 1965, they
numbered over 800, but in 1994 only 112 programs remained. The numbers are even
more dramatic when examining the relative numbers of total nurses educated through
the diploma program. In 1965, 77 percent of all registered nurses were trained in
hospital operated diploma programs; by 1990, less than eight percent of all nurses were
trained in this manner. Nurse education has shifted almost entirely away from the
hospital-based settings to community colleges and universities.

Medicare reimbursement for nursing diploma programs is also centralized in certain
regions of the country -- six states (Pennsylvania, Illinois, Ohio, New Jersey, New York,
and Massachusetts) received 50 percent of the available funding.

Since the enactment of Medicare, dramatic changes have occurred in the field of nurse
education, For example, the financing of nurse education has shifted away from
hospital-based diploma programs sponsoring students to the students and their families
bearing the brunt of the cost of a higher education nursing program. Furthermore, the
locus of educational control has shifted from the hospitals to the educational institutions
granting four and six year degrees. For the most part, hospital based nursing programs
do not produce primary care providers, but rather these primary care practitioners
graduate from four-year BSN programs and advanced nursing educational programs.
‘Advanced practice programs for nurses has increased dramatically in the past decade.
Therefore, nursing finds that the primary Federal support for nurse education is based
on an outmoded payment system reimbursing those nurse education programs that are
least likely to be able to help meet the growing need for more primary care and
community-based health are providers.


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FOUNDED GY SURGEONS OF THE UNITED STATES AND CANADA, 1013

PRIMARY CARE: HAVE POLICY MAKERS GONE TOO FAR?

Issue

Over the last several years, the federal governmental has implemented a
number of policies and programs intended to increase the supply of primary
care practitioners, including increases in Medicare payments for primary care
services, such as physician office visits. In many cases, these initiatives have
come at the expense of other programs and other categories of health
professionals and services. Some physicians’ organizations continue to
demand more for primary care. However, there is evidence that further
increaseé.in the number of primary care physicians could lead to an
oversupply. At the very least, Congress should carefully consider whether it
is fair to support any additional primary care initiatives by arbitrarily reducing
payments to other physicians or reducing funds for other programs.

Key Things to Keep in Mind

a ‘The Potential for "Overkill", The federal government has adopted
Medicare reimbursement policies favoring primary care residency
programs, And, there is continuing discussion of adopting policies that
would assure that 50 percent or more of all residency positions are
allocated to primary care. However, a recent study published in the
Journal of the American Medical Association concluded that "a change
as great as the 50 percent solution will cause a long-term surplus of
primary care physicians and a long-term shortage of specialists."*

2. Medicare Beneficiary Need for Specialty Care, The federal
government has adopted a number of provisions to increase Medicare
payments to primary care physicians (e.g,, the relative value system,
preferential updates, and exemptions from various cost-containment
policies). However, it seems likely that Medicare beneficiaries, given
their age and health status, may well need greater amounts of specialty
care than the non-Medicare population. For example, a recent study
published in the New England Journal of Medicine found that
"Internists and family practitioners are less aware of or less certain

‘Richard A. Cooper, "Seeking a Balanced Physician Workforce for the
2ist Century," Journal of the American Medical Association, September 7,
1994, pp, 680-686.

Chicago Headquarters: 85 East Ene Steet + Chicago. IL 60611-2797 * 212/654-4050 + FAX 912/440-7014

‘Wastingion OMtee, 1640 Wisconsin Avonue, NW » Washingion, O 20007 + 2021937 2701 « FAX 202/337-4271


41

Currently, graduate medical education is supported through several
mechanisms with patient care support (mainly hospital support) dominating. The
mechanisms are:

. Reimbursement from third parties for hospital care

. Fees paid to physicians for patient care services in inpatient and
outpatient settings

. Special federal and state grants for primary care training

. ‘State appropriations for university hospitals and city and county
appropriations for public, general hospital:

. Federal appropriations for Veterans “Administration and Department of
Defense hospitals

° Fellowship stipends from biomedical research sources, mainly federal.

Current Federal Support

Medicare Part A pays for graduate medical education through a complex
methodology that recognizes direct costs and provide an indirect education
adjustment. Reimbursement for both direct and indirect costs goes to the hospital.

Direct costs are calculated by multiplying the historic costs per resident in a
base year (increased annually by a cost of living escalator) by the number of full time
equivalent (FTE) residents. These costs are passed through as an addition to the
DRG payment. There is a further limit on the payment of full costs. Full costs are
paid for residents up to first certification in a specialty or five years, whichever is

‘The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 (PL 99-
272 Sec 9202) called for several modifications of what had been an open-ended direct.
cost pass-through for graduate medical education, These changes were basically
designed to limit the growth in cost per resident and to place a disincentive on
subspecialty training.

At first COBRA based the allowable cost per resident on the hospital-specific
approved per resident amount for the cost reporting period beginning FY 1984. For
subsequent periods, the per resident amounts were to be updated annually, based on
changes in the Consumer Price Index. The per resident amount is multiplied by the
weighted average number of FTE residents working in the hospital to obtain an
aggregate approved amount. The law now allows the time residents spend on
inpatient care activities outside of the hospital to be included “if the hospital incurs all
or substantially all of the training costs in the outside setting.” COBRA also applied
two weighting factors - one related to length of training and the other to foreign
medical graduate (FMG) status,

‘The factor relating to the length of training places a limit on the number of years
aresident can be counted as an FTE. The limit is based on an initial residency period
plus one year, not to exceed five years. The exception is participation up to two years
additionally in certain geriatrics programs.

Medicare direct graduate medical education support was estimated at $1.6
billion in 1994. Graduate medical education costs are incorporated into the hospital
charge base. The amount currently paid by third party payers is unknown.

‘The federal government, under Title VII of the Public Health Service Act, also
provides direct grant support for residencies in general internal medicine, pediatrics
and family medicine, While this support has been important in the establishment of
family medicine residencies and ambulatory care training in primary care, the funding
isrelatively modest. Appropriations for primary care programs were $63 millon in

The Veterans Administration provides salary support for residents and faculty
in its own facilities. VA residencies account for 12 percent of all residencies. Military
medical facilities also provide support for small number of residents.