On Implementing a National Graduate Medical Education Trust Fund [1 ed.] 9780309590495, 9780309057790
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Copyright © 1997. National Academies Press. All rights reserved.
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On Implementing a National Graduate Medical Education Trust Fund
Committee on Implementing a National Graduate Medical Education Trust Fund Division of Health Care Services INSTITUTE OF MEDICINE
NATIONAL ACADEMY PRESS Washington, D.C. 1997
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,
Copyright © 1997. National Academies Press. All rights reserved.
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National Academy Press 2101 Constitution Avenue, N.W. Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies, and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The Institute of Medicine was chartered in 1970 by the National Academy of Sciences to enlist distinguished members of the appropriate professions in the examination of policy matters pertaining to the health of the public. In this, the Institute acts under the Academy’s 1863 congressional charter responsibility to be an adviser to the federal government and its own initiative in identifying issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. Support for this project was provided by The Pew Charitable Trusts, with additional support provided by the Commonwealth Fund and Burroughs Wellcome Fund. The opinions expressed in this report are those of the Committee on Implementing a National Graduate Medical Education Trust Fund and do not necessarily reflect the views of the funders. International Standard Book No. 0-309-05779-5 Additional copies of On Implementing a National Graduate Medical Education Trust Fund are available for sale from the National Academy Press , 2101 Constitution Avenue, N.W., Box 285, Washington, DC 20055. Call (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area) or visit the NAP’s on-line bookstore at www.nap.edu. For more information about the Institute of Medicine, visit the IOM home page at www2.nas.edu/iom. Copyright 1997 by the National Academy of Sciences. All rights reserved. Printed in the United States of America.
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COMMITTEE ON IMPLEMENTING A NATIONAL GRADUATE MEDICAL EDUCATION TRUST FUND ROSEMARY A. STEVENS, Ph.D. (Chair), Professor, Department of History and Sociology of Science, University of Pennsylvania LINDA AIKEN, Ph.D., Trustee Professor of Nursing and Sociology and Director, Center for Health Services and Policy Research, University of Pennsylvania. STUART ALTMAN, Ph.D., Sol C. Chaikin Professor of National Health, Heller Graduate School of Social Policy, Brandeis University KENNETH BLOEM, M.P.H., Chief Executive Officer, Health Sciences, Georgetown University Medical Center PETER BUDETTI, M.D., J.D., Professor and Director, Institute for Health Services Research and Policy Studies, Northwestern University GAIL CASSELL, Ph.D., Charles H. McCauley Professor and Chairman, Department of Microbiology, University of Alabama at Birmingham JAY GELLERT, President and Chief Operating Officer, Health Systems International, Inc., Woodland Hills, California ROBERT HELMS, Ph.D., Resident Scholar, American Enterprise Institute for Public Policy Research, Washington, D.C. RUSSELL MILLER, M.D., President, Health Sciences Center at Brooklyn, State University of New York CHARLES MULLINS, M.D., Executive Vice Chancellor for Health Affairs, University of Texas System, Health Affairs Office, Austin HOWARD RABINOWITZ, M.D., Professor of Family Medicine, Jefferson Medical College, Thomas Jefferson University Staff ROGER HERDMAN, M.D., Senior Scholar KATHLEEN NOLAN, Research Assistant HEATHER CALLAHAN, Program Assistant CLYDE BEHNEY, Director, Division of Health Care Services
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,
Copyright © 1997. National Academies Press. All rights reserved.
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution.
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Copyright © 1997. National Academies Press. All rights reserved.
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COMMITTEE CHAIR'S STATEMENT
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Committee Chair's Statement
The Institute of Medicine report that follows represents the suggestions of the Institute's Committee on Implementing a National Graduate Medical Education Trust Fund formed in response to a specific congressional request. We decided at the beginning that our charge required us to focus on defining a set of principles and, flowing from them, recommendations for a new payment structure that could be supportive of graduate medical education and teaching hospitals, open to additional entrants, less restrictive than at present, and more responsive to changes in the health care marketplace. We decided, further, not to attempt to define policies for international medical graduates or for the size or composition of the work force. This report reflects compromises made among the disparate views of the committee members to reach language that all could accept. We are well aware that other responses to the initial questions could have been made by reasonable and knowledgeable people; such is the nature of the policy process. Some committee members were willing to recommend a general, non-Medicare source of funds for graduate medical education; others were reluctant to do so, either because they questioned tax support or because they felt it was beyond the committee's charge. In the end, the committee's plan supports the use of general non-Medicare funds, but notes that implementation of a Medicare-only trust fund (the present funding source) would go far to improve the current distribution. Strong advocates for more incentives for primary care noted that payment inevitably influences work force and questioned reliance on the market to achieve a better balance among physician specialties. These members would have preferred a more prescriptive distribution plan, whereas others favored a more neutral plan that would permit greater responsiveness to market conditions. The report adopts a middle ground. We suggest retaining existing specialty weights for direct graduate medical education payments, while making other
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,
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COMMITTEE CHAIR'S STATEMENT
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changes that would provide freer response to market forces. Additional issues where different views might have prevailed include the relationship of an institution's Medicare caseload to payment; nursing education; and funding of institutions other than teaching hospitals. The discussions at the committee's meetings were vigorous and constructive, and encompassed a wide range of views. As committee chair, I believe that we have formed a reasonable response in the short time we were given for completion and in the context of rapid, ongoing changes in the environment of graduate medical education. This was a challenging task given the variables and uncertainties as to the best course to follow. Although the committee members are unanimous in supporting our proposals as a feasible, fair approach to the next step in funding graduate medical education, these recommendations are made with the expectation that as experience accrues and is monitored, changes from our approach may appropriately be considered. We offer this report, therefore, as one among other contributions to the policy debate. Rosemary A. Stevens, Chair
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PREFACE
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Preface
The size and nature of the work force required for the health professions have presented difficult challenges to public-and private-sector planners in the United States for decades. Based upon predictions of serious shortages of physicians for the growing U.S. population after World War II, federal financial incentives were offered to increase medical school enrollments and to open new schools. As the number of U.S. graduates increased and the number of international medical graduates coming to the United States accelerated, work force planners predicted an oversupply of physicians—a conclusion reached in the 1996 Institute of Medicine (IOM) report on the physician work force (IOM 1996a). Federal support of graduate medical education (GME) has been accepted as an important social value to be funded through the Medicare program, with substantial additional contributions from streams of clinical income generated by teaching hospitals and medical faculty practice plans. This acceptance was also based on a general recognition that there were legitimate costs to teaching hospitals associated with their educational mission even though such costs were hard to identify specifically. Hospitals that undertake education also provide high-quality care to Medicare beneficiaries as well as unsponsored research, complex care, and technology development, and they and their young physicians in training are important in providing care to underserved poor populations. Medicare has recognized these services, and states have added variously to Medicare and private payer financing through Medicaid and more direct granting mechanisms. Recently, the cost consciousness of managed care purchasers operating in a competitive environment has constrained the income streams that were available from private payers for the support of medical education at the undergraduate and graduate levels. The margins substantially above cost that Medicare, in
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PREFACE
viii
particular, has been deliberately providing to nourish the teaching hospital sector are being questioned, and states have begun to review the structure and amount of their support. At the same time patient care, technology, and therefore opportunity for education have moved increasingly out of the hospital to ambulatory sites, many of which are at distant locations. Moreover the necessity to organize care employing multiple professional providers and in a variety of organizational settings which reemphasize primary care, has become increasingly apparent. These changes have been taking place in the context of what many consider an actual current oversupply and an imbalance in the nature of physicians in training and in practice. In the study which follows, the IOM examines one specialized but critically important aspect of this health education/care enterprise, that is, the way in which Medicare funds, and potentially other sources of revenue, could be more effectively distributed in order to accomplish the most cost-effective use of resources while maintaining the highest quality of contemporaneous medical education and care which properly prepares health professionals for the future. We understand that many other aspects of the undergraduate and graduate health professional educational process will also require further serious and comprehensive consideration. Medicare's support for institutions engaged in GME began in 1965, and although there have been several attempts, recently, to reform Medicare support of GME (Balanced Budget Act of 1995; HR 2425; HR 4069; and S 1870 of 1996), Congress has indicated an interest in continuing distribution of Medicare funds in some fashion. Depending on balanced budget and Medicare program priorities, the congressional focus on GME funding is likely to continue. In addition, changes in health care organization and delivery suggest the need for reevaluation of the current Medicare GME payment structure, which has become outdated. These changes include a shift of health care to nonacute and ambulatory settings, increased enrollment in managed care, and a new assessment of U.S. health care work force requirements. The current GME system provides little support for training in these settings or in managed care and rewards hospitals for expansion of residencies in the face of a possible national oversupply of physicians. Following the attempts of Congress to bring about reform and the presidential veto of the Balanced Budget Act of 1995, the Ways and Means Committee of the U.S. House of Representatives requested the IOM to examine GME fund distribution. Specifically, the request was that the IOM assume a trust fund from which GME funding would be distributed and explore the principles and mechanisms that could govern that distribution (see Appendix A). The IOM assembled a committee representing different perspectives in the fields of medical education, health services delivery, and health policy, research, and economics. The committee met twice during a 2-month period, solicited written comments from a wide array of health organizations, and hosted a public hearing of nine associations involved with GME. The principles that could best support the mission of teaching institutions and the public purposes of funding of
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PREFACE
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GME were explored. Within the context of those principles, this report offers policymakers guidance for the restructuring of GME support. The Institute thanks the members of the Committee on Implementing a National Graduate Medical Education Trust Fund for their contributions. The IOM greatly appreciates the financial assistance of The Pew Charitable Trusts, The Commonwealth Fund, and The Burroughs Wellcome Fund, without which this report would not have been possible. For their kind assistance, the Institute thanks Carolyn Asbury, James Bentley, Brian Biles, David Blumenthal, Carmella Bocchino, Enriqueta Bond, Roger Bulger, Robert Dickler, Marvin Dunn, John Eisenberg, Robert Epstein, Linda Fishman, Ruth Hanft, Tim Henderson, Richard Knapp, Stephen Mick, Gordon Moore, James Reuter, Anne Schwartz, Mel Worth, and Don Young. The Institute is grateful to Stuart Guterman, deputy director, Prospective Payment Assessment Commission (ProPAC), for his commissioned work on the history and current status of Medicare support of GME (see Appendix B). The IOM also appreciates the work of the IOM staff: Roger Herdman, study director; Kathleen Nolan, research assistant; Heather Callahan, project assistant; and Clyde Behney, division director. Kenneth I. Shine, President Institute of Medicine
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,
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CONTENTS
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Contents
OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF ATRUST FUND
1
PRINCIPLES General Considerations
8 8
RECOMMENDATIONS FOR DISTRIBUTION OF GME FUNDS General DME IME
17 17 18 19
DISCUSSION A Trust Fund Principles and GME Payment to DME Institutions A Standard Payment Dissociation of Payment from Individual Caseload A Transition Payment Policy and Work Force Composition Maintaining Quality Standards DME Summary IME Issues Modification of Medicare IME Funding IME General, Non-Medicare Payments Ambulatory Training IME Summary and GME Conclusions DME for Nursing Allied Health
21 21 22 23 24 25 26 27 28 29 29 30 32 33 34 34 36
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ADDITIONAL ISSUES Openings, Mergers, and Acquisitions A Medicare-Only Fund The Balanced Budget Act of 1995 The Current System Vouchers State Programs Educational Consortia 37 37 37 38 39 40 41 42
REFERENCES 45
APPENDIXES
A Letter to the Institute of Medicine from the Committee on Ways and Means 51
B History and Current Status of Medicare Graduate Medical Education Funding 54
C Public Comment on Graduate Medical Education Issues 65
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On Implementing a National Graduate Medical Education Trust Fund
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Copyright © 1997. National Academies Press. All rights reserved.
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Copyright © 1997. National Academies Press. All rights reserved.
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OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF A TRUST FUND
1
Overview of Graduate Medical Education and the Distribution of a Trust Fund
This report, On Implementing a National Graduate Medical Education Trust Fund, is about a complex subject, graduate medical education (GME), and a complex program, the system of payments from Medicare—and potentially from other sources—to support the institutions that provide GME. This overview is intended to provide readers who are not familiar with the details of the subject matter a brief introduction to the major points covered in the report. The term ''graduate medical education'' as used in this report primarily refers to the training of about 100,000 persons in clinical settings (hospital and outpatient) who have received an M.D. or D.O. degree from a medical or osteopathic school and who have, or are eligible to have, a license to practice medicine in one or more of the United States. This training, usually called a residency or fellowship, is a form of apprenticeship that provides a supervised clinical practice and didactic educational experience lasting a number of years in various kinds of medical specialties such as pediatrics or orthopedic surgery. Each residency (or training) program is under the aegis of one of the approximately 1,000 teaching hospitals in this country; is accredited by a nongovernmental professional body; and produces practitioners who are recognized as, and are usually eligible to obtain board certification as, for example, generalists in family medicine or specialists in radiology. Graduate medical education, for the purposes of the report, also means, unless otherwise noted, the training of dental and podiatric professionals; undergraduate, preprofessional nurses; and a number of allied health professionals, such as x-ray technicians and respiratory therapists, among others. In addition to the changes discussed for physicians, the report also contains other significant suggested changes for nursing as well. The system of about $6.6 billion (FY 1996) in payments from Medicare that support GME was instituted in recognition of the obligation to support the legitimate costs incurred for training, to provide Medicare beneficiaries access to care in the teaching setting, and also in recognition of the general public value of
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OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF A TRUST FUND
2
GME and the teaching institutions that provide it, which are essential parts of the infrastructure for quality health care in this country. The payment system is actually divided into two major programs: a direct GME (DME) and an indirect medical education (IME) component. The direct GME component from Medicare comprises payments made directly to teaching hospitals based on 1984 historical costs to cover the stipends of residents, the supervisory personnel, and other associated hospital costs for supporting a residency program. These are payments for each individual, fulltime-equivalent resident. Some of the per-resident payments are reduced (weighted) to provide disincentives for long-duration, specialist residencies, and some are paid in full to provide incentives to train generalists. Partial reimbursement of the costs incurred by some hospitals in training other professionals such as nurses and allied health personnel is also made. In general, payments increase by the consumer price index each year, and the fraction of the costs paid by Medicare is the same fraction that Medicare patient-days are of total hospital patient-days. Importantly, physician payments also increase in the form of an equal additional per-resident payment for each additional resident that a hospital adds to its total complement of residents. Because of idiosyncrasies in the 1984 cost base, per-resident payment amounts vary significantly, and likely in ways that do not reflect the real costs of residents, from hospital to hospital; in short, there is currently an incentive to add residents especially for hospitals at the high end of the per-resident payment spectrum. The indirect medical education component from Medicare is not based on any identified costs. Instead, it is intended as support for teaching hospitals and to compensate for the observed higher costs that the presence of training programs generates in these hospitals. Additional tests, special care units, unsponsored research, more seriously ill patients, and care of nonpaying patients contribute to these higher costs. Medicare pays hospitals for inpatient care for Medicare beneficiaries using a diagnosis-related group (DRG) methodology that pays a predetermined amount to the hospital (with some local, individual adjustment) for each beneficiary admission depending on the patient's diagnosis. For IME payment, a formula has been devised that converts the ratio of the number of full-time-equivalent residents to a hospital's number of beds into a percentage— the more residents per bed, the higher the percentage. This percentage is applied to and increases the DRG payment for each Medicare admission. The annual update of payment rates provided by Congress for the DRG method increases the per-admission payment and thus the IME amount as well; again, an incentive is created to add residents and to train them only within the hospital's walls. Individual hospitals' decisions and the accrediting process are currently the only controls on the number of residents and therefore on much of the payment for direct and indirect medical education. The Medicare GME payment system itself is open-ended, so the system cannot control rising costs caused by expanding resident numbers. FY 1996 support for indirect education ($4.3 billion) was about twice the dollar amount paid for direct education ($2.2 billion).
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OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF A TRUST FUND
3
Some Medicare beneficiaries have subscribed to health care plans or organizations that receive from Medicare a prepaid, per capita premium, otherwise known as a capitation payment. Hospitals receive from these plans a negotiated rate rather than a payment from Medicare through the diagnosis related group system. The premium to the plans is based on the adjusted, average, per capita cost (AAPCC) of Medicare patients in the relevant county who have not joined plans and are still in the regular fee-for-service system. That cost includes hospital costs with their GME payment included, if they are teaching hospitals. In effect, Medicare payments to hospitals that were originally made through the DRG system and were enriched by GME payments, are now included in capitations outside the system and no longer targeted to support medical education and teaching hospitals. Instead these payments go to plans and organizations paid by capitation. They are not necessarily included in the hospital rate negotiated by the plans with teaching hospitals, if indeed the plans negotiate with higher cost hospitals, such as teaching hospitals, at all. As the prevalence of capitation and managed care increases, teaching hospitals, as higher cost providers, are threatened by competition from lower cost nonteaching hospitals. The implicit GME subsidy that private-sector payers were willing and, in a less competitive environment, able to provide, as well as the explicit Medicare (and Medicaid) subsidy, are diminishing, and the economic base of GME and teaching hospitals, as currently constituted, is being threatened. The combination of this financial problem, the financial problems of the Medicare program, and the need for a balanced national budget as well as certain perceived flaws in the current GME financing system (e.g., excessive DME payment variation, undue emphasis on in-hospital training, and uncontrolled growth in resident numbers) have generated interest in considering new approaches to GME and its support. The task of the Committee on Implementing a National Graduate Medical Education Trust Fund was to suggest a plan for distributing a trust fund. The committee was not charged with deciding the size or composition of the health care work force, or, in particular, the physician work force or with addressing the issues of international medical graduates. The committee was aware that much has been written and many recommendations made on these matters and yet the nature of the problems is such that no simple solutions have been found. Accordingly, the committee, after considerable debate, decided that, as important as these issues may be, and as important as payment policy might be in influencing them, no attempt should be made to define the "correct" work force or impose further payment provisions to achieve it. Instead, the committee felt that it should concentrate on a set of principles and, flowing from them, on recommendations for a new payment structure that is more open and more responsive to changes in health care delivery. The committee noted the general rationale for Medicare or other funding sources. With a focus on Medicare the committee's principles included statements and discussions of: the value of GME; the desirability of relative neutrality of payment in shaping work force; the need for opening payment
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OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF A TRUST FUND
4
eligibility to new training entities; the appropriateness of each payer contributing proportionately to the support of GME; the value of conforming nursing education support in principle and process to physician support; and the necessity for reasonably consistent payment across institutions and for gradual, nondisruptive transitions to any new distribution. There are many variables to be considered in designing a distribution plan, and, therefore, many possible plans depending on what policymakers might decide about each variable. Yet the committee was asked for a plan, and it provides one in this report. Overall, the committee recommended that a defined amount of support be determined for GME and its components each year. This has the effect of prospectively creating a fund for GME separate from the current payment system. The fund could be managed based on the status of the teaching sector and decisions on the relative roles of direct and indirect GME support. It also means that whatever plan is chosen, the financial impact on Medicare, or any other financing source, is set at the outset and cannot be changed by events during the payment year. Only the distribution can vary. The committee noted that a non-Medicare source of funds would be a desirable addition to the Medicare source, and consistent with the principles of proportional participation by all payers, or by general revenue, in a general public benefit. Because the charge to the committee did not include identifying funding sources, a discrete recommendation regarding such a source was not made. Nonetheless, the report does comment on distribution of a non-Medicare source of funds, primarily noting that, in setting a non-Medicare share, notice should be taken that Medicare is, and has been, overpaying its share and that non-Medicare funds should be distributed related to non-Medicare caseload. The committee recommended that direct GME payments transition very slowly toward a uniform, average per-resident payment. This payment would be the appropriation for DME divided by the total number of qualified residents, and as such, of course, the per-resident payment amount could be controlled by the appropriation. The existing system of weighting payments in favor of primary care residencies would be preserved, but no new conditions would be added. Payment amounts would move from each hospital's historical base very slowly for 5 years, during which time a system that took into consideration the costs of local inputs should be designed and thereafter implemented. However, additional residents added by an institution would be paid beginning immediately at only the uniform or actual amount, whichever was less. The committee believes that a more consistent price for each resident should replace the current, highly variable payment. A DME payment becomes truly a uniform Medicare payment if it is not related to an individual institution's variations in Medicare caseload, but is based on the overall national Medicare percent of caseload. The committee observed that institutions that currently serve the most Medicare beneficiaries are not necessarily those that will best train practitioners to care for the Medicare population in the future, and that some institutions that now serve few Medicare patients could be desirable training sites. The committee questioned whether
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DME and associated hospital activities are part of services to individual Medicare beneficiaries or general societal benefits. If the latter, then all payers, including Medicare, should contribute a proportional share and that share should be distributed evenly. The committee preferred this approach, but notes that this reasoning suggests very strongly the inclusion of proportional payments from other payers or a general, non-Medicare source. A strong argument against a uniform Medicare payment, not tied to individual caseloads and without support from other sources, is its potential for substantial redistribution of DME funding from existing institutions. While a uniform Medicare payment would penalize above-average Medicare caseload institutions, a uniform, all-payer or general, non-Medicare payment would compensate these same institutions because they have lower than average non-Medicare caseloads. The redistribution effect of a uniform Medicare payment would be mitigated, in theory, by the reverse redistribution effect of a uniform non-Medicare payment. Of course, in the end and in practice, variation could be reduced and a consistent DME payment or price would result, reducing the relative advantage or disadvantage in DME payment from one institution to another, except for adjustments because of weighting and the relative costs of inputs. The committee thinks this is desirable. The committee's plan also included expanding eligibility to receive DME payments directly to include any accredited educational or health services institution that met conditions of full responsibility for its training programs (called a sponsoring institution). This has implications for providing support for institutions that will allow retargeting nursing support toward advanced practice nurses, which the committee recommends. It also provides opportunities for training in new settings such as ambulatory sites and managed care organizations, under the aegis of consortia and the like. In addition, taken together with the other recommendations, it also improves the financial standing of, for example, children's hospitals or institutions offering residencies in preventive medicine, by permitting them to become DME-eligible sponsoring institutions and providing a uniform DME payment. A uniform payment (or price) simplifies decisions about what to pay new institutions. The committee recommended that indirect medical education funds continue to be targeted to teaching hospitals exclusively, but that they be divided into halves. One half of the payments would no longer be calculated using the current formula. They would be dissociated from resident numbers, beds, and Medicare admissions, and simply based on the same proportion of total IME payment that each institution had received historically. The other half would continue to be allocated by the formula as a percentage addition to each Medicare payment for each Medicare admission. To more equitably distribute funds to hospitals that serve Medicare patients from per capita, prepaid plans, a factor proportional to the percentage of patients from prepaid plans compared to total Medicare patients at a hospital would be introduced to improve distribution by the formula half of IME payment. A system of distributing non-Medicare funds, if they were provided, proportional to non-Medicare patients and similar to the process used for Medicare was also proposed for both the direct and
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OVERVIEW OF GRADUATE MEDICAL EDUCATION AND THE DISTRIBUTION OF A TRUST FUND
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indirect components of the GME payment system. Of course, all these payments would need to be monitored and adjusted to ensure payout did not exceed the defined trust fund amount. These recommendations would have the effect of halving the decrease in funding that a hospital would sustain if it decreased its number of residents because the historically based payments would continue and would not be reduced if residents were reduced. At the same time, the incentive to admit and serve Medicare patients (and Medicare capitated patients) would be preserved in part because the formula-based payments would still be made through individual Medicare DRGs and the factor proportional to capitated patients would improve distribution to hospitals that served such patients. Because the amount to be distributed is decided at the outset and capitated patients do not affect that total, the policy decision on the calculation of the AAPCC, Medicare capitated payments, and payment to managed care organizations becomes separate and distinct from the policy decision on the amount needed to support graduate medical education and payments to teaching hospitals. Once the appropriation to the Trust Fund is made, that amount will be distributed by the proposed distribution plan and enrollment of Medicare beneficiaries in managed care or decisions on calculating the AAPCC cannot change the Trust Fund. GME expenditures in the fee-for-service system could still, by the current method, be reflected in the AAPCC, but the Trust Fund, which has been set at the proper level by Congress, could not change. At the same time, hospitals which successfully compete to continue to provide access to Medicare managed care patients receive a better distribution within the fund limit as an incentive to continue to serve those patients. The committee did not choose to explore AAPCC issues further in view of these conclusions. The committee's plan does not include additional weighting factors which directly affect supply or composition of the physician work force. However, by including a defined total amount for all GME payments, a decision by a teaching hospital to add residents will have no effect on total expenditures; instead an increase in total residents would lower the per-resident payment for all institutions. In addition, residents would be added at the uniform or actual DME payment level, whichever is less, and those institutions with the highest DME payments would see their per-resident payments diminish in the transition toward a uniform price. Further, half of IME support is dissociated from resident number. These modifications should provide a more neutral payment system with respect to overall resident supply, one that is aligned with the prevailing understanding of work force requirements. It is expected as a result that resident supply will fluctuate more with market conditions. In conclusion, the committee's suggested plan provides for an annually defined fund targeted to the support of GME and teaching hospitals and separate from the payment considerations of the overall Medicare DRG payment system and from the calculations by Medicare involving plans paid on a prepaid, per capita basis. The plan does not attempt new work force restructuring, but suggests setting a uniform price per resident and creating a system open to new
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entrants, less restrictive, and more responsive to changing health care delivery. Relentless pressure to control expenditures has caused private-sector payers for health care services to deny training costs, putting teaching institutions and GME at risk, and increasingly shifting the burden towards responsible governmental public payers like Medicare. For this and other reasons, the plan notes the desirability in principle and practice, of a general, non-Medicare or all-payer contribution to the funding and makes some suggestions on how to distribute such a contribution.
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PRINCIPLES
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Principles
GENERAL CONSIDERATIONS Any approach to the support of GME, including its direct trainee support and its indirect teaching hospital subsidy, must be based on a foundation of principles. The implementation of a GME funding system also must also take into consideration historical precedent, regional variations, and political realities. At the basic, overall level, if GME and the teaching subsidy to hospitals are a legitimate part of health care services costs, then Medicare, as a responsible health care services financing program, must pay its share of these costs. Notably, Medicare has knowingly been paying more than its share to preserve the viability of the teaching sector, which is experiencing difficulties in recovering its costs from other payers (ProPAC, 1997). If, as the record of statements and decisions from Medicare suggests (Appendix B), GME and the teaching hospital subsidy are general, societal benefits, to a degree separate from providing medically necessary health care services, then Medicare could pay its share, but a decision could be taken not to do so. If Medicare, as a payer, pays its share, other payers should also do so as a matter of national policy. If not, then general public support should be provided in some way. Respecting precedent and recent congressional proposals, the committee has identified eight principles as the basis for a GME payment policy for Medicare, one that allows for, but does not recommend, other funding sources. Principle 1. Graduate medical education and related health care services represent a reasonable and necessary national investment in the quality of U.S. medicine; they further public purposes and merit continuing public support.
American medicine's high quality and global technological preeminence have benefited from U.S. leadership in the development and diffusion of new medical technology and new procedures and methods of medical practice
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(Reuter, 1996a). These advances (testing and improving new kinds of heart surgery, developing new drugs, testing of advanced technology, like MRI, for example) are supported by an infrastructure that depends on the GME mission (Blumenthal and Campbell, 1996). They often owe their conceptualization and application to practice to scientists, medical care givers, and educators at our teaching hospitals. Concentrations of patients, drawn to teaching hospitals because of unusual clinical problems, and the lessons and experiences they provide are also important contributors. With the opportunities in time and resources afforded by teaching hospitals and medical schools, scientists and patients produce the observations and clinical research, through trials and case studies, that advance the understanding of disease and its diagnosis and treatment (Goldfarb 1996; Schroeder et al., 1989). Cooperation with private industry in these endeavors, which has greatly expanded over the last decade, strengthens the U.S. domestic and export pharmaceutical and medical device industries (Blumenthal et al., 1996). New ideas arising from clinical research are communicated across the country, contributing to needed improvements in a national standard of health care and the development of a consistent approach to care (Pew Health Professions Commission, 1995). Teaching programs, by communicating information and by example, help to create a better standard of practice in their own communities as well. Geographic variations in practice patterns, overuse of technologies, and quality problems in the delivery system have been identified through the efforts of investigators in academic health centers. The existence of an effective network of teaching institutions committed to addressing these issues should be encouraged. As medicine evolves, different types of personnel are needed. New training programs and new kinds of expertise and professionals develop in the environment created for research and educational purposes. GME keeps clinicians current with progress in health care, and, when new knowledge could be delivered more effectively through new disciplines and specialties, GME helps to create them and train the necessary personnel. Exceptional, complex services are also made available. The GME mission enables the creation of, and its trainees help with the staffing levels needed by, these kinds of care, which are primarily found in teaching hospitals (Jones and Smith, 1997). Although a competitive health care environment is forcing needed reductions of redundancies in expensive services and overcapitalization through mergers and closures (Blumenthal et al., 1996; Gold, 1996), a leaner, reoriented system will still need GME and its support to continue the contributions to health care noted here. By virtue of their location, tradition, and the educational mission, teaching hospitals provide care with less than the usual concern about the sources, or likelihood, of payment for their services. The populations cared for are disproportionately disadvantaged. The 286 major teaching hospitals provided about $2.5 billion in charity care in 1994, for example, which was 45 percent of
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PRINCIPLES
10
all charity care delivered by all short-term, non-federal hospitals (Jones and Smith, 1997). The activities that are associated with GME and recognized in direct and indirect reimbursements (see Principle 2) have real though hard to measure costs, and the subsidy to teaching hospitals is based on the known relationship between the presence of training and the extra costs, (Fishman, 1996; GMENAC, 1980; Lave, 1985; ProPAC, 1997; Stedman and Zwellig, 1996). Teaching hospitals in the new competitive health care system are increasingly threatened (PPRC, 1997; ProPAC, 1997; Whitcomb and Cleverly, 1993). Health plans facing today's competitive market place are less likely to pay the subsidy for so called "public goods," such as the educational costs of young physicians who are highly mobile (Reuter et al., 1996). As a result, teaching hospitals are faced with a shrinking private-sector subsidy, although the payment over cost required to support the GME function is still partially in place (Blumenthal and Thier, 1996). If the overall subsidy is reduced enough, one would expect teaching hospitals to economize on the "public good" education, and to turn increasingly to service from their residents to the detriment of the training function. A national investment in the quality of U.S. medicine is made through GME payments. For these and other reasons, the committee thinks it appropriate that some general, non-Medicare support of GME be available to replace the private sector's diminished implicit contribution and to participate proportionally with Medicare in support of the assets. This might well allow the Medicare support to be reduced, because, as noted above, Medicare is over paying at present. The Medicare GME payment system remains, however, a vital component that continues the government's historic obligation to provide for access to highquality care settings for Medicare beneficiaries, to contribute fairly to paying all of the costs of the hospital system and not just the marginal costs of the least expensive providers, and to help with the special costs of teaching hospitals (e.g., uncompensated care; sicker patients; special, complex, or technologically sophisticated care; unsponsored research; and inefficiencies of care delivered by trainees, namely extra tests and procedures). Principle 2. Direct graduate medical education (DME) funding of trainee expenses and indirect medical education (IME) support of the teaching environment are different and worthy of support separately.
GME funding covers the cost of the educational experience and the educational environment. DME support helps to fund the identified expenses of trainees. These costs are incurred in the process of training future generations of health professionals. The types and quality of health care professionals contribute importantly to the quality of the health care system. Residents in teaching hospitals help care for disadvantaged patients and, in general, help with activities that are noted in Principle 1. High-quality graduate apprenticeships are,
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PRINCIPLES
11
therefore, valuable public assets, and support of apprenticeships in the prices of goods and services is not unusual. The committee believes this argues for inclusion of DME in the price of health care. IME support is not based on identified costs, but on a formula that recognizes the relationship between the teaching environment and the higher costs incurred by teaching hospitals. As will be described later, the formula enriches each Medicare patient's diagnosis related group (DRG) hospital payment rate. This relationship between resident training and increased cost has been observed over a considerable period (COGME, 1990; ProPAC, 1997). These higher costs were noted earlier. The value of the teaching environment extends beyond training, however. GME support sustains an intellectual climate that stimulates improvements in health care. The current division between DME and IME identifies clearly separate but related purposes, both of which are worthy of support as part of the cost of health care. In the final analysis the current U.S. educational system produces professional practitioners who compare favorably to those produced by other medical systems. GME payment provides vital support for teaching hospitals and academic health centers; contributions to medical advances and quality of care from these institutions are the other products that GME funding buys. The relatively small price paid for these high-quality results in a $1 trillion health care system seems quite reasonable. Principle 3. GME payment policy should focus on supporting the costs of education and the educational environment, be consistent with the work force needs of the country, and be more neutral than current policy with respect to haping the structure of the health care work force.
Past and current GME Medicare subsidy payments, which now average about $70,000 per resident, have rewarded hospitals for expanding residency programs (Appendix B). This is inconsistent with national work force policy findings of a physician oversupply and recommendations for supply control from the Council on Graduate Medical Education (COGME). Substituting a closed fund for the current open-ended entitlement should have a more neutral effect, that is, it should lessen the stimulus to add residents. Capping overall payment for residents may limit positions because having more residents will result in lower per capita reimbursements. Movement of very high DME per-resident payment toward a uniform payment should also lessen the advantage that residency expansion or maintenance of high resident numbers confers on some hospitals. In addition, payment strategies that encourage primary care programs or residency programs of shorter duration have had only modest success (Cohen, 1995; Ginzberg, 1996; Greer et al., 1994). The committee thinks that the current differential DME payments (called weighting) that pay more (weight the calculated DME payment amount at 100%) for primary care or the first 5 years
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PRINCIPLES
12
of other residencies do little to affect the applicant pool. Many generalist positions have been unfilled (Eisenberg, 1994). In a rapidly changing health care market, precise plans for the ideal work force composition are uncertain. Observations on variation in the shape and size of the work force in different parts of the country with apparently equivalent health outcomes call into question the validity of descriptions of the appropriate work force size and composition (Goodman et al., 1996; Whitcomb, 1995). In view of the above, the committee thinks that further conditions should not be added to the current payments related to work force composition. Some professions, such as dentistry and podiatry, do not believe their training positions exceed appropriate supply and do not wish to be caught up in mandates designed for the physician work force. The committee also does not wish to prohibit some redistribution; some regions of the country might properly need more residents to participate in programs aimed at local shortages, for example. Thus the committee concludes that a policy of controlling aggregate payment is preferable to additional attempts to restructure the work force by not paying at all, or paying differentially, for certain residents. Principle 4. The GME payment system should allow responsiveness to health care system change, such as emphasis on primary and ambulatory care and other innovations. Eligibility for DME payment should be open to all educational and health care services entities that are responsive to change and can provide the best training. Accrediting bodies should assist this process.
The historical emphasis in GME has been on the inpatient setting and training in the teaching hospital. However, there has been of late a marked decrease in inpatient hospital care and a shift to ambulatory settings. Generalist care, managed and team care, more cost-effective care, more population-based and preventive care, and less individual-based medical management are characteristic of these ambulatory settings and of the managed care organizations that are primarily responsible for this new emphasis (Pew Health Professions Commission, 1995; Rivo et al., 1995). Training programs should ensure more exposure of residents to these settings and concepts of care (IOM, 1996b; Peinado and Eisenberg, 1990; Thier, 1994). Health professionals must continue to be technically skilled in managing serious, life-threatening disease, which traditionally has been more likely to be encountered in an inpatient setting. Nevertheless, more and more serious conditions are now being managed outside of the hospital. Few would dispute that concepts of care are changing and that training should adapt to these changes. This argues for readjusting the balance between inpatient and outpatient training and perhaps for incorporating a variety of educational models over the next few years. The current financial incentives in GME payment policy have made adaptations in training systems slower and more difficult than might be desirable. Permitting alternative options for DME payment and encouraging consortia
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PRINCIPLES
13
among teaching hospitals, medical and osteopathic schools, and other entities that can support a GME experience consistent with changing practice needs would improve the likelihood that the training system will evolve in a responsive manner (Rich, 1994; Rieselberg et al., 1996). Including the amount of time residents spend in appropriate ambulatory sites as part of the IME payment formula—which currently only counts in-hospital time—could eliminate a payment incentive that favors institutions with more in-hospital teaching time. To complement changes in federal policy, the committee urges accrediting bodies to make accreditation available to new entities that are creative and provide the kinds of training settings that are responsive to system change and teach new and more cost-effective ways of providing care. Some managed care organizations appear to be providing such settings now (Ladden et al., 1996; Ludden, 1996, 1997), and others might develop quality programs if supported (G. Moore, personal communication, 20 February 1997; Moore et al., 1994; Veloski et al., 1996). Principle 5. Medicare should pay its share of graduate medical education support for all its beneficiaries. Other funding sources should address the non-Medicare share proportionately. Support of GME by existing, though diminishing, private-sector payments for health care services in excess of costs may offset the need for an exactly proportional, general, nonMedicare share of support.
Medicare's responsibility for a share of GME expenses dates from the beginning of the Medicare program. Medicare GME payment gives Medicare beneficiaries access to high-quality care in teaching settings, will help beneficiaries in the future through the continued development and improvement of health care (Schweiker, 1982), and fulfills the obligations noted earlier in Principle 1. IME payment is based on a teaching hospital's individual Medicare caseload. The current IME formula of a 7.7 percent increase for each additional 0.1 resident per bed represents more than the true marginal cost increase related to increasing teaching intensity (ProPAC, 1997). The formula could be modified to reflect more closely the true relationship between the resident-to-bed ratio and cost depending on the extent that other payers assumed their share of IME support. In principle, Medicare should not be responsible for more that its share of GME and teaching hospital support. A proportional contribution from a general, non-Medicare source(s) is desirable. Congress should decide how much total support should be available. If general, non-Medicare funding is provided, Congress should assign each funding source, in so far as each fund amount allows, a proportional role within the total. Principle 6. Nurse clinical DME and physician DME should depend on the same principles and use the same processes.
The committee thinks that funding of GME and its components should be primarily for advanced clinical and postgraduate education. After physicians (as
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PRINCIPLES
14
defined by Medicare) the next largest component of the GME payment system is for nursing. Clinical training of graduate nurses, like that of graduate physicians, contributes to the quality of care of Medicare beneficiaries through the direct provision of services and by enhancing the training environment for others. The rationale for GME support of training pre-entry-level staff is not compelling. Their contributions are less likely to control the future shape or quality of the health care system. They also make lesser contributions to research. Diploma nurse programs, which train non-graduate-level nurses and are currently eligible for GME nursing funds, are generally operated by nonteaching hospitals that receive partial reimbursement for the submitted costs of operating these programs. Advanced practice nurses, on the other hand, can substitute for physicians in many cases (Green and Johnson, 1995). They contribute to health care delivery by practicing in underserved and rural areas, focusing on geriatric and other primary care, and providing services that residents performed, when resident programs are reduced (Knickman et al., 1992; PPRC, 1994). Advanced practice nurses meet more closely the definition of ''graduate,'' and the committee thinks it is, in principle, more reasonable to include them in GME fund distribution. Given the analogous contributions of graduate-level nurses and physicians and the rationale for conforming to the same principles, it makes sense to structure DME for nurses and physicians in the same way. Principle 7. Payments should be reasonably consistent from institution to institution and from region to region.
Consistency and the appearance of fairness are important in achieving and sustaining public backing for the expenditure of public funds. The committee does not think that per-resident costs based on cost reports from 12 years ago should vary 10-fold from one institution to another institution (Anderson, 1996).
FIGURE 1.Perresident payment distribution before Medicare share calculation. (FY 1993). Source: ProPAC, 1996b.
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PRINCIPLES
15
Stipends do not vary by anything remotely resembling a factor of 10. This variation reflects, primarily, differences in program structure and costs and idiosyncrasies of allocations from 12 years ago (Anderson, 1996; PPRC, 1993) Resident training costs may indeed vary modestly and appropriately from region to region as a result of varying costs of inputs. Nevertheless, a reasonably standard price is desirable in principle. Movement toward a standard, or average, payment should also have the practical effect of lessening the excessive incentive for institutions and regions with very high DME payment to retain increasing numbers of residents. DME and associated teaching hospital activities seem more likely to be general, societal benefits (from a well-trained work force, for example) than part of services to individual Medicare beneficiaries. Additionally, the training programs that treat a large proportion of Medicare patients today are not necessarily the ones that produce the physicians who will take care of the most Medicare beneficiaries in the future. This argues for Medicare (and other payers) contributing a proportional share distributed evenly rather than varying by each individual institution's Medicare (or other) caseload for any particular year. A uniform Medicare payment, however, risks substantial DME redistribution; in addition to theoretical considerations, this supports the rationale for a general, non-Medicare payer(s). If such payers contribute proportionally, their payments will be inversely proportional to Medicare's. A general, non-Medicare contribution (if available) would have the same effect in leveling IME support across institutions to the benefit of facilities that have not received GME support because they had low Medicare caseloads, but nevertheless are valuable GME sites and would then be supported by payers representing proportionally the different kinds of subscribers or beneficiaries. The committee is aware of the issues raised, and the variations in GME payment caused, by the current policies with respect to the calculation of the adjusted, average per capita cost (AAPCC) of Medicare patients in the fee-forservice system, on which Medicare's payment of per capita health plan premiums is based (COGME, 1995a,b; Mullins and Cohen, 1995). The scope of the committee's charge does not include the issues raised by these Medicare capitation calculations, except insofar as the committee expects that the problems will be mitigated by a defined GME fund and other aspects of the committee's plan. In a limited trust fund, inclusion of capitated caseload in the IME formula, as suggested later, can distribute funds to recognize service to managed care plans but cannot increase total expenditures. These issues will be described in detail later, as well as why an annually defined GME fund permits separate consideration of GME and AAPCC policy and practice. Principle 8. Change should be gradual. Transitions should be designed that avoid funding shifts that are disruptive for the system, the trainees, and the institutions.
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PRINCIPLES
16
Budgetary pressures and plans to restructure the Medicare program may soon lead to changes in GME support. These changes may include reductions in funding for GME if training sources share in program cutbacks. Many policymakers have agreed that GME is a national asset, the quality of which is the foundation for overall health care quality. Educational quality depends on having adequately supported teachers and teaching facilities. Like all education, GME depends on consistent, stable support and having time to adapt to change. Changes made to rationalize the system, to eliminate incentives that distort public policy, and to level support variances should also recognize legitimate differences in local conditions and allow for transitions. Abrupt changes or substantial shifts in funding can have negative effects and disrupt programs. GME payments vary greatly across institutions. Because substantial changes in payment are possible during corrections, special caution should be exercised to protect individual trainees and teaching institutions. Furthermore, given the length of medical training, longer and more gradual transitions may be warranted than were used to implement Medicare's DRG payment method, the prospective payment system (PPS), for example. In the final analysis, change that comes in response to markets, technologies, or educational practices is preferable to change that is imposed.
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RECOMMENDATIONS FOR DISTRIBUTION OF GME FUNDS
17
Recommendations for Distribution of GME Funds
Based on the identified principles, the committee makes the following recommendations: GENERAL •
The committee recommends establishing a National Graduate Medical Education Trust Fund with an annually defined amount. This would be equivalent to a GME Prospective Payment System and would allow consideration of the economics of academic training programs and teaching hospitals separate from the overall hospital sector. • Although the charge to the committee excluded consideration of funding sources, the committee notes the desirability of replacing, at least in part, eroding support from private-sector health care payments and limiting inappropriate shifting of the financial burden of providing a general, public benefit to Medicare. In addition to a Medicare contribution, therefore, a National GME Fund could also include a general, non-Medicare contribution which could be from general revenue, an all-payer fund, a premium tax or dedicated tax or some other public non-Medicare source. This would allow for a better distribution plan, satisfying the principles of proportional support from payers in recognition of a general public benefit, and providing, in practice, more uniform support and support to low Medicare-caseload institutions. The committee's distribution plan can be carried out in most respects through an exclusively Medicare-based fund, however. • Given a general, non-Medicare contribution, the National GME Trust Fund could be viewed as four separate funds: within the limit of the
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RECOMMENDATIONS FOR DISTRIBUTION OF GME FUNDS
18
National GME Trust Fund annually defined amount there would be a Medicare and a general DME fund, and a Medicare and a general IME fund. Each would have an annually determined amount, or part of the total fund. • To maintain a consistent Medicare commitment to GME, Medicare funding should reflect, ideally, a base period expenditure for DME and IME, trended forward. Adjustments to these amounts could be legislated by Congress, because, in the final analysis, the fund amounts will be whatever Congress determines are necessary to support GME and teaching hospitals. A general, non-Medicare amount could be set by Congress in the budgeting process. Each payer for health care services should contribute in proportion to its share of total health care expenditures recognizing, as previously mentioned, the ongoing, though diminishing non-Medicare support through private-sector health care service payments. DME •
The DME funds should pay a uniform per resident amount, without reference to individual institutional Medicare (or nonMedicare) caseload, but continuing current weighting for work force composition. • The system should provide a transition that moves gradually toward a uniform payment with the initial change occurring over 5 years. The initial transition discussed could fall short of achieving uniformity in many institutions. During this initial 5-year transition, however, a better DME distribution plan should be designed that recognizes the need for greater uniformity and for a reasonably standard resident training price, but also accounts for differences in costs of inputs and, if possible, other factors such as locations of special need. This new system would be initiated (or phased in) following the initial 5-year phase-in. Beginning immediately, residents added to an institution's total resident number should be paid for at the lesser of the projected uniform rate or the actual rate. • Eligibility for DME payments should be expanded to include any entity that is a formal educational or health care service institution, that meets accrediting body standards for GME, and that assumes overall training program responsibility. These entities should be paid directly. • Nursing DME should be structured like physician DME and be paid to sponsoring institutions for the support of advanced practice, graduate clinical trainees. This provision should be neutral with respect to the proportion of DME that has supported nursing; diploma, undergraduate nurse education support should be phased out in 4 years or less to allow present students to complete their training.
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RECOMMENDATIONS FOR DISTRIBUTION OF GME FUNDS
19
IME • Medicare IME funding should be divided into halves. One half should be allocated from a historical base (historical payment) trended forward each year without further reference to resident, bed, caseload, or formula factors. The other half should be allocated using the current IME formula (formula payment), as adjusted from time to time by Congress. Both components should be set aside for teaching hospitals with accredited training programs only. 1. Historical Payment: Historical Medicare IME payments should be set as each institution's proportion of total Medicare IME payments for a base period applied to one half of Medicare IME funds and annually trended forward thereafter. Adjustments would be made for the adequacy of the fund each year. 2. Formula Payment: Formula Medicare IME payment should be calculated by applying the current IME formula to each institution. Payments should be made in the usual way through the PPS by applying the resulting adjustment to each diagnosisrelated group (DRG) rate. Payments would need to be divided in half because only half of Medicare IME payment is to be made using the formula. Additional adjustments or reconciliations should be made as necessary to ensure that the total national Medicare IME payout remains within the Medicare IME fund limit for the year. • If general, non-Medicare funds are included in the trust fund, they should also, like Medicare IME, be divided into halves, namely historical and formula payments. 1.
Historical Payments: Historical IME general, non-Medicare payments should be based on each institution's proportion of total imputed non-Medicare IME payments for a base period (calculated by using the IME formula for that year applied to non-Medicare inpatient revenues) applied to one half of general, non-Medicare IME funds and annually trended forward thereafter. Adjustments should be made for the adequacy of the general, non-Medicare IME fund in each year. 2. Formula Payments: Formula general, non-Medicare payments should be calculated by applying the IME formula to each institution. Payments should be made periodically using the resulting IME formula adjustment applied to non-Medicare inpatient day revenues. Payments would need to be divided in half because only half of general, non-Medicare IME payment is to be made using the formula. Additional adjustments or reconciliations should be made as necessary
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RECOMMENDATIONS FOR DISTRIBUTION OF GME FUNDS
20
to ensure that total national general, non-Medicare payment remains within the general, non-Medicare IME fund limit for the year. • An institution's Medicare capitated patients' percentage of that institution's total Medicare caseload should be calculated and used as a coefficient to appropriately modify the IME formula PPS adjustment in the formula half of Medicare IME payment to account for capitated patients in the distribution of formula IME support. • Current IME payment should be restricted exclusively to teaching hospitals. Study of the design and the effects of a wider distribution to cover indirect teaching costs in other settings that are accredited and recognized for payment by the National GME Trust Fund should be undertaken. • The amount of time residents spend in approved, affiliated ambulatory training sites as part of an institution's Accreditation Council for Graduate Medical Education/American Osteopathic Association (ACGME/AOA) approved residency program should be counted for hospital IME payment purposes just as it is for DME payment.*
* The committee's use of the term "non-Medicare" share or caseload always excludes the Medicaid share or caseload. Medicaid pays for GME separately in almost every state. A GME trust fund would double pay if applied to a Medicaid share or caseload.
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DISCUSSION
21
Discussion
A TRUST FUND The committee endorses the concept of a national GME trust fund as a mechanism that aggregates funds from diverse sources and allows support of a range of activities that might be questionable from a particular funding source. Teaching hospitals are threatened because they are becoming less able to transfer costs associated with GME to non-Medicare patients through higher prices. Adding general, non-Medicare funding to Medicare funding for a GME trust fund addresses this shortfall and appropriately supports the principles and practices identified in this report. This important concept has already been considered by Congress. By changing from an open-ended entitlement to a closed-ended fund, a GME trust fund imposes a structure that limits available monies in a clear and predictable fashion, providing a controlled payment each year. Such a system would minimize the temptation to manage expenditures through formula changes that would be confusing and potentially disruptive. The system should be designed to provide greater local flexibility on work force matters and incentives to base the number of residents on market conditions rather than payment rules. The flaws in the current system that call for change are discussed under "Additional Issues." Briefly, these are: excessive DME payment variation; overemphasis on in-hospital and under-emphasis on ambulatory and managed care training; uncontrolled payments for additional residents; and loss of GME to managed care plans. The crucial factors for the success of the trust fund are its adequacy and stability and the continuation of Medicare's commitment to meet its responsibility, as both a governmental program and the major national hospital payer, to contribute fairly to all the costs of the hospital system, not just the marginal costs of the least expensive providers. Monitoring should be required to ensure that the fund remains adequate to assist academic health centers. The fund
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DISCUSSION
22
could then be thought of generically as a GME Prospective Payment System (PPS) and more specifically as a mechanism to preserve the viability of academic health centers and GME. Management of expenditures in this way requires the fund to be distributed more evenly, be related to teaching intensity, and be responsive to information about the financial health of teaching hospitals. There is the risk, of course, that leveling reimbursement may also level centers of excellence. The GME Trust Fund would allow separation of at least a portion of GME payments from Medicare inpatient hospital DRG rates. The present IME formula directly links Medicare payments to the level and complexity of the Medicare caseload and the resident-to-bed ratio; payments are also affected by the annual DRG payment rate update, which reflects decisions based on the condition of the overall hospital industry. A predetermined, fixed trust fund would establish a payout controlled by a different set of policy variables. For example, the trust fund could distance IME funding from PPS considerations. The annual DRG update would have no impact; only the trust fund update would affect payment. The AAPCC includes hospital costs with associated GME costs to fee-forservice Medicare beneficiaries. These costs are included, in turn, in Medicare per capita payments to health plans or managed care organizations that enroll Medicare beneficiaries on a capitated basis. Hospital payments from these plans are negotiated separately and are not made through DRG rates (the PPS). These payments need not, and in most, if not all cases, do not include the GME subsidy. The subsidy remains within the plans. This issue of AAPCC diversion of GME payment from teaching hospitals to plans would become a moot point with a trust fund because any aggregate financial impact of capitated patients on GME hospital payment would be eliminated. Once a decision on the National GME Trust Fund amount was made, that amount would be distributed, no more, no less. The percentage of Medicare patients joining capitated plans could not affect the total distributed. As noted, a coefficient to recognize the proportion of Medicare capitated patients in a hospital could improve proportional distribution to that facility from the defined total National GME Trust Fund. The AAPCC would, of course, continue to reflect any GME payments from the fee-for-service sector, but that could not reduce the Trust Fund. Congress could decide whether this arrangement was appropriate. In summary, increasing the separation of the hospital rate and GME decisions encourages consideration of what the different policy variables should be, how they should change over time, and how to address the separate problems of teaching hospitals and their GME functions. PRINCIPLES AND GME The committee's principles guided its decisions on distribution of GME funds. These principles specified the public value of GME and of its direct and indirect components, and the important distinction between direct support of training and indirect support to maintain the teaching environment. Failure of
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DISCUSSION
23
public support for these principles would have negative consequences for major medical centers, for the quality of professional personnel, and ultimately for the quality of health care itself. A distribution plan should also reflect the principles of cost sharing among payers, of comparable payments across the nation, of responsiveness to changes in the health care delivery system and market, of providing gradual transitions, and of the need for stability in a system with long training lead times. PAYMENT TO DME INSTITUTIONS DME payments currently are made to teaching hospitals. A teaching hospital is a sponsoring institution, defined in the American Medical Association's Graduate Medical Education Directory (1995) as "an established formal organization having the primary purpose of providing educational and/or health care services (e.g., a university, a medical school, a hospital) that assumes final responsibility for a program of graduate medical education." The committee accepts this definition with the added conditions that the sponsoring institution: assume responsibility for the entire educational program; be the active paymaster for the residents by making assignments and schedules and paying resident stipends; assume responsibility for regulatory compliance; prevent double payments; and ensure that payments follow costs. Given changing conditions and the development of new institutions, some flexibility is desirable in making DME payments. The committee concluded that eligibility for direct DME payment should be expanded to additional institutions that meet the definition of a sponsoring institution. Teaching hospitals that receive the total per-resident amount and that currently, depending on local conditions, negotiate a pass-through of all or part of this amount or simply pay all or part of the salaries and benefits of their programs' residents at affiliated sites, could continue to do so. Additional kinds of sponsoring institutions could include independent institutional training programs that show responsibility for the requirements for a training program(s), such as those of ACGME/AOA or others. According to one source, for example, as many as five or six managed care organizations currently functioning as affiliated training sites might compete and provide quite interesting models as new institutions designing and implementing residency programs and meeting the criteria for becoming a sponsoring institution (G. Moore, personal communication, 20 February 1997). As already noted, these and other new sponsoring institutions would have the continuing responsibility for paying resident stipends during the training period and for working with the Secretary of Health and Human Services (HHS) to devise ways to avoid double payments if multiple institutions were involved. Because IME payment is made through the PPS for the support of teaching hospitals, only DME payment eligibility would be expanded; at some point, however, IME payment eligibility may need to follow DME funding out of the hospital. For IME to keep pace with the changes in the delivery system and to
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DISCUSSION
24
ensure that GME equips trainees with the skills necessary to function in that new system, the committee considered whether IME support, as well as DME support, should be distributed more widely. For the time being, the committee suggests that a study be undertaken to explore the concept and perhaps define ways to distribute IME funding to any sponsoring institution. Doubtless, teaching hospitals would remain the usual sponsoring institutions for DME, but medical and osteopathic schools, health maintenance and managed care organizations, group practices, ambulatory centers, universities, and consortia might also qualify to receive payment directly. Consortia could actually be encouraged if they made a case for enhancing national policy objectives and it was deemed desirable, after careful consideration of the implications, to enlist them in pursuing additional GME or work force goals through the payment system. The AOA's plan to structure osteopathic GME into mandatory consortia deserves careful observation in this regard. These consortia could have a positive effect on work force and educational quality (Wickless, 1997), depending on the AOA's policy and the vigor of its implementation. A STANDARD PAYMENT The committee sought to promote consistency. The distribution of DME funds should continue on a per-resident basis, but an argument can be made for standardizing the payment. This argument depends on the view that current exceptional payment variability is, prima facie, difficult to justify. As noted earlier, the 1984 DME cost base reflected allocations and program variables that may be obsolete or were somewhat idiosyncratic at the outset (Anderson, 1996; COGME, 1988; PPRC, 1993). If existing nonteaching hospitals or entirely new training facilities are to be added, it makes sense to have a standardized payment. The question of what the nonstipend, non-fringe-benefit part of DME payment should be in newly eligible, nonhospital settings is best resolved through a standard payment. Such a standardized payment could be based on the national Medicare share of current national DME cost (or, more simply, on current Medicare national payment) divided by the total number of residents. Because the payment would be really no more than the annual Medicare DME fund divided by the numbers of residents, Congress could decide whether to enrich or reduce this amount by controlling the annual fund amount, depending on the availability of funds and the status of teaching hospitals, but it would be the basis for transition. A general, non-Medicare DME fund (if available) would be distributed in the same way. Averaging is not a new concept. Regulations now provide for payment to new hospitals of the mean per-resident amount in the hospital's PPS wage area (42 C.F.R. 413.86 et seq.).
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DISCUSSION
25
DISSOCIATION OF PAYMENT FROM INDIVIDUAL CASELOAD Currently, a teaching hospital's DME payment fluctuates with the proportion of that hospital's inpatient days that are paid for by Medicare. This introduces a variable that bears little relationship to the cost of training, its effectiveness, or quality. ''[DME] factors . . . [are] really based on objectives quite apart from the care of particular patients in a particular hospital'' (Schweiker, 1982). It also penalizes or rewards teaching hospitals participating in a training system according to local caseload and population characteristics. Further, Medicare admissions to teaching hospitals would not be relevant to the costs and benefits of newly eligible nonhospital sponsoring institutions. Arguments favoring local caseload adjustments include precedent, reluctance to disturb current payment patterns, concerns about any change causing substantial redistribution, the incentive to provide access to services to Medicare patients, and the concept of a direct linkage of Medicare payment to the Medicare beneficiary. A uniform payment is recommended by its effect on sites with low Medicare caseloads that are valuable training settings or important for generalists' experiences, such as children's hospitals (which are losing state and federal GME support as a result of conversion of fee-for-service Medicaid patients to capitated plans). As discussed earlier, if DME and associated teaching hospital activities are more a general, societal benefit, to a degree separate from services to individual Medicare beneficiaries, then Medicare and non-Medicare payers could contribute a proportional share, distributed evenly. This suggests very strongly the inclusion of payments from non-Medicare payers, or from general revenue. The committee thinks a uniform payment and a leveling of DME payment variation is a desirable objective. Reaching this payment is a two-step process; standardizing the per-resident amount and then paying a uniform, Medicare portion of that amount. In practice, of course, with a defined fund the payment is simply the fund divided by resident numbers, as noted. Medicare expenditures are the same whether Medicare (a) pays a percentage of the costs of each resident at an institution based on Medicare's proportion of the institution's total caseload or (b) sums all percentages and pays the national average percent of national teaching hospital caseload. The same would be true for funds applied to non-Medicare caseloads. In the former case, the estimated amount is distributed unevenly. In the latter case, once the rationale of a uniform national percentage and a standardized payment dissociated from the 1984 cost base is accepted, the practical effect is simply a uniform national per-resident payment. Payment would be composed of a uniform Medicare and general nonMedicare component. This payment can be dissociated from cost and considered to be paying for a benefit prospectively. It could be adjusted when appropriate after the first phase of the transition, to accommodate regional differences in training cost, such as costs of inputs, or to encourage programs responding to special needs. Reductions or enrichments can be achieved by reducing or raising the total appropriation to the trust funds, which has the effect of changing the per-resident
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DISCUSSION
26
payment amount. The effect is reminiscent of the change in hospital payment caused by the introduction of the PPS (Fishman, 1993); it could require no midyear adjustment for DME if the DME funds are simply divided up based on a tally of resident numbers. The Secretary of HHS should be given flexibility in timing and precision for determining how residents are counted and payments reconciled so that added per-resident payments during a payment year will not be made after the year's standard per-resident amount is calculated. Residents added at a time appropriate to be counted should generate payments at the institution's current transition amount or the current uniform amount, whichever is less, as described below. The committee's plan moves over time, with the transition discussed, to eliminate the caseload variable (and the 1984 cost base), thus creating a uniform payment. The cost of a resident to an institution does not depend on who the payers are. A TRANSITION Sudden shifts in payment amounts are disruptive. Legitimate differences in the cost of doing business exist for institutions in different regions. However, the committee is aware that adjustments as a result of regional differences, even if applied generously are unlikely to substantially mitigate DME payment redistribution effects (Anderson, 1996; COGME, 1996). A gradual movement from historical payments, which bear some relationship to costs, toward a uniform payment over a 5-year period should provide the best protection against undue disruption of institutions. The proposed method requires first adjusting each institution's current DME per-resident payment proportionally to fit the sum of payments within the determined fund amount for the year in question, and then calculating the uniform per-resident payment amount and moving each institution's per-resident payment up or down toward that amount by 5% each year (or a lesser percent if it reaches the uniform amount). The objective of the transition is to prevent severe losses or windfall gains. This initial transition should continue for 5 years, during which time a DME payment system should be developed for implementation after the transition. This DME payment system should continue the movement to uniformity across institutions and to a more standard national price, but at the same time reflect legitimate differences in costs of training residents in various institutions and parts of the country. Adjustments for these differences were not included in the original transition because movement from historical payments which, in theory at least, reflect total DME costs is slow and costs of inputs explain very little of current variation (Anderson, 1996). In the future, however, fairness requires that the differences be accounted for. In addition, it is desirable and may be possible to design a DME payment system that recognizes locations with special needs. During the transition, new programs, new sponsoring institutions, or residents added to programs at existing sponsoring institutions should be
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DISCUSSION
27
supported at the uniform per-resident payment or, when available, the institution's actual per-resident amount, whichever is less. PAYMENT POLICY AND WORK FORCE COMPOSITION The committee decided not to disturb the current weighting of residents for payment purposes based on duration of residency or specialty type. These differences should be continued because they may encourage teaching hospitals to continue residencies in primary care that are more aligned with current work force policy. They may also discourage allowing trainees to change from short residencies to longer ones. However, recent analyses (Cohen and Todd, 1994; Goodman et al., 1996; Mullan et al., 1994; PPRC, 1997; Seifer et al., 1995) reinforce the committee's uncertainty about future work force requirements and thus about the case for attempting additional work force restructuring through payment changes. Even though there is considerable support for some work force policies regarding primary care and the ratio of generalists to specialists, there are differences of opinion and uncertainties caused by the variability of predictive models (AAMC, 1996; Burg et al., 1994; Cooper, 1994; Meyer et al., 1996; Rivo et al., 1993). There remains, as well, a legitimate question as to whether weighted DME payments will influence applicants as effectively as the market does (PPRC, 1993). Some have also raised objections to a governmental prescription concerning the work force (Dranove and White, 1994). The shape of the U.S. health care delivery system, which has shown the capacity for considerable change recently, is probably not reliably predictable a decade from today when medical students now entering the training pipeline will emerge. Further, in a fixed-cost system, additional payment adjustments to influence work force would have no aggregate cost effect and, unless they were quite severe, probably only modest distribution or behavior effects consistent with past experiences in reaction to payment weights. The committee appreciates the value of primary care providers and of an emphasis on ambulatory and preventive medicine (IOM, 1996b) but prefers to allow change to occur through a system that is relatively permissive, rather than attempting to impose policy and limit local options through payment restrictions. Almost all observers agree that the United States faces an overall surplus of physicians (IOM, 1996a; COGME, 1996), although at the moment there are some conflicting indicators (PPRC, 1997). The committee does not think that this argues against GME and teaching hospital support. It does require that a payment system at least set a total expenditure level and not pay above that for additional residents who will contribute to oversupply. Nonetheless, in some major regions the number of physicians is significantly below the national average (Kindig and Libby, 1994), suggesting that there may occasionally be local reasons for the introduction of new programs or the expansion of old ones. A fixed (and possibly reduced) pool of total GME funds, a lower high-end DME payment, payment for new positions at the lesser of the uniform or actual price,
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DISCUSSION
28
and changes in IME to dissociate resident numbers from payment, will diminish the GME payment stimulus on work force. The committee rejected, therefore, a freeze on total numbers. The committee appreciates that a more forceful approach than eliminating incentives, such as strong incentives (or penalties) to reduce the number of resident positions could be implemented. Given that, with the proposed plan, resident numbers would impose no aggregate financial cost to the National GME Trust Fund, the committee preferred to adopt a less intrusive posture and allow the system time to change in response to current market conditions. This less intrusive posture also resolves the committee's uncertainty as to the merit of creating a separate payment program for other professions, such as podiatry and dentistry, or the fairness of sweeping them into a restrictive mandate primarily in response to a physician surplus. The committee also took no steps to control the number of international medical graduates (IMG). The 46% excess in the number of residents over the number of graduates from U.S. medical schools is due to inclusion of IMGs (Iglehart, 1996; Mullan et al., 1995). About half of these international graduates are legally entitled to remain in the United States (Aronson, 1996; IOM, 1996a). The committee believes that the number of residency positions is leveling off (Jones and Smith, 1997; PPRC 1997) and will shrink, reducing opportunities for IMGs. Positions should remain open to all competitors. Some institutions rely on IMGs to deliver care, often uncompensated care; they should not be disadvantaged. The committee is confident that U.S. medical graduates will continue to match to residency programs much more successfully than IMGs, as they have historically (AAMC website, 19 March 1997), and as the number of positions decreases, that the IMG situation will evolve in a way that minimizes program turmoil. The committee also noted that training IMGs, if they return to their home country, can be an export opportunity as well as a service to the rest of the world. MAINTAINING QUALITY STANDARDS Accrediting bodies, laws, and regulations must continue to strengthen the requirements for resident supervision, the priorities for education over service, and the diversity, relevance, and quality of the training experience. Policymakers should be wary of any changes in policy or hospital behavior that shift the balance unduly toward the provision of low-cost labor or that inappropriately minimize training priorities and expenditures. These changes could reorient the financial incentives and undermine the public purposes supporting the rationale for DME (and IME) funding in general and for any distribution strategy specifically (PPRC, 1994). The committee strongly urges accrediting bodies to encourage reductions in lesser quality training programs by vigilantly enforcing educational standards and by prohibiting undue emphasis on service. Withholding accreditation should be used to enforce quality. Accrediting bodies also will have a major role in ensuring the training diversity allowed by the
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DISCUSSION
29
expanded eligibility for DME funding. Accrediting bodies should develop approaches to further the objective of providing new GME settings that are responsive to the changing health care delivery system. DME SUMMARY The committee proposes the creation of an annually defined Medicare fund distributed in uniform payments per resident (with weighting and transition) to institutions that accept responsibility and meet the standards for a quality GME program. A second, general, non-Medicare fund is desirable and would be distributed in the same way in the form of an additional payment. A reasonable transition period is proposed during which an improved DME funding system should be designed. The committee's proposed payment system would be more neutral in terms of its work force effects. The proposal would also allow new and different institutions to participate in training, and the system could respond to market changes in the organization and delivery of health care. To the extent that numbers of residents increase, the per-resident payment would decrease. To the extent that numbers of residents decrease, the per-resident payment would increase. Institutions with higher DME payments could add residents only at the lower uniform payment level. This system will give teaching institutions stronger incentives to base the size of their resident work forces on market conditions. IME ISSUES IME payments also are made to teaching hospitals and are related to GME. They differ from DME payments in important ways, however. IME payment is part of Medicare's PPS. Because the IME payment depends on the DRGs, it is provided only in connection with inpatient hospital services. As previously noted, no specific costs are identified. Instead, payment is a percentage increase in the DRG payment for individual Medicare beneficiaries; the amount of that increase is dependent on a formula whose variable is the ratio of residents to beds in each teaching hospital—in other words to the density of students and the intensity of teaching in the facility (Fishman, 1992). Such a formula is consistent with the concept of IME as support for the hospital and support for the clinical research and patient services that accompany hospital-based training. The committee's first two principles recognize the distinct value of IME funding to support the teaching environment and subsidize the costs of residents. IME fund distribution also should be guided by the same principles that inform DME fund distribution. An IME system should work in conjunction with DME payment, coordinating the incentives and disincentives to reinforce the influences of the whole GME payment system. The resulting arrangement should
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DISCUSSION
30
be consistent with national policy goals and improve GME and the health care system. Unfortunately, as noted earlier, some current incentives, such as tying the payment to the number of residents, are associated with an oversupply of residencies and ultimately of physicians (Dunn and Miller, 1996). The IME payment system also discourages training residents in community-based ambulatory settings (Eisenberg, 1990). Service in such settings does not affect throughput of DRG patients in the hospital, nor does nonhospital working time count toward the resident-to-bed ratio. On the plus side, funding that flows with the DRG rate encourages Medicare admissions by enhancing the attractiveness of Medicare patients relative to other payers and improving Medicare beneficiaries' access to high-quality teaching facilities.
SUMMARY PLAN: DIRECT MEDICAL EDUCATION (DME) • The Health Care Financing Administration (HCFA) counts the number of full-time-equivalent (FTE) residents. • HCFA divides the Medicare and (if available) general, non-Medicare DME funds by the number of FTE residents to get a standard per-resident payment amount. • HCFA adjusts current DME payments to fit within the DME fund limits. • HCFA pays the uniform Medicare percentage of each sponsoring institution's historical, weighted, Medicare per-resident payment, reduced or increased toward the standard by 5% each year and adds (if available) a uniform general, non-Medicare payment. • New sponsoring institutions are paid the uniform Medicare percentage of the weighted, standard Medicare amount and (if available) the uniform general, non-Medicare amount for each resident. • The addition of residents at existing sponsoring institutions generates the standard or the current actual Medicare per-resident payment, whichever is less, and (if available) a uniform general, non-Medicare payment. • HCFA designates new non-teaching-hospital sponsoring institutions based on accrediting body approval and formal status as a health care service or educational institution and pays the uniform Medicare and (if available) general, non-Medicare amounts.
MODIFICATION OF MEDICARE IME FUNDING To modify these incentives, the committee recommends dividing the IME fund into halves. One half of IME payment would be based on historical IME payments, trended forward by some inflation or medical market basket factors, or as Congress decides. Whatever the amount in this half of the IME trust fund, these payments would depend on the share a hospital's IME payment was of total national IME payment for a base period. The hospital would receive that same share of the current half of the IME fund. The other half would be paid
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DISCUSSION
31
according to the present formula. (The committee does not define the base period for the historical IME share. Clearly, the implication of the choice of base period is very different if the period chosen is [a] 1988, before the most recent surge in resident numbers; or [b] the most recent year before plan implementation, which would reward more highly staffed hospitals; or [c] an average of several years, which could, depending on the years chosen, reflect either or none of the above implications, but in any case, would smooth out annual differences in Medicare caseload or a year that was unusual for some other reason.) Assuming that the total amount available for IME funding approximates an actuarial estimate of what would have been paid through the current formula, payment for the formula half would require dividing each addition to a hospital's DRG payment in half—in other words, using a coefficient of 0.5 in the formula. If the actuarial estimate indicated a less sufficient IME trust fund, say 90%, then a coefficient of 0.45 would be required, and so on. Distributing one defined, predictable fund in discrete payments and the other fund through an unpredictable number of rate adjustments while keeping the funds equal to each other and within the annual defined amount would require some additional adjustments. This could be accomplished through a reconciliation with Medicare cost reports, by adjusting the 0.5 coefficient, or the like. This difficult task might also justify a reserve fund or a less precise target such as accepting a final expenditure of a few percent plus or minus to the IME total fund. Dissociating half of IME payment from the resident-to-bed ratio allows hospitals to reduce resident numbers (and cost) at half the current penalty. Added to the limits in DME payment, this is a step toward payment neutrality in the resident market and should reduce the stimulus of payment policy on resident and physician supply. Continuing the other half of IME funding using rate adjustments preserves the added margin that each Medicare patient now brings to teaching hospitals, counteracting the potential loss of access that might ensue if GME payment were totally dissociated from each hospital's current Medicare caseload. When a formula is used to distribute a predetermined fund, the variables in the formula cannot have aggregate financial impacts on the fund. The variables become less important because they are significant only with regard to distribution effects. For example, the fact that the formula produced a 7.7% increase in rates for each 10% increase in the resident-to-bed ratio, which has always been known to be substantial overpayment, would no longer be as meaningful. Changing resident-to-bed ratios could not increase total IME payment to the teaching hospital sector at all if the fund amount did not increase. If any variable were to be adjusted to conform payment to fund amounts, it should be the 0.5 that was added to accomplish the division in halves. The rest of the formula should remain in its familiar form to have its familiar distribution effects. The inclusion of capitated patients in IME payment could not generate added cost to the National GME Trust Fund. The half of the payment based on
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DISCUSSION
32
historical estimates is dissociated from rate adjustment and current and future caseload. This half of the payment is based on whatever the Medicare caseload was during the base period and is distributed accordingly. Recognizing capitated patients in the half based on the formula through some coefficient, as described below, could affect only distribution, not the total amount distributed. Inclusion of these patients is desirable as an incentive to teaching hospitals to compete for and serve them. In a capped system, the distribution effects would be magnified; an increased share for one institution means a decreased share for others. To accommodate capitated Medicare caseload, the committee considered adjusting the IME formula percentage added to each DRG payment by a factor based on the hospital's prepaid Medicare caseload as a percentage of total Medicare caseload. Each IME formula adjustment to DRG payment to a hospital would be multiplied by a coefficient that was based on the proportion of the total Medicare caseload at that hospital that was capitated. Case mix would have to be ignored in calculating this coefficient unless the capitated patients were assigned DRGs and the percentage was then calculated using imputed DRG billings. Using capitated Medicare inpatient days divided by total Medicare inpatient days should be a reasonable approximation. Another alternative considered was a "shadow" system in which the capitated patients were assigned DRGs. The payments would then be calculated based on the formula, and the adjusted amount would be billed separately. Adjustment of the DRG rate by an additional coefficient might be easier, but, in any case, the value of including capitated caseload in the IME payment distribution system justifies the administrative effort needed to design and implement an adjustment. .
IME GENERAL, NON-MEDICARE PAYMENTS The general, non-Medicare portion of the IME trust fund program, if enacted, would be divided in halves like the Medicare fund. The historical fund would be distributed based on the historical non-Medicare share. That is, for the base period, the Medicare IME adjustment would be calculated using the current formula, then applied to the hospital's revenues from the non-Medicare caseload for that period. (Consideration might be given to allowing an adjustment to these revenues in hospitals, such as public hospitals, with very high levels of uncompensated care.) Half this amount, the non-Medicare share of the historical portion, would then be paid and trended forward in the same way as the Medicare portion. The same process would be used for the non-Medicare caseload in the formula-driven portion of the fund. These amounts would also be paid separately, because they could not be added to rates. If the Medicare caseload was a small percentage of total caseload, the non-Medicare caseload would inevitably be larger, and vice versa. This would have the effect of leveling support and attenuating the distribution effect of the Medicare caseload, depending to some extent on the adequacy of the general, non-Medicare IME fund. Although this might weaken the attractiveness of Medicare patients, it
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DISCUSSION
33
would have the effect of supporting teaching hospitals with low Medicare caseloads and would be consistent with the principle of having payers contribute their share. In the case of some low Medicare caseload hospitals like independent children's hospitals, Medicare IME payments could not be made as these facilities are not part of the PPS. Any hospital that qualifies as a GME-sponsoring institution should be eligible for general, non-Medicare IME payments (if available). Their payments should be based on application of the current formula to revenues from the non-Medicare caseload. To keep within the appropriation, IME payments will need to be adjusted. AMBULATORY TRAINING Training in independent ambulatory settings currently counts toward resident time for DME payment provided resident stipends are covered by the sponsoring teaching hospital. Formula IME payment is not made for time spent by residents outside the hospital and its outpatient department. Reordering incentives, such as encouraging ambulatory training by expanding DME-eligible institutions, which might include ambulatory sites or consortia, and basing half of IME payment on historical factors, which dissociates it from resident numbers or assignments to out-of-hospital settings, would have no aggregate payment significance. Therefore, the committee recommends that resident training time in ambulatory sites should count toward IME payment in the same way it does for DME payment. This would permit expanded opportunities and enhancement of training responsiveness to current conditions. Furthermore, sponsoring institutions should be encouraged to ally themselves with additional ambulatory settings by sharing DME support in addition to paying resident stipends. The committee thinks that the GME system is still sufficiently weighted with inpatient incentives that a new balance between ambulatory and inpatient care, as described, will continue to give residents needed exposure to seriously ill inpatients as well as to changing practice patterns. Exploration of the desirability and feasibility of IME support of nonhospital sponsoring institutions was suggested earlier. The committee notes that new DME-sponsoring institutions that are not hospitals cannot qualify for IME payments. In such cases, IME payments should be made to the teaching hospital that takes ACGME/AOA-approved responsibility for each resident's hospital-based teaching and for only that time spent in hospital-controlled training areas. In such cases, the committee thinks that receipt of total DME payments is adequate reimbursement presently for nonhospital sponsoring institutions, but as noted, at some point, this policy may need to be reevaluated. The hospital should not receive IME payment for time during which the resident is the responsibility of another, separate sponsoring institution in another setting.
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DISCUSSION
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IME SUMMARY AND GME CONCLUSIONS IME fund distribution is simple conceptually, though challenging administratively. The fund is divided—one half is distributed to teaching hospitals on a historical basis, the other as rate adjustments using the current formula. The payment becomes prospective, and capitated patients are added to the formula part. General, non-Medicare funds, if included, pay their share. As a whole, these changes should improve the prospective nature and predictability of the GME payment system. The GME trust fund program allows issues concerning teaching hospitals and their financial health to be considered separately from those of hospitals in general. The fund's adequacy can be monitored and controlled by using data from teaching hospitals in ways similar to those used for the entire hospital system. This approach reduces the incentive for having an oversupply of physicians, is aligned with current views on work force composition, and generally is less restrictive and leaves work force decisions more to the market. IMGs compete with graduates of U.S. medical schools on an even playing field. In addition, GME funds in the AAPCC would no longer be an issue, since a defined annual GME fund assures GME payment cannot be lost from the Trust Fund to the AAPCC. Assuming a general, non-Medicare fund, the distribution would occur from four component funds limited by the total National GME Trust Fund amount, two for DME distributed in a uniform way, and two for IME distributed proportionally to Medicare and non-Medicare caseload. Support to institutions with low Medicare caseload would improve. Approximately the same amount would be paid for the same result. There would be some redistribution, as inevitably happens in any reorganization. The committee tried to ensure that the neutrality and fairness of the system would provide some comfort to all the participants, and that there was a give-and-take that balanced disadvantage with advantage as much as possible. DME FOR NURSING The committee recommends that nursing DME payment be for accredited graduate and postgraduate clinical nursing programs. GME funds for nursing would, as has been recommended for physicians, be paid to the entities that can qualify as sponsoring institutions and will be responsible for the graduate clinical education and incur the costs of that education. Funding targeted at the graduate level supports trainees who have completed the basic requirements for licensure. These nurses provide valuable professional services that enhance the overall quality of patient care while they pursue their advanced training (Malone, 1997). About 70% of GME payments for nursing support undergraduate, preprofessional nursing in diploma (i.e., "provider-operated") programs. These programs are vanishing; during the period Medicare has been supporting them, their numbers have decreased by about 85% (Aiken et al., 1994). Provider
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DISCUSSION
35
operated programs currently train about 5% of nurses, and are expected to train even fewer nurses in the future (HRSA, 1992). Hospitals with undergraduate nursing programs are often not teaching hospitals or sponsoring institutions as defined by the committee, and they, understandably, tend to provide training with a hospital focus. Medicare pays a portion of nursing training costs that totals approximately $220 million yearly (B. Wynn, personal communication, 21 February 1997).
SUMMARY PLAN: INDIRECT MEDICAL EDUCATION (IME) • The Health Care Financing Administration (HCFA) sets the historical half of Medicare IME payments based on the same proportion of one half of the Medicare IME fund that each institution received of total Medicare IME payment in the base period and trends this forward. • HCFA calculates the IME Medicare adjustment to the diagnosis-related group (DRG) rate by the current formula and makes an initial adjustment to conform the actuarially estimated annual payout to the actual amount in the formula half of the Medicare IME fund, including funds for the capitated patients' coefficient distribution. • HCFA makes periodic historical Medicare IME payments, monitors IMEformula-adjusted DRG payment, and adjusts payments to conform with the target fund amount. • HCFA applies a capitated patient adjustment at the time it considers to be most efficient. • HCFA sets the historical half of general, non-Medicare IME payment (if available) as was done for Medicare using imputed non-Medicare calculations instead of Medicare data. • HCFA calculates the formula half of the general, non-Medicare IME payment (if available) using the current formula and based on the formula's application to hospital reports of non-Medicare revenue. • HCFA makes periodic historical IME general, non-Medicare payments and formula general, non-Medicare IME payments adjusted to keep within the target fund amount. • Time spent by residents in ambulatory, non-hospital settings is included in the full-time-equivalent resident count for IME payment purposes.
Support for stipends and for supervision of advanced clinical trainees, similar to that provided for physician DME, is lacking. The committee thinks DME funds should support advanced trainees. The establishment of a trust fund would provide a vehicle for retargeting in a budget-neutral manner funds presently going to nursing education to yield better access and quality of care than present policies. Funding could be set at the same percentage of total DME as is currently devoted to nursing. A uniform per-trainee payment would be paid to sponsoring institutions. The total payments would be kept within the
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DISCUSSION
36
appropriated fund amount. To avoid adversely effecting any student currently in training current funding of hospitals with undergraduate, provider-operated nursing programs should be phased out over not more than 4 years, so that students now in these training programs have graduated.
SUMMARY PLAN: NURSING • The Health Care Financing Administration (HCFA) counts the number of full-time-equivalent (FTE) graduate nurses undergoing clinical training as the responsibility of the sponsoring institutions. • HCFA divides the amount of direct medical education funds set aside for graduate nursing by the number of FTE graduate nurses in clinical training to get a standard per graduate nurse payment amount. • All sponsoring institutions are paid the standard per graduate nurse payment for their graduate nurses in clinical training.
ALLIED HEALTH The committee only briefly considered allied health programs. They constitute only 1%–1.5% of GME expenditure (B. Wynn, personal communication February 21, 1997). Allied health training is presently supported in the same way as nursing training, through partial reimbursement to hospitals for the submitted costs of accredited programs. The committee recommends that consideration be given to paying the costs of allied health programs in ways that are proportional to the limits proposed for nursing and other parts of GME payment. If GME support is distributed from an annually determined fund, the committee does not want support of allied health programs to grow at the expense of other professionals. A number of allied health professions, not currently eligible for Medicare GME support, proposed that they should become eligible. The committee cannot speak to the merits of all these applicants but notes that some allied health professionals can substitute for residents and physicians and also pursue advanced clinical training—such as physician assistants, and in some cases, perhaps clinical psychologists, for example.
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ADDITIONAL ISSUES
37
Additional Issues
OPENINGS, MERGERS, AND ACQUISITIONS The committee's GME distribution proposal simplifies the decisions needed to structure support given to new facilities. The uniform DME per-resident payment could be paid. The current IME formula could be applied to new teaching hospitals using values for the variables from the most recent experience, then divided into halves in the same way as is done for existing teaching hospital IME funding. Merged or acquired institutions with DME training programs could be paid the uniform per-resident amount or, if available, the existing per-resident amount, whichever is less. The committee considered and rejected a transition payment as a DME incentive to reduce or eliminate resident positions or discrete training programs. Payment would be reduced as the number of residents were reduced without any kind of hold-harmless provision. IME formula payments could be calculated using the new resident and bed counts, applying the formula as usual. IME historical payments could be based on historical resident numbers transferred from the merged institutions and used, with the new bed numbers, to calculate IME payment for the new entity if it were deemed advisable to provide an even greater incentive to reduce the number of residencies and system overcapitalization through institutional restructuring. Although this incentive might be a real consideration in encouraging institutional consolidation and the development of training economies by reorganization, this kind of activity should be monitored or perhaps transitioned. Rebasing in the future might be advisable if payments became disproportionate to the size of the new programs and institutions. A MEDICARE-ONLY FUND The committee's plan for distribution of a National GME Trust Fund noted the desirability of including some general, non-Medicare contribution. This is
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ADDITIONAL ISSUES
38
consistent with the precedent of the 1995 Balanced Budget Act. It is also consistent with the committee's principles, and with the use of some source of funds to address the non-Medicare shortfall in support of GME and related functions. In addition, it makes for a better plan in, for example, leveling the variability due to Medicare caseload in IME payments. If non-Medicare funds are not included, the committee's plan is less faithful to its principles, but is still an implementable improvement. The approach to uniformity for DME funding will provide support for more sponsoring institutions and is still reasonable in theory, though less so. The expanded eligibility for DME funding provides a GME system that is more open to allowing training opportunities in new and innovative settings. The incentives to continually expand residencies will be diminished by an annually defined fund and the DME changes. The problem of capitated patients outside of the PPS will be eliminated, and AAPCC decisions and GME decisions about the amounts of funding will be separated. Importantly, a controlled academic hospital GME payment system will have been devised for Medicare that will allow consideration of academic health center issues separate from overall hospital or health care services sector issues. THE BALANCED BUDGET ACT OF 1995 Although the committee did not analyze every past legislative initiative, there was a sense that some effort should be devoted to reviewing the GME provisions of the Balanced Budget Act of 1995. These provisions were enacted by the 104th Congress but were vetoed by President Clinton. Further, the request for advice from the House Ways and Means Committee implied consideration of a similar trust fund presumably reflecting some of the thinking if not the precise provisions of the 1995 act. The act established five funds using Medicare and general revenue sources. Two funds would continue present Medicare DME and IME distributions, but at reduced levels. Two general revenue funds would allocate a predetermined amount based on the proportion of an institution's payout during an historical period (1992–1994). A fifth fund would pay hospitals in proportion to their service to Medicare managed care (''MedicarePlus'') patients. DME support of consortia would be permitted, but other expansion of DME eligibility was not included. The general funds would not fluctuate with changing resident or bed numbers or institutional Medicare or non-Medicare caseload. Resident number would be capped. The act is more prescriptive for the work force in other ways as well. The MedicarePlus fund would vary only with respect to Medicare managed care and would be unrelated to the size of a training program. This could allow substantial payments to hospitals in regions with high numbers of capitated patients, a small training effort, and little of the public value associated with a developed teaching program or support of unsponsored clinical research and innovation. The increasing amount of revenue for the fifth fund assumed a
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ADDITIONAL ISSUES
39
rather dramatic increase in the proportion of Medicare beneficiaries joining private managed care plans (Reuter, 1996b). The fund was intended to help institutions that lost money because of this shift. The committee expressed serious concern that such a reallocation would reduce support for academic medical centers and major teaching hospitals, and increase funding for those institutions with minor programs and lesser costs. The committee questioned the wisdom of a general revenue fund continuing to reward an institution based on its Medicare rather than non-Medicare caseload. The use of the non-Medicare caseload would level overall distribution. It would supply some government educational support for training institutions that currently receive very little help, such as children's hospitals. The committee also thinks that an important justification for the use of general revenues is that private managed care payments to teaching institutions in the future are less likely to reflect the added costs of such teaching. General revenue funding would help compensate for this loss, though only for a portion of the previous extra payments teaching institutions received from private fee-for-service patients. The committee supports much of the structural change in the GME provisions included in the Balanced Budget Act. Although it reduced Medicare support, the act added a new source of general revenue. In the budget climate of the 104th Congress, and given the problems of the Medicare trust fund, the act was supportive of federal funding for GME and the educational mission of teaching hospitals. If Congress were to decide to how as closely as possible to the act, the committee suggests modifications which are more consistent with its principles and which combine a less prescriptive approach with the elimination of inappropriate incentives and variation. Elimination of the MedicarePlus fund, inclusion of capitated Medicare patients in the Medicare IME formula, and making payment from the general revenue IME and DME funds proportional to an institution's non-Medicare portion of the caseload would improve the effect of the Balanced Budget Act. On the plus side, the act would still include general revenues, have an extended time horizon, limit resident numbers, eliminate some variables, and support consortia. THE CURRENT SYSTEM The committee also considered whether funds could be allocated using the current formulas. However, major flaws have been identified in the present system that, as noted earlier, support consideration of alternatives such as a trust fund. Today's DME distribution draws heavily on historical hospital expenses from as long ago as 1984, which may not be relevant in today's rapidly changing health care system; maintains marked variations in funding among teaching hospitals (ProPAC, 1996a); and, at a time when excess residency positions are a source of concern, encourages increases rather than decreases in the number of residents (Dunn and Miller, 1996; Shine, 1995). The current system limits funding for new educational sites and new types of training institutions. There is
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ADDITIONAL ISSUES
40
also concern that the growth of Medicare managed care and the loss of payments from capitated patients will result in a substantial reduction of the amount of support available for GME under Medicare. Additional criticisms of present arrangements focus on work force implications: whether the right number and types of generalists and specialists are being trained; whether the sites of training should be located primarily in inpatient hospitals (Eisenberg, 1990); whether responsibility for work force distribution issues should be left primarily to the discretion of individual training institutions; and whether federal funding for the graduate training of IMGs should be continued or controlled. The current system has also been criticized for its overpayment of the Medicare share (ProPAC, 1997) and for its inability to limit uncontrolled, rapid increases in cost. Leaving the current system unchanged or only slightly modifying it means that the problems identified above would be difficult to remedy or remain unaddressed. The committee discussed possible work force policies that could be encouraged through modifications in the present system. Given the current volatility in the health care marketplace, the importance of the market in defining areas of excess and need, and previous experience with payment incentives, the committee concluded it would be undesirable to further manipulate the current GME payment system as a mechanism for restructuring the medical work force. VOUCHERS A voucher system was suggested to the committee as an alternative distribution approach. Such a system could be designed to give each trainee flexibility in training site selection. It could also fundamentally shift the locus of control for the training of the nation's future health professionals from the training institutions to the students. Trainees could be empowered to select those sites that reflect their assessment of the appropriate balance between quality of program, cost of training, and regional location. It could also work in conjunction with the current matching program which controls resident assignments to training programs. In this case, it could fragment payment to over 7,500 individual residency programs. This would be a substantial change which could present administrative difficulties. While a voucher system might increase site options such as loosely affiliated or unaffiliated ambulatory care centers, it could pose challenges to the present quality control mechanisms for residency training sites. It could add an unknown number of new sites that would have to be examined and accredited. The challenge would be in expeditiously determining and enforcing just which institutions would be eligible to receive vouchers. The quality, oversight, and supervisory considerations at ambulatory sites are, according to Kassirer (1996) "formidable." These considerations obtain, of course, whenever options are expanded. If the trainee were to have significant freedom in structuring his or her own training, the voucher system would have implications for program coherence and
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ADDITIONAL ISSUES
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ensuring a reasonably consistent national standard that would need to be examined. Imposing some structure seems reasonable, though it likely would result in less competition among programs. Determining new payment amounts for multiple, changing sites would be an additional challenge as would be determining how to continue IME teaching hospital support for residents based in non-hospital programs. There would also be a potential for program disruption if residents could shift locations without appropriate coordination. The dispensing of GME vouchers by the government could be a direct, powerful tool to influence work force composition. The committee feels that this could be the major effect of a voucher system. Dispensing of vouchers could be an open process, distributing payment differently, but without much more of an effect on the work force than the present national resident matching program. The government could also strictly limit vouchers, basing their distribution on decisions about the total number, educational backgrounds (i.e., IMG) or specialty of trainees. In the latter case, the government could precisely dictate work force composition, for example, creating specified numbers of specialists and generalists, or eliminating IMGs. The support for vouchers by some organizations seems to lead, at least in part, in this direction (Dunn, 1997). The committee preferred a less interventionist approach to work force issues; the voucher system has some potential benefits in theory, but they may be difficult to realize in practice. STATE PROGRAMS An important sub-issue for the committee was the role of the states in the future funding and direction of GME. There is considerable state activity in support of GME (T. Henderson, personal communication, 3 December 1996; Plumb, 1995; Plumb and Henderson, 1995). States have sought waivers from the current Medicare GME system to pool these funds with those from Medicaid and private sources (GNYHA, 1996; Healthcare Association of New York State, 1996; Minnesota Department of Health, 1996). They have also sought to use these combined funds in different ways, including the development of coordinated statewide educational consortia (Deloitte and Touche, 1996). Some decentralization of GME decision making could be encouraged and enhanced by awarding a limited number of Medicare GME block grants. These could be distributed in accordance with mechanisms developed by states in coordination with the federal government. The committee recognizes the important role of states in addressing different ways of doing things and thus supports using states and organizations (e.g., privately operated consortia) as laboratories for the development of workable vehicles for the distribution of GME funds and for strengthening high-quality training institutions. The design of formulas and policies for distribution, in the context of today's climate of rapid change, is subject to the uncertainties of prediction and unintended consequences. There is a great deal to be said for using pilot projects at the state level as models for
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ADDITIONAL ISSUES
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constructive change and for allowing some regional variability reflecting regional conditions. In this regard the committee noted the recently introduced New York waiver which has some conceptual similarities to the committee's plan. The committee does not favor, however, devolution of the entire GME system to the states through a statutory grant of funding. GME is a nationwide activity and has national implications; it supports a labor market that changes frequently. The differences in state policies and capabilities raise concerns about the creation of 50 separate distribution, training, and work force policies rather than a national system with some local flexibility. The committee also worries that states might naturally favor state institutions and state budget priorities to the disadvantage of private institutions, depending on the strength of federal guidance to the contrary. Concern has been expressed in the past that some states have used Medicaid support of GME as a mechanism to maximize federal support of local academic institutions; once federal dollars were "granted" and assured, federal support might be diverted to other priorities. A stable federal program could be considered a preferable alternative to the ups and downs of multiple state programs. EDUCATIONAL CONSORTIA Educational consortia represent an additional set of considerations. Such consortia have been described as formal partnerships composed of two or more separate institutions involved in GME, formed to reorganize or strengthen medical education, and characterized by shared and joint decision making (Cox and Dower, 1996). Some have cautioned against encouraging consortia as recipients of GME funding because it might lead to the development of redundant organizations simply to receive funds. On the other hand, an effort to structure the GME system to be more responsive to changes in the organization and delivery of health care and to national policy initiatives might justify some consortium arrangements. Consortia might help address the concern that limiting most training funds to only one or just a few sectors of the health care system could bias the focus of training outcomes. In many cases, consortia might also recognize more fully the needs of managed care, ambulatory medicine, and primary care (Van Etten, 1995). If consortia serve to promote coordination, resource sharing, and efficiency among GME institutions, and if they are formed voluntarily to serve members' needs, then the committee thinks it makes sense to include them as recipients of GME funds. If there is a desire to promote national GME and work force policies to encourage primary care, ambulatory training, reductions in resident positions, physician distribution, and minority recruitment goals, and if consortia could be structured to make progress toward these objectives, then it might be reasonable to provide active encouragement by some incentive add-on along the lines of a 1% or so extra DME payment. Consortia with adequate authority and
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ADDITIONAL ISSUES
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control of resources could be powerful forces for quality improvement. If consortia eliminated lower quality programs and caused other programs to coordinate, adapt to change, and improve education in an accountable way, as has been suggested, enhanced payment might be a good investment (Kelly et al., 1994; Kochar and Cooper, 1996). Alternatively, the recipients of DME payment (at present only teaching hospitals) could be required to meet certain objectives similar to those advanced for consortia as a condition of payment. If consortia are encouraged, attention should also be given to their structure and activities. Consortia might be required to consist of an equal partnership of community institutions, including a required nucleus of teaching hospitals with medical schools (except in cases of distance or lack of relevance of the medical school to the market in question). Other components should include at least some of the following: managed care organizations, ambulatory centers, community health centers, group practices, universities, or other institutions involved in graduate training. Consortia should agree to receive the funds and should have a formal arrangement for a coordinated program and distribution of payments in support of GME. The committee urges caution in moving too quickly in expanding consortia. At present, GME funding is based on the recognition of a federal obligation to help support training and the mission of teaching hospitals. Additional policy objectives and conditions should be added with care. Consortia are something of a work in progress, though the movement of AOA to mandatory consortia may provide better information and understanding in the near future. The present evidence that they can return the effort and resources expended in their implementation may not justify a substantial shift in the GME program. Review of the activities of current consortia reveals that they are few in number, lack broad membership, and do not generally have the authority, or in many cases the inclination, to implement national goals. Nevertheless, consortia are an attractive concept and continued exploration of their value seems justified.
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APPENDIX A
Letter to the Institute of Medicine from the Committee on Ways and Means
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APPENDIX B
54
Appendix B History and Current Status of Medicare Graduate Medical Education Funding
FINANCING GRADUATE MEDICAL EDUCATION Graduate medical education (GME) is financed by a variety of revenue sources that flow through a variety of related institutions. Academic health centers may consist of a medical school, an affiliated hospital and other patient care facilities, and a faculty practice plan. The medical school may receive funds from research grants, aid from state and local governments, and endowments and gifts; the hospital and other patient care facilities may also receive funds from these sources, as well as payments for patient care. Support for the expenses related to GME activities may, in turn, flow among these institutions in a number of ways (Reuter, 1996a). Most of the revenue of teaching hospitals comes from payments for patient care. Private payers traditionally have paid a premium above the cost of treating the patients they cover. These higher payments are used to offset the costs of care provided to patients who cannot pay—which tend to be a greater share of total costs at teaching hospitals—as well as to support the expenses related to the training of residents. Medicare and Medicaid originally based their payments on the costs at each institution—which were higher for teaching hospitals—and later provided a system of direct and indirect subsidies for medical education and related costs; for Medicaid, the structure of these subsidies varies widely from state to state (Boex and Garg, 1993). The environment in which teaching hospitals function has changed dramatically over the past few years. Surpluses from private payers, after growing steadily as a percentage of costs through the late 1980s, began to decline as managed care plans and other insurers became less able, and therefore less willing, to pass along steep cost increases through their premiums. Moreover, although some major teaching institutions offer higher quality services that are unavailable elsewhere, and thus may remain attractive to managed care plans, the greater cost of services at many of these facilities may make it increasingly difficult for them to compete for patients (Reuter, 1996a).
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APPENDIX B
55
Medicaid programs have rapidly adopted managed care approaches to control their acute care costs; managed care plans rarely have explicit mechanisms to cover the higher costs of teaching facilities, and the efforts of individual states to maintain these payment differentials are subject to rising pressure on their budgets and the willingness to finance the payments through higher taxes. Medicare is the only payer with an explicit mechanism nationwide to support GME and the special services and patient care missions provided by teaching hospitals. Because of this, Congress focused on the methods used by Medicare in developing their 1995 proposal for the creation of a Graduate Medical Education and Teaching Hospital Fund. This proposal was included in the Balanced Budget Act of 1995 that was passed by Congress and vetoed by the President. This section also focuses on the methods used by Medicare to provide support for GME and teaching hospitals over the years. It contains an overview of the policies that determine Medicare's payments to hospitals with GME programs and the implications of these policies for the distribution of Medicare payments and the financial status of teaching hospitals. Medicare Teaching Payments The Medicare program provides two types of extra payments to hospitals with graduate medical education programs. First, teaching hospitals receive an adjustment to their Medicare Prospective Payment System (PPS) payments to reflect the added patient care costs associated with operating an intern and resident training program. The IME adjustment accounted for about 6.2% of total PPS operating payments in FY 1996, or about $4.3 billion. A separate IME adjustment is applied to PPS capital payments. Second, Medicare also pays teaching hospitals an amount, separate from PPS payments, to offset the direct costs of GME programs. These payments cover resident salaries and benefits, the salaries of supervising physicians, the cost of office space, and other overhead. Medicare direct GME payments for resident training totaled about $2.2 billion in FY 1996; in addition, $0.3 billion was paid to hospitals with nursing and allied health training programs. In addition to Medicare's payments to teaching hospitals, physicians who directly supervise interns and residents are allowed to bill under Part B of Medicare and be paid for the services they are supervising. Although it is not part of Medicare's explicit support for GME and teaching hospitals, it can be an important part of the revenues that are used by these hospitals to support their training programs. Payment Policies Prior to Prospective Payment At its inception in 1965, the Medicare program reimbursed each hospital for the reasonable operating and capital costs attributed to the treatment of Medicare
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APPENDIX B
56
patients. Teaching hospitals, because of their more expensive mixes of patients and staff, practice style, and scope of services, tended to have higher costs than other hospitals and therefore received higher payments for patient care. In addition, Medicare paid the program's share of the direct operating cost of each hospital's teaching program. This payment was intended to recognize the broader social benefit of GME: Educational activities enhance the quality of care in an institution, and it is intended, until the community undertakes to bear such education costs in some other way, that a part of the net cost of such activities (including stipends of trainees, as well as compensation of teachers and other costs) should be borne to an appropriate extent by the hospital insurance program. (House Report 213, 89th Congress, 1965, as cited by Fishman, 1996)
However, Medicare only covers its share of the graduate medical program costs that are allocated to the hospital; its payment does not cover the clinical portion of undergraduate medical education in these facilities. To slow the growth of Medicare spending, Section 223 of the Social Security Amendments of 1972 authorized the Secretary of Health, Education, and Welfare to determine prospective limits on the hospital costs reimbursed by the program. In 1974, per diem limits were set for hospitals' routine costs (i.e., for nursing and room and board, but not for ancillary services). Over time, the methods used to set the cost limits were revised. In 1979, it was decided that in calculating its routine per diem costs, a hospital could exclude all direct costs of GME programs. In 1980, the limits applied to teaching hospitals were adjusted to reflect the higher operating costs associated with treating patients in those hospitals (Lave, 1985): We believe these increases in per diem costs occur because the provision of graduate medical education causes increases in certain types of costs that are only indirectly related to education programs. (Department of Health and Human Services, 1980)
This IME adjustment was based on the observation that teaching hospitals, particularly those with large residency programs, would be particularly vulnerable under the planned reductions in the routine cost limits. Moreover, the difference in costs across hospitals was found to increase with the intensity of the teaching program, as measured by the ratio of interns and residents to beds (Pettengill and Vertrees, 1982). Although both the name of the adjustment and the measure used to determine it implied that it was related primarily to the extra patient care costs generated by each resident, in fact it reflected all the reasons that teaching hospitals tend to be more expensive than other hospitals—including some that are not related to their teaching activities. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) extended the hospital cost limits to cover total operating costs per discharge and set a limit on the allowable rate of increase in those costs, but it retained the adjustment of
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APPENDIX B
57
the cost limits according to teaching intensity. In addition, direct GME costs continued to be reimbursed on a reasonable cost basis under TEFRA. TEFRA also contained a provision that required the Secretary of Health and Human Services to develop a proposal for the prospective payment of hospitals under Medicare. The Secretary proposed to retain the payment for direct GME costs as a separate payment: Although graduate medical education is not directly related to the delivery of patient care to Medicare beneficiaries, these costs have always been paid by the Medicare program. This is not required by law, although the legislative history of Medicare indicates congressional intent that medical education costs be reimbursed by Medicare until the community undertakes to bear these costs in some other way. (Schweiker, 1982)
Further, these direct GME payments would continue to be based on the hospital's reasonable costs: Direct medical education costs . . . will be passed through by PPS. . . . The Department believes that the direct costs of approved medical education programs should be excluded from the rate and be reimbursed as per the present system. This approach will assure that the base rate is related to a patient care outcome and not significantly influenced by factors whose existence is really based on objectives quite apart from the care of particular patients in a particular hospital. This approach will allow for continued Federal support of medical education through the Medicare program while clearly identifying that support as separate from patient care. (Schweiker, 1982)
The ''pass-through'' payment for direct GME costs continued until the passage of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), as described below, and the promulgation of rules based on this legislation. The Secretary's proposal for IME payments also continued the previous policy of recognizing the higher patient care costs at teaching hospitals: The indirect costs of graduate medical education are higher patient care costs incurred by hospitals with medical education programs. Although it is not known precisely what part of these higher costs are due to teaching . . . and what part is due to other factors . . . the Medicare Cost Reports clearly demonstrate that costs per case are higher in teaching hospitals. . . . Thus, not wanting to penalize these hospitals, an adjustment methodology has been developed which permits Medicare to pay teaching hospitals the same standard prices as other hospitals, while passing through the higher patient care costs associated with teaching hospitals. The Department believes that recognition of these indirect costs should be accomplished as a lump-sum payment, separate and distinct from the base rate. . . . The hospital's cash flow will be preserved by some sort of periodic payment. (Schweiker, 1982)
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APPENDIX B
58
The Secretary's proposal formed the basis for Medicare's PPS, which was enacted in the Social Security Amendments of 1983. IME Payment Under PPS Under PPS, each hospital is paid a fixed rate per Medicare discharge to cover its operating costs. A separate PPS payment, determined in a similar but not identical way, is made for the hospital's capital costs. The per discharge payment is based on a standardized payment amount (there is one amount for hospitals in large urban areas and one amount for all other hospitals), but it is adjusted to reflect the local input prices faced by the hospital and the relative costliness of cases in the diagnosis-related group (DRG) to which each patient is assigned. This is the hospital's basic DRG payment. In addition, each hospital receives an outlier payment for cases that are exceptionally costly relative to other cases in the same DRG. The IME payments received by each teaching hospital are a percentage add-on to the sum of its basic DRG operating payments plus any outlier payments. The percentage for each hospital is determined by its ratio of residents to beds. There is a similar add-on to PPS capital payments, which is determined by the ratio of residents to occupied beds. Although the Secretary's proposal described the IME payment as a "lump-sum payment . . . separate and distinct from the base rate," it generally has been thought of as an adjustment to the hospital's payment rate for each case under PPS. The size of the IME operating adjustment has been modified over time. The Secretary proposed an IME adjustment of 5.795% for every increment of 0.1 in each hospital's resident-to-bed ratio. That is, a hospital with one resident for every 10 beds would receive about 5.8% in additional PPS payments; a hospital with twice as many residents per bed would receive twice as much. This proposal was based on an analysis of the relationship between Medicare operating costs per discharge and the resident-to-bed ratio across all hospitals. However, in response to projections that a vast majority of teaching hospitals would experience a reduction in Medicare payments under PPS, the Congress increased the IME adjustment: This adjustment is provided in light of doubts . . . about the ability of the DRG case classification system to account fully for factors such as severity of illness of patients requiring the specialized services and treatment programs provided by teaching institutions and the additional costs associated with the teaching of residents . . . the adjustment for indirect medical education costs is only a proxy to account for a number of factors which may legitimately increase costs in teaching hospitals. (House Ways and Means Committee and Senate Finance Committee Reports, March 1983, as cited in Fishman, 1996)
The level of the adjustment was doubled to 11.59%. Since its implementation, the IME adjustment has been reduced twice, each time to reflect other changes in the payment system. In 1986, Congress added an
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APPENDIX B
59
adjustment to PPS payments for hospitals that treat a disproportionate share of indigent patients. Because part of the rationale for doubling the original IME adjustment was that teaching hospitals tend to treat large numbers of poor people, and because teaching hospitals were expected to receive a high proportion of these disproportionate share (DSH) payments, the IME adjustment was reduced to 8.1% for every 10% increment in teaching intensity. In 1989, Congress made substantial changes in the formulas for determining DSH payments, and further reduced the IME adjustment to 7.7%. Changes in Direct GME Payments Even after the implementation of PPS, Medicare continued to pay its share of each hospital's actual direct GME costs. However, the enactment of COBRA changed the way that Medicare pays hospitals for the direct costs of teaching programs. The direct GME payment is a per-resident amount based on the hospital's per-resident costs in its base year (i.e., Medicare cost reporting periods beginning during FY 1984). The count of residents used in determining direct GME payments differs from that used in the IME adjustment formula in two ways. First, the hospital is allowed to count the time that residents spend outside of the hospital (under certain conditions). Second, residents beyond their period of initial residency (the minimum period of training required for board eligibility in a specialty or 5 years, whichever is less) are counted as 0.5 full-time equivalents. The base year per-resident amounts are updated to the current year using the Consumer Price Index for Urban Areas. However, in FY 1994 and FY 1995, the update was eliminated for residents in non-primary care specialties (i.e., specialties other than primary care, family practice, general internal medicine, obstetrics and gynecology, geriatrics, and public health and preventive medicine). Although the update has been applied to all specialties in subsequent years, this has resulted in different payment amounts depending on the resident's specialty. Payments to Teaching Hospitals Teaching hospitals treat a large share of Medicare patients and receive an even larger share of Medicare payments. There were 1,061 hospitals receiving IME payments in FY 1996, representing 21% of all PPS hospitals. These hospitals were responsible for 43% of discharges and 53% of all PPS payments. Teaching hospitals received almost $37 billion in PPS operating payments (Table B-1). They also received payments for their capital costs, and outpatient and other services they furnish, in addition to $2.5 billion for their direct GME costs.
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32
57
246
815
4,092
Major teaching
Other teaching
Nonteaching
47
34
19
100%
Percentage of PPS Operating Payment
32.4
23.7
13.0
$69.1
Total
NOTE: DSH = disproportionate share; FY = fiscal year; IME = indirect medical education; and PPS = Prospective Payment System. SOURCE: ProPAC estimates based on ProPAC PPS Payment Model and FY 1994 MedPAR file data from the Health Care Financing Administration.
11
100%
5,153
All hospitals
Percentage of PPS Discharges
Number of PPS Hospitals
Hospital Group
0.0
1.4
2.8
$4.3
IME
1.5
1.4
1.4
$4.3
DSH
TABLE B-1. Distribution of PPS Hospitals and Discharges and Estimated FY 1996 PPS Operating Payments, by Hospital Group PPS Operating Payments ($billions)
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APPENDIX B
61
TABLE B-2. PPS and Total Margins, by Hospital Group, 12th Year of PPS Hospital Group
PPS Inpatient Margin
Percentage with Negative Margin
Total Hospital Margin
Percentage with Negative Margin
All hospitals
7.9%
39.3%
5.6%
19.4%
Major teaching
18.6
5.3
3.7
14.0
Other teaching
7.6
32.1
5.6
17.7
Nonteaching
3.7
42.7
6.5
20.0
NOTE: Data are preliminary and subject to revision. PPS = Prospective Payment System. SOURCE: ProPAC analysis of Medicare Cost Report data from the Health Care Financing Administration.
In FY 1996 there were 246 hospitals with 25 or more interns and residents per 100 beds, sometimes referred to as major teaching hospitals. These hospitals represent about 5% of all hospitals, but are responsible for 11% of PPS discharges and received 19% of PPS payments in FY 1996. Medicare paid teaching hospitals $4.3 billion in IME payments in FY 1996. Many teaching hospitals also receive Medicare DSH payments which are related to the amount of care they furnish to poor patients. Teaching hospitals accounted for about 65% of the $4.3 billion in DSH payments in 1996. Both IME and DSH payments have risen rapidly since the implementation of PPS. GME payments also have risen rapidly. Moreover, there is wide variation in per-resident payment amounts across teaching hospitals. In the 10th year of PPS (1993), the average per-resident payment amount (of which Medicare pays a share) was more than $65,000. But the per-resident payment amount varied widely across hospitals: 10% of residents were in hospitals with per-resident amounts below $38,200, while another 10% were in hospitals with per-resident amounts above $98,600. One of the primary factors driving both IME and direct GME spending growth is a continuing increase in the number of interns and residents. Moreover, virtually all of the growth in the number of residents in recent years is due to a rise in the number of graduates of foreign medical schools receiving graduate medical training in U.S. hospitals. FINANCIAL CONDITION OF TEACHING HOSPITALS Medicare has more than adequately compensated teaching hospitals for the costs of treating Medicare patients through PPS. Since the beginning of prospective payment, teaching hospitals' PPS margins have exceeded those of other hospitals. Further, over the years the gap between the margins of teaching and nonteaching hospitals has widened. Preliminary data for 1995 indicate that major teaching hospitals had the highest PPS margins of any group of
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APPENDIX B
62
hospitals—18.6% (Table B-2). The PPS margin for other teaching hospitals— those with less than 25 interns and residents per 100 beds—was 7.6%, and for nonteaching hospitals it was 3.7%. Total hospital margins, however, show a very different pattern. The preliminary data for 1995 show a total margin for major teaching hospitals of 3.7%, the lowest of any group of hospitals. The total margins for other teaching hospitals and for nonteaching hospitals are closer together at 5.6% and 6.5%, respectively. The reasons for the lower total margins among major teaching hospitals are difficult to disentangle. Possible explanations include the large amount of uncompensated care many of these hospitals furnish, inefficiencies that are driving up costs per case, and difficulties obtaining the revenue from private payers to support the extra costs of maintaining teaching programs. This latter concern is evident in comparing the gains and losses by payer for hospitals grouped by teaching status (Table B-3). Major teaching hospitals (as defined above) fare somewhat better than other hospitals under Medicare. Medicaid DSH payments, which generally favor state hospitals, are reflected in the smaller Medicaid losses for the public major teaching group. Other government programs, as expected, also are targeted toward public hospitals. However, public major teaching hospitals have a substantially greater uncompensated care burden than do other hospitals. Moreover, major teaching hospitals appear to lack the ability to generate large surpluses from private payers. In particular, the public major teaching hospitals have only about half the nationwide share of private payer patient load, and so cannot leverage their surplus payments to offset their large uncompensated care losses. CONCLUSIONS In FY 1996, Medicare provided $6.8 billion in added direct and indirect GME payments to teaching hospitals. In addition, these hospitals received $2.8 billion in Medicare DSH payments. Thus a total of $9.6 billion in GME and DSH payments went to the entire pool of hospitals with teaching programs. Of that group, the subset of institutions (246) that qualify as major teaching hospitals received $4.2 billion in additional PPS (IME and DSH) payments. These payments led to very high PPS margins among major teaching hospitals—18.6% in 1995, compared to 3.7% for nonteaching hospitals. The total margins of these hospitals, however, are much lower than for other hospitals—only 3.7% in 1995, in contrast to 6.5% for nonteaching hospitals. Despite these payments, 14.0% of major teaching hospitals had negative total margins in 1995. The extra payments from Medicare have helped many major teaching hospitals avoid severe financial stress and have allowed them to continue providing care to Medicare enrollees. However, it is feared that accelerating price competition in the private sector will reduce the ability of teaching hospitals to obtain the higher patient care rates from other payers that
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APPENDIX B
63
traditionally have contributed to financing the costs of medical education and the other missions that teaching hospitals pursue. At the same time, the methods used to distribute these payments across hospitals provide a strong incentive to hire more residents and a strong disincentive to reduce their number. Under current Medicare rules, each residency slot unused by the hospital results in a reduction of almost $70,000 in Medicare (IME and direct GME) payments. Moreover, the per-resident payment varies substantially across hospitals, with some hospitals receiving well in excess of $100,000 per resident. Although this payment is based on actual costs allocated by the training program to each hospital, it can severely distort decisions as to how many and what types of residents to hire, as well as where to train them.
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-2.9
-3.7
2.3%
3.8
5.4
6.1
Public, major teaching
Nonpublic, major teaching
Other teaching
Nonteaching
-1.7
-1.2
-1.7
-0.5%
Medicaidb
0.2
0.1
0.2
0.9%
Other Govt. Payers and Subsidiesc
-4.5
-4.6
-4.7
-8.0%
Uncompensated Carec
13.1
10.8
7.3
6.5%
Private Payers
2.6
3.1
3.8
3.8%
Nonpatient Care
36.6
38.1
38.8
19.1%
Share of Total Costs
135.8
128.4
118.9
133.9%
Paymentto-Cost Ratio
NOTE: This analysis by hospital group is limited to data for hospitals that submitted all required data elements. Most revenue (and corresponding costs) from Medicaid health maintenance organizations and Medicare risk plans are included in the private payer category. a Gains or losses as a percentage of total costs for each of the six sources of revenue shown sum to total gains as a percentage of total costs. The values shown would be slightly lower if expressed as total margins, where total gains are calculated as a percentage of total revenue rather than total costs. b Medicare and Medicaid costs equal all costs, both inpatient and outpatient, attributed by hospitals to these programs' patients regardless of whether the costs are reimbursable by the programs. c Operating subsidies from state and local governments were considered as payments for uncompensated care, up to the level of each hospital's uncompensated care costs. Additional subsidies above this level were counted as separate revenue. SOURCE: ProPAC analysis of data from the American Hospital Association Annual Survey of Hospitals.
-1.1
-0.3%
Total Gainsa
Medicareb
Private Payers
Hospital Group
Gains or Losses as a Percentage of Total Costs
TABLE B-3. Gains or Losses by Payer, by Hospital Group, 1994
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APPENDIX C
65
Appendix C Public Comment on Graduate Medical Education Issues The Committee for the Implementation of a National Graduate Medical Education Trust Fund took a strong interest in soliciting comment from a variety of organizations and interested parties. Through a letter sent to members of numerous organizations requesting position papers, research, and opinion on issues surrounding GME funding and policy, and through a public hearing sponsored by the committee, many different views were examined and considered. At the public hearing on January 29, 1997, the committee heard from the following organizations, selected for their breadth of perspectives: the American Medical Association; the American Hospital Association; the Association of American Medical Colleges; the Council on Graduate Medical Education; the American Osteopathic Association; the American Association of Health Plans; the National Association of Community Health Centers; the American Nurses Association; and the American Academy of Physician Assistants. This Appendix is meant to serve as a general overview of the major themes in positions and statements of the organizations responding to our request for input. It does not necessarily reflect the principles or conclusions of the committee. The committee did not attempt to substantiate or refute the submitted information. Specific research is cited only when it was submitted as part of an organization's materials. PURPOSES OF GME Support for GME is seen widely as a public good, and as a system that should be protected in these times of changing markets and reevaluation of federal funding structures. The services offered by teaching institutions and the benefits of having a well-trained medical work force were repeatedly identified
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APPENDIX C
66
as being unique social benefits. Continuing federal support of some kind is generally seen as an indispensable factor in maintaining both of these benefits. Many groups expressed a wide variety of concerns including the inflexibility of the current funding system, but stressed that a payment system needs to be continued in a way that gives stability to the education industry, but that also lends flexibility to the industry to meet the changing requirements of the health care market. CURRENT ISSUES OF GME It is generally accepted that there is, or soon will be, a surplus of physicians in the United States. How much of a surplus there will be, in what regions or specialties, and what the role of the government should be in correcting this problem is a source of continuing debate. Many organizations voiced support for the Council on Graduate Medical Education (COGME) approach of limiting the number of Medicare-funded first-year resident slots to 110% of the size of the graduating class of U.S. medical schools and moving toward 50% of those slots devoted to primary care residencies (COGME, 1992, 1994). Some opposition was expressed to this policy, however, including questions regarding the rationale and support for using exactly 110%. Others claimed that there would be difficulty in implementing such a policy without controlling the denominator—medical school graduates. Many of the organizations expressed concerns about currently proposed strategies that they feel may harm patients' access to their particular profession's services, in an attempt to correct work force problems that exist wholly in allopathic medicine. For example, representatives from both dental and podiatry programs submitted statistics and research that indicated that there is an undersupply of positions for their current graduates. In addition, podiatrists and nephrologists, as well as a few others, claim to serve the Medicare population more exclusively than other specialists; they believe that, at the very least, they should not be adversely affected by Medicare GME policy or prevented from responding to the growing need for their services, particularly among Medicare beneficiaries. The inflexibility of the current GME funding structures in responding to changing market needs and direction was noted as a major concern. These needs included the desire for physicians with more ambulatory training, and for a different work force makeup, including more non-physician professionals like advanced practice nurses, physician assistants, and graduate level psychologists, to better serve all patients in a team-approach integrated environment, particularly in rural and large urban areas. Despite the need for flexibility in the funding system and the desire for change, almost all of the responders commented on the need for a system that offered stability for programs so that they could continue to train individuals in a high-quality environment throughout the term of their training.
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APPENDIX C
67
STRATEGIES AND OPTIONS FOR THE FUTURE SHAPE OF GME In response to these concerns with the current system, the responders frequently offered possible strategies or options for change, or comments on options being considered in the political realm. There were three main areas addressed. First, how many slots should be funded. Second, what entities should receive the funds, and third, what should be the mechanisms for distributing those funds. Finally, other issues and concerns to be considered were discussed. Capping of Available Slots In addition to the suggested COGME policy of capping residencies at 110% of U.S. graduates, there were several other numbers and reasons offered for a cap on available slots, as well as suggestions for shaping specialty caps to better fit the needs of the health care market. Many of these suggestions included weighted funding of some kind. The current GME funding system includes a positive weight for primary care residents, and this was generally supported. However, several of the organizations representing medical specialties stressed the importance of not weighting so much in one direction that future specialist shortages would be created. For example, the American College of Chest Physicians (1996) stated that ''reduction of support for residency and specialty training programs may actually result in their serious compromise or even in their destruction, resulting in second class quality of care in the future.'' On the other hand, the American Osteopathic Association (AOA) and other groups suggested creating a rate schedule that would vary from specialty to specialty. This "specialty-specific" payment rate would reflect work force needs and would serve to even out payment variations across institutions and regions. There could be geographic adjustments, but overall the reimbursement rate would supply a strong incentive for training programs to control costs and operate in a manner that was responsive to national work force policy (Wickless, 1997). Because the responders' varying opinions on this issue reflect the general controversy in the field, many of the organizations support the American Medical Association (AMA) recommendation for the creation of a governing/ advisory body to examine work force issues in detail and, over time, to direct government policy on GME. In his testimony to the committee, Marvin Dunn outlined this idea for oversight of work force policy: We [the AMA] are concerned that while we are willing to accept the wisdom . . . of reducing the number of physicians, we am not sure anyone has the full wisdom to say how far and how quick to come. Even if we could come to an agreement on that, there are so many factors that nay change tomorrow, that we believe there is a need for a new public/private oversight group to be established to monitor this [issue] on
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an ongoing and critical basis . . . to make adjustment in case our wisdom proves to be not so wise. (Dunn, 1997)
Many responders supported the establishment of an oversight group to develop regulations and supervise the administration of GME funds. Consortia or Other Recipients of GME Funding In any discussion of funding, two primary questions are (1) who should receive support, and (2) who should be responsible for distributing the funds to the involved parties? Several scenarios were offered identifying entities that could receive funding aside from teaching hospitals. The most common strategy mentioned was the consortium concept. Consortia would be formed from at least one teaching hospital, one medical school, and other training sites as needed and available. The consortium as a whole could receive the GME funds and determine how they would be distributed among the participants. During testimony before the committee, the AOA highlighted their efforts to form osteopathic consortia. Under this plan, all AOA-affiliated schools and training programs would be required to be part of a consortium and meet certain quality standards in order to continue to be accredited and to receive funding for training. This model, called the "Osteopathic Postdoctoral Training Institution Model," is scheduled for implementation in 1999 and is currently in place in some areas (Wickless, 1997). Although there were some expressions of support for this idea, there were concerns as well. The concerns centered around the historical distrust between many of these entities, as well as discussions about IME funds, which are intended as support for the teaching hospitals, and would be a complicating factor in the consortium concept. There were many claims that the costs of and support for GME should be closely related. However, depending on the perspective of the individual group or organization, the proposed distribution method might consider different criteria for this balance. Some responders expressed a desire for a system of funding that followed the resident, with the site of training receiving the funds. Others claimed that the funding should flow to the entity supporting, and responsible for, that resident, with some compensation made to other sites for their direct costs of training. Still others submitted that medical schools best fit the educational purposes of GME and should be responsible for guiding postgraduate training and directing funding (Hanft, 1991). Currently, many teaching hospitals have agreements with various ambulatory sites to provide training to the hospitals' residents. However, the ambulatory sites—which include community-based clinics, managed care settings, and physicians' practices—state that they receive little or no support or compensation for training these residents. For example, Thomas Curtin of the National Association for Community Health Centers pointed out that although they are able to respond to many of the needs of the health care market,
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including more primary and preventive care training, and training in practicing in an integrated, cost-efficient environment, they receive little or no compensation for the residents they agree to take. The current payment policy for GME, because of various restrictions and economic incentives, discourages the use of these types of settings for resident training and makes it unlikely that the teaching hospital will pass on much of the GME funding. Whatever the mechanism for distribution and whoever received the funds, the general opinion was that future GME funding mechanisms should at least allow, if not encourage, the training of residents in ambulatory sites and in other primary care delivery settings. Mechanism for Distribution Essentially there were three basic means of distribution discussed by the respondents. These included adaptations to the current entitlement formula, a trust fund with a finite amount, and a system of vouchers. There were many combinations and variations on these three themes. Suggested changes to the current system would include those above, essentially directed toward making the current system more flexible to the changes in training needs and market requirements. This would include, according to most of the responders, the removal of GME funds from the AAPCC. There are concerns from the managed care industry about this change, particularly without consideration for its impacts. As John Ludden of the American Association of Health Plans (1997) stated at the public hearing before the committee: As we remove the funding for graduate medical education from the AAPCC, we will have a negative impact, especially on some areas, on the development and maintenance of cost and quality responsible health maintenance organizations and other managed care organizations. A new program should begin slowly enough, or take into account enough, that we don't use this opportunity to drive an unnecessary wedge between managed care organizations and those institutions which train physicians.
Another suggested system involved the use of a trust fund. The overwhelming opinion from the responders was that such a trust fund should incorporate funds from sources other than just Medicare. Some respondents suggested tax-based contributions on health care premiums, whereas others thought a contribution from general funds would more clearly reflect the general, public benefits of high-quality GME and teaching hospitals. Many expressed a belief that this finite amount of money from an all-payer fund would be distributed via a mechanism that reflected the needs of the health care market more closely than a system that was based on outdated federal entitlement principles and incentives. For example, as Roger Bulger of the Association of Academic Health Centers (1995) pointed out, an increase in the number of residents would decrease the amount of per-resident payments in a finite system.
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A final suggested method for distribution was the use of a voucher system. The voucher system would be distributed to residents and redeemed at the training program or institution of their choice. Although there were different suggestions about exactly how this system would operate, certain benefits were generally agreed upon by advocates. Vouchers could be used to more closely direct work force issues, including overall numbers, and specialty and geographic distributions. In addition, it is believed by many, that it would maintain or increase the quality of training programs as a result of competition for residents. Other respondents believed most of these issues could be resolved without the dramatic systemic changes necessary to implement a voucher system. OTHER ISSUES Nursing Graduate Medical Education There was a near-unanimous response on this issue from a variety of individuals. The consensus is that current GME funding for nursing—which goes to non-graduate-level hospital-based diploma schools—should be redirected to help fund the clinical training of advanced practice nurses, which is at the graduate level. Much evidence and rationale were offered for this change in policy. Diploma schools do not train graduate-level nurses, and many felt that supplying these schools with GME funds misrepresented the program's purposes. In addition, diploma schools are decreasing in number at a rapid pace, and are only present in a limited number of areas, with many not based in teaching hospitals. At the same time, advanced practice nurses are in increasing demand, particularly in rural areas and to provide services to underserved populations (Berlin et al., 1996). They are also being used to fulfill some of the services needs created by the reduction of resident programs. The responding organizations also pointed out that advanced practice nurses meet many current work force needs by delivering primary care services to underserved and rural populations and in integrated systems. Non-Physician Health Professionals not Currently Included in GME Funding In addition to nurses, several other organizations representing non-physician medical personnel appealed to the committee to address their role in the health care field and to recognize their contribution to services for Medicare and other patient populations. Like nurses, these professions, including physician assistants and psychologists, pointed out their role in serving populations in need of quality primary care. The American Academy of Physician Assistants stated that the reason they are not already included in the Medicare GME system is that they did not exist as a profession at the creation of the Medicare program. However,
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since then their part in the delivery of primary care services has grown. They can be found frequently in rural areas and with underserved populations. Like advanced practice nurses, they can be used to replace many of the residents' services when programs are reduced. Their number also is growing in response to a need in the health care delivery market, and their growing popularity in managed care systems. Psychologists likewise point out that they are filling a need in the health care market as it moves to more integrated approaches to care. Team-based medical care is becoming more pervasive and an integral piece of that team is a psychologist, according to the response from the American Psychological Association. Transitions and Stability Almost without fail, responders to the committee's requests for information expressed the need for transitional funds and time, no matter what changes were made to GME policy or distribution. The need for stability is an inherent part of maintaining a quality educational environment. The main fear of many of the organizations is that major cuts or cuts implemented too quickly could cause institutions and programs to respond in ways that are detrimental to the education of medical personnel. For example, cuts in the number of resident slots without time and funds to find replacement medical personnel could cause programs to shut down or use their remaining residents exclusively for service while neglecting training. The generally agreed upon rate for implementing major changes was approximately 5 years, during which old programs and slots could be phased out and many of the current residents could complete their training before reorganization occurred. International Medical Graduates Views on the issue of international medical graduates, or IMGs, were perhaps the most divided. Much research was offered to show that the increase in the number of residents over the past decade is caused in large part by a growing number of IMGs in GME programs. The original intent of world health efforts and the J-1 exchange programs, was to bring foreign medical graduates to the United States from nations that did not have the capacity to train their own doctors and then return them home to practice. This has shifted dramatically. A large percentage of the current IMGs are American citizens or permanent residents and stay in this country to practice (Iglehart, 1996). IMGs now play a major part in the operations of some institutions. In large urban areas and in rural areas, IMGs may occupy the majority of the residency positions. These hospitals are IMG-dependent. If the number of IMGs allowed in GME programs were dramatically reduced, these facilities would be adversely affected. Some respondents claim that unless incentives are introduced or
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increased to draw U.S. medical graduates to replace IMGs, many of these IMGdependent facilities and programs may not survive changes (Aronson, 1996; National Rural Health Association, 1996). Accreditation, Liability, and Residency Review Committees One final issue was the concern over liability of accreditation programs and the personnel of Residency Review Committees (RRCs). With the possibility of expanding the role of many programs and institutions in GME, accreditation will become a major part of the efforts to ensure that new entrants to the GME program meet quality standards. The increased potential of excluding parties from GME funding may open accrediting bodies and RRCs wider to liability suits. There were several requests for the committee to recommend that RRCs and their personnel be protected from liability and antitrust action so that they could better ensure quality programs in GME. LIST OF ORGANIZATIONS SURVEYED AND THAT SUBMITTED MATERIALS Academy of General Dentistry Accreditation Association for Ambulatory Health Care American Academy of Family Physicians American Academy of Nurse Practitioners American Academy of Nursing American Academy of Osteopathy American Academy of Pediatrics American Academy of Physical Medicine and Rehabilitation American Academy of Physician Assistants American Association of Clinical Endocrinologists American Association of Colleges of Nursing American Association of Colleges of Osteopathic Medicine American Association of Colleges of Pharmacy American Association of Colleges of Podiatric Medicine
American Association of Dental Schools American Association of Health Plans American Association of Nurse Anesthetists American Association of Preferred Provider Organizations American Association of Retired Persons American Board of Nursing Specialties American College of Cardiology American College of Chest Physicians American College of Dentists American College of Health Care Administrators American College of NurseMidwives American College of Occupational and Environmental Medicine American College of Physicians American College of Preventive Medicine American College of Rheumatology American College of Surgeons
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APPENDIX C
American Congress for Rehabilitation Medicine American Dental Association American Family Therapy Academy American Federation for Clinical Research American Gastroenterological Association American Geriatrics Society American Hospital Association American Licensed Practical Nurses Association, Inc. American Medical Association American Nurses Association American Osteopathic Association American Osteopathic Hospital Association American Podiatric Medical Association American Psychological Association American Public Health Association American Society of Clinical Pathologists American Society of Plastic and Reconstructive Surgeons Association for Health Services Research Association for Hospital Medical Education Association of Academic Health Centers Association of American Cancer Institutes Association of American Medical Colleges Association of Maternal and Child Health Programs Association of Minority Health Professions Schools Association of Physician Assistant Programs Association of Schools and Colleges of Optometry Association of Schools of Allied Health Professions
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Children’s Defense Fund Congress of Neurological Surgeons Council of American Kidney Societies Council on Podiatric Medical Education Deans of Medical Schools Federation of American Health Systems Federation of American Societies for Experimental Biology Federation of Pediatric Organizations Federation of Podiatric Boards Federation for Accessible Nursing Education and Licensure Harvard Pilgrim Healthcare Health Insurance Association of America Individual Teaching Hospitals and Medical Centers Integrated Healthcare Association Joint Commission on Accreditation of Healthcare Organizations Managed Health Care Association Mathmatica Policy Research Mayo Foundation National Association of Children’s Hospitals and Related Institutions, Inc. National Association of Community Health Centers National Association of Public Hospitals and Health Systems National College of Advocacy National Committee for Quality Assurance National Committee to Preserve Social Security and Medicare National Council of Senior Citizens National Dental Association National League for Nursing National Medical Association National Rural Health Association Osteopathic Specialty Organizations
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The American Association of Hospital Dentists Schools of Medicine Renal Physicians Association Schools of Nursing State Medicaid Directors’ Association
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The American Association of Neurological Surgeons The HMO Group Voluntary Hospitals of America Washington Business Group on Health
On Implementing a National Graduate Medical Education Trust Fund, National Academies Press, 1997. ProQuest Ebook Central,