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Financing Graduate Medical Education in a Changing Health Care Environment December 2000 The full version of this report is available in PDF format (467 KB)
Executive Summary
This report, Financing Graduate Medical Education in a Changing Health Care Environment, reviews current funding mechanisms for graduate medical education (GME) and recommends actions that should be taken to respond to the changing health care environment. Care is increasingly provided within the context of managed systems of care that require clinical learning experiences across the continuum of care. The current system of financing GME has inherent limitations and disincentives for expanding training in community-based sites. Stable all-payer financing is needed that will provide adequate support for training in community settings.
OVERVIEW
As used in this report, GME is clinical training in an approved residency program following graduation from schools of medicine, osteopathy, dentistry and podiatry. The training is required for certification in a specialty and is approved by a non-governmental accrediting organization for the specialty. The residency program varies in length depending on the specialty. Most residency programs are sponsored by a hospital, medical school, or educational consortium. There are about 100,000 residents in 8,000 different residency programs. The residents, who are serving a form of apprenticeship, provide patient care under the supervision of a teaching physician. Teaching hospitals serve as the primary training sites for most residency programs. Training occurs in both the inpatient setting and in the ambulatory-clinics of the teaching hospital. In addition, community hospitals and other community-based sites provide training opportunities.
Residency training should be relevant to current daily physician practice and address the care of the individual patient in their cultural and social context. With the growth of managed systems of care and the movement of services to outpatient settings, residency programs have expanded training opportunities in community settings. As used in this report, the term "community settings" describes settings that are representative of the environment in which most residents will eventually practice. Under this definition, the processes of care and educational outcomes are the determining factors in identifying a community setting rather than its location per se. A comprehensive range of experiences is necessary in order to provide opportunities to follow the patient across each component of an integrated delivery system. Community-based settings such as health centers and clinics, physician offices, schools and workplaces, nursing homes, hospices and home care, community hospitals, and managed care organizations can offer essential experiences to complement those at academic health centers. For some specialties, community training will occur in hospital-based ambulatory sites since this is where the specialty commonly practices.
The costs of GME are difficult to determine because teaching occurs in tandem with patient care and research. There are direct GME costs, which include the resident's stipend, payments to teaching physicians, program administration costs and other costs directly attributable to educational activities. In addition, there are indirect GME costs. These are higher patient care costs associated with teaching hospitals, such as treating sicker patients, using more diagnostic tests, and longer patient visits or hospital stays. Direct GME costs for a single residency program are typically incurred by multiple entities: the program sponsor, the faculty practice plan affiliated with the sponsoring institution, and the hospitals and ambulatory sites that provide training. Each site's direct costs for GME depend on its negotiations and arrangements with other entities involved in the training program over issues such as which party will assume the costs of the resident's salary and teaching physician compensation.
Patient care revenues provide most of the support for GME. However, Medicare and, in some States, Medicaid, make explicit payments to teaching hospitals for their GME costs. These payments recognize that equipping future physicians with the competencies to provide high quality care is in the public interest. Private payers have also traditionally paid higher amounts to teaching hospitals to support the costs of training residents, and to some extent, the charity care provided by teaching hospitals. In 1998, uncompensated care represented revenue losses of 7.8 percent and 5.4 percent of the total costs of academic health centers and other major teaching hospitals, respectively.
Faculty practice plan revenues are another source of support for clinical faculty time spent in academic activities. Faculty practice plan revenues may also provide direct support to medical school or department funds that are used to support graduate as well as undergraduate medical education. State-support for GME typically occurs through appropriations to State-operated medical schools or residency training grants (about $185 million). In addition, Federal appropriations under the Public Health Service Act support primary care residency programs and other health professional education ($300 million) and children's teaching hospitals ($40 million). Other sources of funding include research grants, endowments, and foundation grants. The Department of Veterans Affairs (DVA) and the Department of Defense (DoD) support about 15 percent of residency positions. Thus, the flow of funds among the participants in GME activities is complex and frequently involves cross-subsidies between medical schools, teaching hospitals, and other training sites.
Competitive pressures associated with the move to managed care (capitated financing arrangements) have eroded the private payer subsidies for teaching and charity care. Medicare and Medicaid payment reductions in the Balanced Budget Act of 1997 (BBA) also added to the financial pressures on teaching institutions. The Council on Graduate Medical Education's (COGME) 13th Report, Physician Education for a Changing Health Care Environment (1999a), concluded that the current system of funding GME through teaching hospitals has inherent limitations and disincentives for developing ambulatory clinical training experiences and community-based educational programs. The financial and service needs of teaching hospitals compete with the educational need to expand training opportunities in community settings. The uncertainties and financial pressures inherent in the changing health care environment suggest changes are needed in the way GME is financed. In its 14th Report, COGME Physician Workforce Policies: Recent Developments and Remaining Challenges in Meeting National Goals (1999b), COGME called for a stable, all-payer financing mechanism for GME that would provide adequate funding for training in ambulatory settings.
The current report builds on COGME's earlier reports by examining current funding mechanisms for GME and assessing their implications for developing community-based educational programs. It evaluates alternative Federal financing policies within the context of the Council's recommendation for a stable financing mechanism that would provide adequate support for ambulatory training. (Readers are referred to the earlier reports for findings and recommendations dealing with medical education curriculum and physician workforce issues.)
This report recommends the creation of a GME fund that would supplement current Federal funding for GME with funds from third-party payers. Total GME funding would be sufficient to support high-quality and efficient training of an appropriately sized and balanced physician workforce. The recommended fund allocation policies are designed to encourage an appropriate balance between traditional and community training in all hospital-sponsored specialty programs. Payments for direct GME costs would be made to program sponsors who would be held accountable for educational and workforce objectives. Separate payments would be made to clinical training sites to support their higher patient care costs attributable to teaching activities. The report recommends a separate GME account for funding special projects and programs directed at building high-quality community-based training capacity and achieving specific workforce priorities. In addition to the recommendations on GME funding , the report recommends increased support for "safety net " hospitals and community providers that serve a disproportionate share of low-income patients and have high uncompensated care costs. It is important that refinements in the GME allocation methodologies not adversely affect hospitals that provide significant charity care. Any reductions in GME payments to these hospitals should be offset by higher support for uncompensated care until specific funding for such services is provided.
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