CONCLUSIONS AND IMPLICATIONS FOR GME FINANCING AT THE NATIONAL AND STATE LEVELS

Rapidly changing conditions in the delivery and financing of health services—and growing pressure on government to be more efficient and accountable with shrinking public funds that face greater competition in their allocation—provide a compelling case for reform of GME payment policy at both the national and State levels. At the same time, the need for effective government support for GME persists as the private market fails in any major way to distribute the physician workforce to medically underserved and uninsured areas, to provide adequate information and analysis on the nature of the workforce, to improve the racial and ethnic diversity and cultural competence of the workforce, or to assess the quality of education and practice.

With the inconsistency of market forces and absence of Federal policy to correct local and regional imbalances in physician supply, State governments continue to be concerned about the return of their limited investments in physician training and placement. Although State appropriations to medical schools have increased steadily at least since the early 1980s, the percentage that these funds represent to the average medical school’s revenue base is declining. Major payments for GME that most States make through their Medicaid programs, second only in size to Medicare’s contribution, are threatened by Medicaid cost controls and major State budget deficits. States increasingly rely on loan repayment programs, tax credits, practice development subsidies, and other strategies, in lieu of scholarships, to encourage small numbers of graduating physicians to practice primary care in HPSAs.

One means that many States use to increase their return on investment involves encouragement of physician graduates to establish in-State practices. Several States stipulate that a high percentage of newly entering students to public medical schools be State residents. If States could keep more residents from matriculating to out-of-State schools by expanding medical school capacity, the question remains whether their graduates would more likely do their residency training and practice in State. To address this issue, State policymakers should consider, of course, their State’s physician workforce needs and financial ability to expand medical school capacity. Given most States’ tight fiscal condition, a more feasible and effective strategy for many States might be to: 1) support an increase in the number or size of GME programs in certain specialties or locations based on State physician workforce needs, and 2) provide incentives to: a) medical school graduates to select in-State residencies as their top GME choices, and b) residencies to recruit more in-State medical school graduates. To this end, public medical schools could be encouraged to expose students systematically to the values and opportunities of in-State residencies, particularly ones located in medically underserved settings. Besides increasing training at residency sites, this goal might be accomplished by offering graduates who attend in-State GME programs full-cost stipends or by linking fulfillment of student scholarships and forgivable loans to a graduate’s match and education with an in-State residency. In turn, grant funds could be provided to State GME programs to inform in-State medical students about residency training opportunities and to encourage them to apply to these programs.

As shown previously, several States have developed and demonstrated some innovative approaches to paying for GME that address one or more of the following strategies: incentives for and measures of greater accountability in distribution of payments; significant documentation of GME costs and benefits; and innovative means for pooling Medicaid GME funds with other payers.

Similarly, the Federal Government is now in a position to reform national GME payment policy as well as to encourage States to reform their own policies for financing GME. Such reforms should reflect:

1. Government’s larger desire for publicly funded GME programs to be more efficient and accountable to public needs; and
2. Value in developing a more stable and equitable means for financing GME through the creation and demonstration of a multiple, public-private payer fund that draws on innovative State and private-sector financing experiences.

Principles for GME Payment Policy by Federal and State Governments

1. Government should pay its fair and appropriate share of GME costs by clearly determining and justifying how much it will pay and whom it will pay. In doing so, Federal and State governments should:

• compare and weigh the value of GME support from general appropriations and entitlement programs;
• consider the appropriateness of continuing to link Medicare and Medicaid GME payments to patient care, and determine whether such payments should go to training institutions that provide little or no service to Medicare and Medicaid recipients;
• determine and become more familiar with physician workforce needs; and
• more effectively understand all current costs and revenue sources in publicly funded GME programs, and develop more equitable and up-to-date standards for measuring reimbursable costs.

2. Government should require teaching programs receiving public funds to be more directly accountable to pertinent public policy goals of the health workforce. Performance requirements for training programs should be established that emphasize, but are not limited to, the following:
1. Training in certain specialties, skill areas, and settings (e.g., primary care, cultural competence, managed care, community and rural practice, geriatrics, and interdisciplinary teamwork) known to be in short supply or related to achieving better service, particularly for patients with low incomes and other populations that are underserved or uninsured;
2. Training in certain non-physician professions (e.g., nursing, dentistry, and pharmacy) known to be in short supply or related to achieving better service, particularly for patients with low incomes and other populations that are underserved or uninsured; and
3. Improving the geographic distribution and racial/ethnic diversity of the health workforce by linking government provision of supplemental training stipends for eligible physician trainees to:
   • obligated service in a medically underserved area, health professional provider shortage area, or other geographically needy area upon graduation; and
   • education of underrepresented minorities and other disadvantaged students more inclined to want to serve underserved populations.

To this end, government payers should be encouraged and granted flexibility to test innovative strategies for distributing such payments to various training institutions and settings in ways that best address health workforce needs. In determining which organizations should be eligible to receive GME funding, Medicare and Medicaid should examine alternatives beyond hospital teaching programs to consider other settings currently providing the training and the environments where graduates will be likely to practice. Although more training occurs outside of the hospital, and many physician residency review committees have increased requirements for training in ambulatory sites, existing funding streams largely do not cover the costs of graduate training in non-hospital settings. Moreover, the current system of making Medicare and Medicaid GME payments directly to hospitals perpetuates incentives for hospitals to expand the number and size of their residency programs with little regard given to public cost or State workforce needs.

Medicare and Medicaid should be required to deem certain non-hospital (as well as hospital) teaching programs as qualified to receive GME payments directly. These institutions may include, but are not limited to:

1. Schools of medicine and other health professions training programs;
2. Ambulatory care sites such as federally qualified health centers, other community health clinics, private group practices, and managed care plans that provide training; and
3. GME consortia.

 

3. In determining performance requirements, it is incumbent upon government to scrutinize closely training programs through establishment of regular reporting requirements and enforceable penalties for non-compliance.

To affect a State’s policy goals and health workforce priorities, new distribution formulas, training program performance requirements, and incentive programs must produce desired results (e.g., an increase in primary care providers serving Medicaid recipients). Requiring training programs to submit performance data that track such factors as specialty mix and practice location of physician graduates could strengthen efforts by training programs and public funders to document and assess accountability, to forecast effectively, and to distribute data on physician supply and demand, both nationally and on a State or regional basis. Moreover, the format and degree of detail required in performance reports should be stringent enough to eliminate practically all opportunities for payment recipients to “game the system.”

For example, under Tennessee’s (TennCare’s) GME payment system, any medical school not achieving its target percentage of filled residency positions in primary care will have its Medicaid GME allocation for that year reduced one percentage point for each percentage point by which it fails to reach its filled residency target. The funds made available by these penalties will then be allocated to the State’s other medical schools. A penalized medical school’s full funding will be restored once it achieves its target.

4. Government must do a better job of documenting and rationalizing GME costs and payments.

Government payers as well as teaching programs have been given little impetus to overcome the complex challenges of isolating and documenting the actual costs of GME. Medicare and Medicaid historically have tied GME payments to patient care costs, and hospital accounting systems have done little to quantify most reimbursable teaching expenses. Thus, there has been little incentive to develop better approaches to separating out and measuring GME costs. In addressing these challenges, government payers (Medicare and Medicaid in particular) should be encouraged to conduct rigorous studies to determine and document total reimbursable GME costs in a variety of training program settings.

5. Pooling GME funds from public and private payers can be an equitable and accountable means of distributing such funds in accordance with health workforce needs.

For better or worse, establishing a GME fund that pools general appropriations and entitlement funds and private-sector dollars is more open to public scrutiny, focuses attention on how funds are used, and facilitates a link with State workforce needs. Having a dedicated funding pool also makes it easier to identify spending levels and to rationalize distribution of funds in accordance with workforce needs.

States interested in establishing a dedicated GME payer pool must consider establishing some statewide entity charged with effectively distributing pooled revenues. To carry out its mission, such a State entity could conduct major assessments of State health workforce needs, could determine current training costs and revenue, could shift funds across training programs to achieve workforce goals, could set aside funds in a reform incentive pool, and could perform other functions. A reform incentive pool could provide grants through a Request for Proposal (RFP) process to teaching programs and affiliated ambulatory education locales effective in training students in needed specialties, skill areas, and settings.

6. Government interagency and intergovernmental collaboration is essential for reform of GME financing.

To be effective at GME reform, government payers should provide or be granted additional flexibility to test innovative strategies to analyze and distribute GME funds to various training institutions and settings in ways that best address health workforce needs. Strengthened collaboration is required in particular among and between these government institutions:

• CMS and HRSA, both with and without congressional oversight;
• CMS and State Medicaid agencies; and
• State Medicaid agencies and legislatures.

Two examples of the need for such collaboration include:

• Establishing a GME funding pool at the national level would require a new working relationship between CMS and HRSA (with congressional oversight). Collaboration would entail having productive decision-making discussions on linking general appropriations and entitlement funds that support GME.
• As Medicaid operates within a Federal-State partnership—and both Federal and State governments are increasingly concerned with having Medicaid funds spent efficiently and appropriately—CMS should develop a national policy (that is not preemptive or oppressive) that promotes Medicaid GME reforms and grants States the flexibility and incentive to experiment with GME policies that are innovative and more accountable to public need. Such State models also can serve as suitable alternatives or lessons learned for HRSA, CMS, and Congress in reforming national GME policy.