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Financing
Graduate Medical Education in a Changing Health Care Environment
Continued
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RECOMMENDATION 2
IME ACCOUNTS SHOULD PAY HOSPITALS AND OTHER CLINICAL TRAINING SITES AS APPROPRIATE FOR THE INDIRECT COSTS OF EDUCATIONAL ACTIVITIES.
IME accounts should be created to subsidize higher patient care costs associated with residency training. The funds should be allocated to hospitals and, to the extent it is empirically supported, to other clinical training sites that incur indirect teaching costs, including hospital outpatient clinics and community-based settings. Initially there should be separate accounts for Medicare and non-Medicare patients in order to assure the indirect costs for Medicare patients are fully funded. In the long run, a single account would be appropriate.
a. IME payments should be set at no more than the analytically justified level for teaching activities.
Paying more than the analytically justified amount would subsidize inefficient providers and give teaching institutions a competitive edge over non-teaching institutions. For Medicare inpatient services, MedPAC's current estimate is a 3.1 percent adjustment for each 0.1 increment in the resident-to-bed ratio after other refinements are made to the Medicare prospective payment system. Based on this estimate, Medicare IME payments would be $1.5 billion lower than the 5.5 percent adjustment provided by the BBA. The difference could be targeted toward achieving specific workforce and educational goals (see Recommendations 4 and 6) or toward supporting uncompensated care (see Recommendation 8). A transition would be needed to the extent reductions in Medicare IME payments are not offset by increases in non-Medicare IME funding.
b. Research is needed to determine the appropriate IME payment formulae.
Research is needed to refine the Medicare IME adjustment and to determine the appropriate IME teaching adjustment for non-Medicare hospital inpatients. Medicare's adjustment should be based on the higher costs attributable to teaching activities. For non- Medicare patients, the adjustment should be directed at "leveling the playing field" between teaching and non-teaching hospitals. It does not need to cover the full indirect teaching costs if teaching hospitals are able to command a premium for quality or specialized services.
Ideally, the IME payment formula should not reflect higher costs indirectly attributable to other teaching hospital missions, e.g. specialized services, uncompensated care, and research. Subsidies for those public goods should be directed toward the hospitals producing them through separate funding streams. Reducing the adjustment to an analytically justified level for teaching would reduce incentives to train more physicians than necessary. It would also eliminate confusion between funding for the teaching mission and funding to support charity care. Higher costs attributable to serving low-income patients and uncompensated care costs should be recognized through a separate funding mechanism (which would also distribute payments to non-teaching institutions serving low-income patients. See Recommendation 8). Refinements in the IME payment methodology should not reduce the total level of support for hospitals with significant uncompensated care until specific funding for such services is provided. Reductions in the IME payment formula should be accompanied by refinements in the prospective payment system to incorporate better case-mix and severity -measurements. An additional adjustment for research-intensive hospitals may also be appropriate.
Additional research is also needed to determine the extent to which there is an indirect teaching effect on costs when resident training takes place in hospital outpatient and non-hospital settings. If empirical research finds there is an indirect teaching effect on the costs of services provided in ambulatory/community settings, the IME account should pay for these services as well as inpatient hospital services.
RECOMMENDATION 3
DIRECT GME ACCOUNTS SHOULD PAY PROGRAM SPONSORS OR THEIR DESIGNEES FOR THE DIRECT COSTS OF GRADUATE MEDICAL EDUCATION.
Direct GME costs are educational costs that should be supported through payments to the sponsoring institution ultimately responsible for the graduate medical education program. Payment allocation decisions should be made at the local level because the tremendous variety of existing arrangements cannot be accommodated at the national level. By making payments to either the sponsoring institution or its designees, the sponsor can determine the most appropriate recipient of the funds based on local circumstances for a particular program. For example, a sponsoring institution may decide to retain maximum control over the funds and receive them directly, elect to continue historical arrangements having the funds flow through the teaching hospital, or may choose to have a consortium distribute the funds. The same election would not need to apply to each program sponsored by the institution. Regardless of which entity received the funding, the sponsoring institution would be accountable for the funds being expended to support a high quality training program with the appropriate balance of hospital and community-based training experiences.
a. There should be written agreements between the program sponsor and training sites indicating the sponsor is assuming substantially all of the training costs and describing how GME payments will be allocated.
The program sponsor or its designee must assume all or substantially all of the direct costs of operating the residency program as a condition of receiving direct GME payments. Written agreements should be required between the sponsoring institution and clinical training sites to formalize the negotiation process and to increase accountability for the funds. The agreements should detail how the direct GME funds will be allocated between the sponsor and the training site, identify which entity will pay resident salaries and fringe benefits, and specify teaching physician compensation arrangements for supervising residents. The goal is to strengthen the negotiating position of community-based sites without jeopardizing long-standing relationships between academic institutions and community training sites. A sponsoring hospital may have a disincentive to rotate residents to community-based training sites if all direct GME funds automatically follow the resident to a community-based training site through direct payments from the GME fund or a voucher system.
b. Model agreements and information on direct GME costs should be made available to facilitate equitable agreements between the sponsor and the sites.
Local circumstances should determine how direct GME payments are allocated to teaching sites. However, benchmarking information should be provided to facilitate the negotiation process, including:
- breakdown of GME payments into three components based on average direct GME costs: resident salaries and related costs, teaching physician compensation, and an administrative and overhead cost component.
- benchmarks for teaching physician compensation and the added time per teaching session when
residents are present in community-based practices on short-term rotations and on an on-going basis; and,
- model agreements between institutional sponsors and community-based sites.
c. Require separate reporting of resident time spent in inpatient hospital, hospital outpatient and community settings.
At present, there is no formal accounting for the time residents spend in each type of training site. Standard definitions should be developed to distinguish hospital outpatient settings from community settings. Community settings should be broadly defined to include both hospital-operated and community-based sites that are representative of the environment in which residents will eventually practice. The determining characteristics are the processes of care rather than proximity to the hospital or provider ownership. Community settings address the care of the individual patient in the context of the population of which the patient is a member. They teach residents to deliver -culturally effective care to an ethnically and racially diverse population.
RECOMMENDATION 4
ESTABLISH A NATIONAL AVERAGE PER RESIDENT PAYMENT FOR DIRECT GME COSTS.
The base payment for direct GME costs should vary only for differences in the cost of living across geographic areas. For Medicare payments, there should be a transition from the hospital-specific per resident amounts to the national per resident payment. The length of the transition will depend on additional payments for non-Medicare patients. These can help compensate for any reductions in Medicare payments. At the end of the transition, separate Medicare and non-Medicare accounts would no longer be necessary. Higher payments may be appropriate for training in community-based settings. In addition, there should be an incentive payment for programs that meet specific workforce or educational objectives.
a. Base total direct GME payments on the net costs of supporting an appropriately sized workforce.
Ultimately, total direct GME funding should be based on the net costs of educating an appropriately sized physician workforce. Establishing a fixed payment per resident should provide incentives for efficiency in the educational process. However, the costs of efficiently delivering high quality GME and the extent to which these costs are offset by patient care revenues has not been determined. As an interim policy, either the average per resident amounts or average GME costs per resident could be assumed to represent the total costs of an efficient program. Total costs based on the FY1997 average per resident amount updated for inflation and the 110 percent target are estimated at $6 billion for FY2000. A lower funding amount would be appropriate since the per resident amounts do not take into account patient care revenues attributable to GME.
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