EMERGING STATE POLICIES AND PROGRAMS FOR SUPPORTING MEDICAL EDUCATION
In fact, many States have come under pressure in recent years to scrutinize more effectively their support for medical education and teaching hospitals. In the late 1980s, and again currently, major fiscal crises have plagued most States. Concurrently, States have become increasingly concerned about the maldistribution of primary care physicians and the unmet needs of many rural and inner-city areas and Medicaid beneficiaries.
To achieve some congruence between public need and the existing supply of physicians, and to account more carefully for limited State resources provided for medical education, a number of States have implemented—or are considering implementing—the following strategies.
Medicaid GME Payments Under Managed Care Channeled Directly (Carved Out) to Teaching Programs
Under growing pressure to reduce costs and improve access to care, most States, beginning in the mid-1990s, began to enroll their Medicaid population rapidly in MCOs. (As of 2000, over 550 Medicaid MCOs were in operation, and 56 percent of all Medicaid beneficiaries were enrolled in MCOs.)24 Consequently, Medicaid support for GME and related costs faces increased risk.
Without some specific type of adjustment, MCO rates include historical payments for GME, and MCOs are neither bound to distribute those dollars to hospitals with GME programs nor to provide GME themselves. About half of States that have capitated their Medicaid program leave GME historical payments in the base used for calculating MCO payments. In 1995, Illinois actually eliminated Medicaid GME funding because of funding constraints.
More recently, changing market conditions, growing pressure on Medicaid agencies to be more efficient and publicly accountable, and current State budget shortfalls are compelling more States to reduce significantly Medicaid spending and to examine their DGME or IME financing policies. Anecdotally, a number of teaching hospitals remain concerned about the loss of Medicaid patients because of managed care and decreased patient care payments under managed care. Concurrently, many of these hospitals have found their IME payments under Medicare reduced.
More of these hospitals are realizing the importance of Medicaid GME funds and are putting pressure on their States to have GME payments carved out from capitated MCO rates and rechanneled to them.25 In 2002, 17 States and DC made Medicaid GME payments explicitly to teaching hospitals (or other teaching programs) under capitated managed care. Another 10 States recognized and included GME payments in their capitated payment rates to MCOs. The most common reasons cited by States in continuing to pay directly for GME under managed care include: a perception of GME as a public good; a desire to help train the next generation of physicians who will serve Medicaid beneficiaries; and a desire to use Medicaid funds to advance State policy goals. In 2002, GME payment amounts under capitated managed care represented 22 percent of total GME payments distributed in those States.26, 27
In 2002, final issuance of new Medicaid managed care regulations governing capitation payments by the Health Care Financing Administration (HCFA, now the Centers for Medicare and Medicaid Services [CMS]) reflect the Federal Government’s growing concern with excessive health care costs. Particular concern over potential duplicate payments—especially to providers that receive payment under MCO contracts—is reflected in a provision prohibiting such payments.28
For the increasing number of States that carve out GME payments, the proposed provision required those States to show the Federal Government that such payments were not for duplicative services. In response to concerns raised by States of preventing harm to teaching hospitals, the original provision was amended by HCFA to exclude GME from this prohibition on direct payment to providers. In making this exception, HCFA noted that it plans to study existing GME payment arrangements to improve the fiscal integrity of Medicaid payments.29 The Department of Health and Human Services Office of Inspector General (OIG) is currently conducting a review of Medicaid and Medicare GME payments in at least five States—California, Michigan, New York, Ohio, and Tennessee.30
Medicaid GME Payments Targeted to Address State Health Workforce Needs
Seeking to be more prudent, farsighted purchasers of care, several Medicaid programs recognize that support for GME is a valuable tool for meeting the future health care provider needs of Medicaid beneficiaries as well as the public-at-large. These concerns have prompted more State Medicaid programs to view GME as a public good that they should support. In a small number of States, there is interest in making a stronger connection between distributed funds and training program accountability. In these States, some or all the following elements are addressed:
Many of these approaches require Federal approval, which typically has been sought as part of a State’s request to amend its Medicaid plan or to obtain a waiver to operate a mandatory managed care program. Although States have more flexibility than ever to modify their Medicaid programs, gaining approval from the Federal Government to test innovations remains cumbersome or questionable. This is the case for States that want the flexibility and incentive to distribute GME payments to non-hospital training programs, to pay for training of non-physicians (e.g., advanced practice nurses and dentists), to pool payments, and to conduct other activities. This situation can be attributed in part to the fact that GME payments are a relatively minor issue to most State and Federal officials in the context of the entire Medicaid program.
Traditionally, State Medicaid programs have followed the lead of the Medicare program and have adopted open-ended GME reimbursement policies that have had no restriction on the specialty of physicians being trained. Moreover, because most States have followed a Medicare methodology that reimburses for clinical education and service provided only in hospital-based settings, Medicaid programs have done little to cover teaching costs in various non-hospital ambulatory sites.
In 2002, 10 States required that some or all Medicaid GME payments be directly linked to State policy goals intended to vary the distribution of, or limit, the health care workforce. The goal of encouraging training of physicians in certain specialties (e.g., primary care) is applied to GME payments by all 10 States. Five of the States use these payments to encourage training of physicians in certain settings (e.g., ambulatory sites, rural locations, and medically underserved communities). Four States link payments to efforts to increase the supply of health professionals trained to serve Medicaid beneficiaries.31
Creation of a Medical Education Trust Fund Funded by Multiple Payers
A State’s ability to justify establishing a GME fund that pools Medicaid dollars with new and existing State GME appropriations, and perhaps Medicare dollars, makes State (and Federal) support more open to public scrutiny, focuses attention on how the funds are used, and facilitates a link with State workforce needs. Having a dedicated pool also makes it easier to identify spending levels and to rationalize distribution of funds in accordance with workforce needs. In addition to New York, which for many years has supported GME through an all-payer fund, Minnesota’s legislature in 1997 approved and funded the creation of a similar fund. One other State, Utah, has recently obtained a Federal waiver that allows Medicare GME funds to be pooled and distributed through its statewide medical education council.32
Use of Special Financing to Establish or Expand Medicaid GME Payments
Because of competing demands for public services, especially with recent budget shortfalls, many States exceed their fiscal capability that gives their Medicaid programs the incentive to substitute Federal funds for State funds. The Medicaid program’s Federal-State matching payment structure for covered services provides the mechanism for this substitution.33 In general, this process of “Medicaid maximization” allows States to cover services that have traditionally been State or local responsibilities and to receive Federal matching funds for the costs of furnishing these services to Medicaid beneficiaries. The higher the State’s matching rate, the greater the replacement potential.
States have the flexibility in particular to import Federal Medicaid dollars into State university-teaching hospitals through the GME reimbursement methodology. The major Medicaid maximization strategies most applicable for States to employ in this way include: 1) disproportionate share hospital (DSH) payments, 2) intergovernmental transfers (IGTs), and 3) taxes on health care providers.
Federal Medicaid DSH payments, authorized by Congress in the 1980s and directed to hospitals that serve a disproportionate number of Medicaid and low-income patients with special needs, are allocated among States in amounts set forth as ceilings in Federal statutes. Although States may claim Federal matching funds for DSH payments made to qualifying hospitals up to these ceilings, recent reductions in these ceilings by Congress may have had a chilling effect on Medicaid GME payments. In the past, many teaching hospitals that receive Medicaid DSH payments have viewed these payments as an important source of support for their GME activities.
Although use of health care provider tax and donation programs became a common practice among States to raise the State share (and thus increase Federal matching payments) for making Medicaid payments (especially DSH payments) by the early 1990s, Congress in 1991 banned States’ use of provider donations and imposed restrictions on provider taxes. Despite these changes, several States are now using or considering use of provider taxes to supplement stagnant or declining provider reimbursement rates. It is not known to what extent provider taxes are used explicitly to support Medicaid GME payments.
Many States have turned to IGT programs as the best strategy to raise their State Medicaid shares. IGTs are fund exchanges between different levels of government and are a common feature in State finance. In the early 1990s, many States began to use IGTs as a way to leverage Federal Medicaid dollars to continue or expand coverage of optional services (e.g., GME) or to pay higher reimbursement rates to providers. States can use State (or county) expenditures to generate a Federal match to support Medicaid services. As a mechanism to initiate or expand support for GME, IGTs are being considered or used in a few States. Recent Federal changes may limit the ability of some States and certain hospitals in those States to take advantage of this revenue maximization strategy.
Creative use of the above-noted strategies and innovation of other GME financing strategies will become increasingly important as States seek to ameliorate the adverse impact of reduced revenue and as their increasing efforts to offset reduced revenue fail to be sufficient. Alterations by State Medicaid programs may include reduced reimbursements to physicians and hospitals, increased control over prescription drug coverage, and elimination or curtailment of optional benefits or services.