May 14, 1999

Senate Finance Committee Hears Panel on GME and DSH Reform

The Senate Finance Committee May 12 continued its examination of possible Medicare reforms with a review of the financing of special payments within the Medicare program including graduate medical education (GME), disproportionate share hospitals (DSH), and payments for rural providers.

Witnesses including John Rowe, M.D., president and CEO of the Mount Sinai-NYU Medical Center and Health System, discussed the impact of the 1997 Balanced Budget Act of 1997 (BBA) on GME and DSH payments, the creation of an all payer GME trust fund, and the financing of GME and DSH in a market based Medicare program.

Dr. Rowe focused his comments on the increased financial pressures on teaching hospitals and medical schools resulting from changes in the health care market and the unintended consequences of the provider cuts mandated by the BBA.

He likened the work of the committee to that of a physician, "Just as the treatments prescribed by the best of doctors can have unintended adverse effects, so, too, can the best legislation. And, just as I was taught in medical school that it is best to stop the offending treatment sooner rather than later, I urge you to make some critical changes before irreparable harm is done...."

Specifically, Dr. Rowe asked that Congress: halt the phased 29 percent reduction in indirect medical education (IME) adjustment payments; repeal the phased 5 percent reduction in DSH payments; provide IME and DSH adjustments to the new outpatient PPS; repeal the TEFRA cap provision; repeal the transfer provision; and provide for direct payment of Medicare DSH funds to DSH hospitals on behalf of Medicare managed care enrollees.

To provide for a secure and stable source of funding based on all who benefit from the "public goods" teaching hospitals support, David Blumenthal, M.D., executive director of the Commonwealth Fund Task Force on Academic Health Centers, recommended the creation of a Graduate Medical Education and Teaching Hospital Trust Fund. Dr. Blumenthal suggested financing the fund through all third party payers, including Medicare.

"The creation of a trust fund -- equitably, securely and fairly financed -- is in many ways an ideal long-term solution to the problem of paying the extra costs of teaching hospitals. However, the Congress faces the short-term question of what to do with the graduate medical education and disproportionate share payments under the Medicare program. The Task Force has taken the position that, whatever policies the Congress pursues, it should assure that Medicare patients who need the extra services provided by teaching hospitals and academic health centers continue to receive those services, and that the nation's ability to produce needed public goods be protected. Decisions about whether to move some of the expenses of the GME and disproportionate share provisions under Medicare into the regular appropriations process should be judged by this standard," said Dr. Blumenthal.

Murray Ross, Ph.D., executive director of the Medicare Payment Advisory Commission, testified that it is not clear how the activities supported by Medicare's special payments would fare in a market driven environment and suggested that support would decline under such a program. "In the past, hospitals were able to offset at least some of the costs of uncompensated care by charging more to insured patients. They have been less able to do so as the health care market has grown increasingly competitive, and private payers have resisted paying costs for people other than their own enrollees. Making Medicare more competitive would reinforce this trend," said Dr. Ross.

He further noted, "In regard to graduate medical education and Medicare's special payments to teaching hospitals, the answer hinges on the extent to which beneficiaries observe and value the difference in the services these hospitals provide. Just as consumers are willing to pay higher prices for goods and services they perceive to be superior--from automobiles to college educations--we can reasonably suppose that some Medicare beneficiaries would choose plans that contracted with teaching hospitals." He said this can already be identified today among the non-aged population and among Medicare+Choice enrollees whose health plans contract with teaching hospitals.

This hearing was the third in a series of five on Medicare reform the Finance Committee has planned; the next hearing is scheduled for May 19.

Information: Paul Bonta, AAMC Office of Governmental Relations, 202-828-0526.