Transforming Health Care Through Evidence and Collaboration
Transforming Health Care Through Evidence and Collaboration

The Outlook for Reforming Payments to Graduate Medical Education

Gail R. Wilensky, PhD, Senior Fellow, Project HOPE
Gail Wilensky
Gail Wilensky

Each year, more than $15 billion of tax-payers’ money is spent to support physicians in residency training. About one-third of this amount comes from Medicaid, the Department of Veterans Affairs, and the Health Resources and Services Administration. The remaining nearly $10 billion flows through the Medicare program, primarily to academic medical centers via a complex system of direct graduate medical education (DGME) payments for residents in approved training positions and indirect medical education (IME) payments intended to compensate teaching hospitals for the added costs of caring for Medicare beneficiaries in a training environment. With an investment of this size it is fair to ask whether this public money is being well spent, especially given oft-voiced concerns about specialty and geographic imbalances, insufficient workforce diversity and readiness to practice in today’s delivery systems. Indeed, one could even question why Medicare plays such an outsized role in training our nation’s physicians and whether public support is warranted at this level or at all.

It was within this context that the Institute of Medicine (IOM) convened a 21-member committee in 2012 to assess our current GME system. Dr. Donald Berwick and I – two former administrators of Medicare and Medicaid under Democratic and Republican Administrations – co-chaired the committee. Most of the committee members were academic medical and nursing leaders and, thus, beneficiaries of the government’s support of GME. Our July 2014 report contained five recommendations for a bold restructuring of GME financing.1 In this essay, I explain the recommendations and provide an update on stakeholder reactions as well as potential Congressional interest in tackling changes to GME policy.

The IOM Recommendations

The IOM committee discussed at great length the unusual role that the federal government and, in particular, Medicare have in supporting GME. Ultimately, we recommended that Medicare maintain its total level of DGME plus IME funding for the next ten years (adjusted for inflation), while gradually phasing in performance-based payments designed to develop a more optimal physician workforce. Committee members agreed that ongoing Medicare financing over a transition period would provide the stability and leverage needed to effect desired changes in the GME system.

For this revamped system, the committee recommended consolidating Medicare GME resources into a single fund with two subsidiary components: (1) an Operational Fund that continues to support existing and future Medicare funded training positions and (2) a Transformation Fund to support innovations in how GME funding is used (Figure 1). These innovations could range from research to develop metrics for judging training program performance to testing new ways to distribute residency funding beyond the hospital setting or to address geographic or specialty shortages. The committee assumed that initially almost all of the resources would stay with the Operational Fund but that the allocation to the Transformation Fund would gradually grow as training programs develop the capacity to undertake innovation pilots. Then, as successful innovations are adopted, related funds would move back into the Operational Fund.

To bring more rationality to the GME financing system and provide guidance in its evolution, we recommended creating a GME Policy Council within the Office of the HHS Secretary. This council would develop a strategic plan for GME, identify the types of research to be sponsored by the Transformation Fund and coordinate activities among groups accrediting and certifying residency programs. On a parallel front, we called for a new GME center within CMS to oversee the distribution of funds in accord with Policy Council guidelines.

Our fourth recommendation addressed the complexity and opacity of the current mix of DGME and IME payments by calling for the combination of these funding streams into a single national, geographically adjusted payment per resident. These payments would be made directly to GME sponsoring organizations and, over time, would move to a performance-based system informed by the Transformation Fund pilots.

Fifth, recognizing that Medicaid pays about $4 billion to support GME each year, we recommended that states continue to be allowed to use Medicaid funds for GME but that the same level of accountability and transparency be required for Medicaid as is proposed for Medicare.

Because Medicare’s system of financing GME has not changed fundamentally in the last 30 years, the committee recognized that the changes we put forth will be disruptive to the teaching hospitals and other sponsoring or-gani-zations that have become used to receiving these monies year after year. The ten-year phased-in implementation period we ad-vanced is intended to minimize disruptions. It is only after this period that an additional de-ter-mination should be made about the ap-propriateness of continued federal funding of GME.

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