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The Effects of the Balanced Budget Act of 1997 on Graduate Medical Education March 2000
The full version of this resource paper is available in PDF format
On August 5, 1997, President Clinton signed into law the Balanced Budget Act of 1997 (BBA), an omnibus legislative package primarily intended to balance the federal budget by 2002. This legislation contained major Medicare reforms, including a number of provisions that impact graduate medical education (GME). The BBA reforms encompassed some of the most sweeping changes in Medicare GME payment in the history of the program. Given the high level of Medicare support of GME training, approximately $6.8 billion paid to teaching hospitals in 1997, these changes could have a major effect on the physician workforce, from supply and geographic distribution to the setting of training. It has been noted that this country has an imbalance in physician supply, specialty mix and geographic distribution.1 The provisions of the BBA seemed likely to ameliorate these concerns by removing incentives for continued growth in the numbers of residents. It also provided incentives for training in out-of-hospital settings which would sustain primary care and rural training.
However, the BBA may have financially hurt some of the nations's teaching hospitals, considered by some to be the "crown jewels" of the American health care system. The BBA may have yielded other unintended consequences as well. This paper covers the GME provisions of the BBA and their effects on the training of the nation's residents. It discusses the concerns of financial burden expressed by some, and examines actual data to determine if these fears are objectively founded. Some of the effects on primary care and rural practice are examined. The paper then discusses a recent bill passed by Congress and signed into law to make corrections and refinements to the BBA. The GME provisions of the new legislation, the Balanced Budget Refinement Act of 1999 (BBRA), are intended to provide relief to teaching hospitals and physicians for what are perceived to be some of the BBA's unintended consequences.
MEDICARE SUPPORT OF GME
Teaching hospitals provide valuable services to both Medicare beneficiaries and non-beneficiaries. The GME training of physicians and other health professionals in teaching hospitals is key to providing the nation with its supply of high-quality physicians, as well as enhancing the quality of care provided to hospital patients. Teaching hospitals are also in the forefront of medical research and technological innovations. They serve a disproportionately large number of patients who are poor, very sick and uninsured. Medicare payments to teaching hospitals were designed to create incentives for teaching hospitals to serve Medicare beneficiaries, as well as to support the training of physicians to meet beneficiaries' medical needs.
Medicare makes two types of payments to support training programs in teaching hospitals for physicians. The Direct Medical Education (DME) payment helps defray the direct costs of training physicians, such as salaries and fringe benefits of medical residents and faculty, and hospital overhead expenses. The Indirect Medical Education (IME) payment covers the additional operating costs that teaching hospitals incur in patient care, such as the costs associated with offering a broader range of services, using more intensive treatments, treating sicker patients, and using a costlier staff mix.
Despite numerous recommendations that the number of residency positions in the United States needs to be decreased, the number increased substantially between 1985 and 1996.2 ,3 ,4 A major cause may be the way Medicare reimbursed for GME. The DME and IME payments provided a strong incentive to hospitals to continue increasing their number of residents. Residents, for whom reimbursement is obtained from Medicare, provide services inexpensively and more flexibly than full-priced physicians and nurses. It was lucrative for hospitals to expand their residency slots. However, this changed when the BBA capped the number of residents qualifying for DME reimbursement at the number reported on or before December 31, 1996 and initiated a phased-in reduction of the IME adjustment factor. (The Act did allow for establishment of new rural-based residency training programs.)
Overall, the effectiveness of the BBA in restraining GME growth is difficult to assess because of confounding factors, insufficient data and difficulty in attributing cause to changes in numbers.
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