At its 1999 Interim Meeting, the American Medical Association Young Physicians Section (AMA-YPS) Assembly voted to reeaffirm current YPS policy titled "Physician Workforce/Supply: Graduate Medical Education (GME) Financing." That policy:

The AMA-YPS was also asked to periodically update its members on the American Medical Association’s current activities relating to GME funding.

At one time, hospitals funded graduate medical education (GME). Residents received a small cash stipend, room, board, laundry and other services. Hospitals then would directly and indirectly recover some of these costs through insurance billing. The current system of GME funding began in 1965, when the Medicare program was created. Congress included payments to hospitals for GME funding in Medicare because it recognized a need for trained physicians and other health care professionals to provide health care to the nation, and acknowledged that educational activities in a hospital enhanced the quality of patient care.

Currently, governmental sources (federal and state) are the only explicit payers for graduate medical education. Medicare is the largest payer, contributing about $2.2 billion dollars in 1999 to cover the direct costs of GME, including resident salaries, supervisory costs, and overhead related to the educational program. Additionally, teaching hospitals also received $3.7 billion from indirect GME payments (which compensates teaching hospitals for higher operating costs associated with the presence of a residency program such as more complicated cases, additional tests ordered by residents as part of the learning process and reduced patient care productivity by all staff members). The Department of Defense and the Department of Veterans Affairs together paid about $500 million dollars to support residency training in programs affiliated with their institutions.

The states also contribute to GME. There are fee for service medical education payments under Medicaid. In addition, a number of states have set aside funds to support the growth of family medicine training programs or departments, and some may support other primary care disciplines as well. States contribute to public medical schools to support faculty salaries, which benefits graduate medical education programs. According to a new survey from the Association of American Medical Colleges, entitled "Funding of Graduate Medical Education by State Medicaid Programs," Medicaid paid an estimated $2.3 billion for graduate medical education (GME) in 1998.

To view a summary of how Medicare calculates direct GME payments and the Indirect Medical Education Adjustment, click here

For several years, the Congressional Budget Office and many independent observers have been forecasting the insolvency of the Medicare Trust Fund by the year 2015. Congress has made several cuts to the Medicare program to delay bankruptcy; however, comprehensive Medicare reform has been successfully avoided by both Congress and the President. All of the comprehensive Medicare reform proposals have included recommendations for reforming GME funding.

Some progress was made towards Medicare reform in 1997 with the passage of the Balanced Budget Act. That legislation led to the formation of two governmental bodies, the National Bipartisan Commission on the Future of Medicare and the Medicare Payment Advisory Commission (MedPAC), both of which were directed to review Medicare payment policy, including GME funding, and make recommendations. A third governmental body, the Council on Graduate Medical Education (COGME), has been working on GME funding and workforce policies since 1986.

The Commission, created by the Balanced Budget Act of 1997, was charged with studying the Medicare program, including funding for GME, and making recommendations that would strengthen and ensure the solvency of Medicare for future recipients. The Commission's 17 members were appointed by President Clinton and Congressional leaders. Congress required that a supermajority (11 out of 17 votes) on the Commission was needed for any proposal to be forwarded to the House of Representatives; the final proposal received 10 votes. The Commission disbanded in March 1999, without reaching the consensus needed to make recommendations to Congress.

Although the proposal failed, the Commission's chairs, Sen John Breaux (D, La) and Rep William Thomas (R, Calif) have stated that they will rewrite the proposal as legislation and introduce it to Congress. Among the Commission’s recommendations for GME funding were the following:

• that DME payments be carved out of the Medicare Trust fund;
• that DME either be funded through a separate entitlement program or through multi-year discretionary appropriations;
• supported continued Medicare funding of the Indirect Medical Education Adjustment (IMEA).

Prior to the release of the final proposal, Senator John Breaux (D-LA), one of the commission’s co-chairs, released more detailed language regarding GME funding. He recommended that DME payments also be made to teaching institutions, such as children’s hospitals, that generally do not receive Medicare GME funding. In addition, he recommended that the methods for calculating IMEA be revisited to ensure appropriate funding.

Congress created MedPAC by combining two existing commissions, the Physician Payment Review Commission and the Prospective Payment Assessment Commission. MedPAC is responsible for reporting on all Medicare payment policies, including payments to teaching hospitals for residency training. It is required to submit reports to Congress annually.

In its August 1999 report, "Rethinking Medicare’s Payment Policies for Graduate Medical Education and Teaching Hospitals," MedPac advised Congress and HCFA to take the following steps to reform GME payments to teaching hospitals:

• Pay more for patient care in teaching settings when the enhanced value justifies higher costs;
• Refine diagnosis-related groups to reflect the relationship between illness severity and the cost of inpatient care;
• Revise Medicare’s payments to recognize the higher value of patient care services provided in teaching hospitals through an enhanced patient care adjustment;
• Phase in the payment adjustment for enhanced patient care and any related policies that substantially change payments to individual providers;
• Develop payment adjustments to enhanced patient care in all settings where residents and other health care professionals train when the added value of patient care justifies higher costs;
• Implement federal policies intended to affect the number, specialty mix and geographic distribution of health care professionals through targeted programs rather than through Medicare payment policies.

Congress created COGME in 1986 and has authorized and funded the group until 2002. COGME is charged with providing an ongoing assessment of trends in the physician workforce, GME funding policies, and other aspects of residency training. COGME also considers funding for undergraduate medical education. It is required to make recommendations to Congress and the US Department of Health and Human Services.

COGME comprises 17 members, representing primary care physicians, specialty societies, international medical graduates, medical student and resident associations, medical and osteopathic schools, teaching hospitals, health insurers, business, labor, the US Department of Health and Human Services, and the Veterans Administration.

Its March 1999 report, entitled "Physician Workforce Policies: Recent Developments and Remaining Challenges in Meeting National Goals," COGME proposed the following recommendations:

• Encourage a more effective market for physician specialty and geographical location choices;
• Integrate workforce planning for physician and non-physician clinicians;
• Provide financial incentives for priority national workforce goals;
• Promote Federal-State Partnerships for Health Professions Planning;
• Continue to promote a reduction in the number of physicians in training, particularly specialists;
• Provide enhanced transition support for safety net hospitals that reduce the number of residents in training;
• Restore the exchange visitors VISA program to its original intent;
• Establish a stable and equitable source of long term financing for GME; and
• Assure adequate funding for training in ambulatory settings.

A June 2000 MedPac report is expected to contain recommendations on graduate medical education.

The Balanced Budget Act of 1997 (BBA) made significant changes to the Medicare and Medicaid programs, reducing spending for both programs by $116 billion and $15 billion respectively from 1998 to 2002. The actual spending reductions turned out to be much higher for a variety of reasons. A significant portion of that reduced spending was in the form of decreased payments to hospitals. The BBA’s changes to Medicare and Medicaid provider payments included reductions in payments that reimburse all hospitals and payments that specifically reimburse teaching hospitals for their special missions, including training the nation’s future physicians and caring for low income Medicare, Medicaid and indigent populations. In addition, the BBA froze residency numbers; new or expanding residency programs were not able to count residents added after an arbitrary date.

The law included a program, modeled after the New York demonstration project (for information, click here), providing incentives to hospitals that voluntarily reduced the number of their residents while maintaining the same number of primary care residents or increasing the number of primary care residents. "Primary care resident" was defined as a resident in one of the following specialties, per Medicare statute: family practice, general practice, general internal medicine, general pediatrics, or obstetrics-gynecology. Voluntary reductions initiated pursuant to this provision were to take place over a five-year period. Applications for the program needed to be submitted by November 1, 1999.

In 1999, through passage of the Balanced Budget Refinement Act of 1999 (BBRA), Congress restored a portion of the BBA’s Medicare and Medicaid payment cuts to providers. This legislation increased Medicare and Medicaid spending by approximately $16 billion over five years, with approximately $7 billion directed to hospitals. For teaching hospitals, the BBRA delayed implementation of the 29 percent cut in IME payments by one year, maintaining IME payments at 6.5 percent in FY 2000 before reducing IME to 6.25 percent in FY 2001 and to 5.5 percent in FY 20002. It also allowed hospitals to increased the number of primary care residents that it counts in its base year limit to include those individuals who were on maternity, disability, or a similar approved leave, in determining their resident count used in DGME and IME payment calculations. In addition, rural hospitals would be able to expand their base year limits by 30 percent effective with discharges or cost reporting periods beginning on or after April 1, 2000. Also effective April 1, 2000, for non-rural facilities that establish separately accredited rural training programs or have an accredited training program with an integrated rural track, the Secretary of Health and Human Services will adjust their base year limits "in an appropriate manner" to encourage training of physicians in rural areas. Lastly, there was a provision that allowed teaching hospitals a resident limit exception for the transfer of residents that occurred between 1997 and mid-year 1998 from a Department of Veterans Affairs facility if its program would otherwise lose accreditation.

In addition to BBA relief provisions, the bill included $40 million to be appropriated for GME payments to independent children’s hospitals.

In 1999, several bills were introduced in Congress to transform the way physician training is funded and to raise a cap on the number of primary care physicians being trained that was imposed by the 1997 Balanced Budget Act. Representative Benjamin L. Cardin (D-MD) introduced an "All-Payer Graduate Medical Education Act" (H.R.1224). Supported by our American Medical Association, the Association of Academic Health Centers and the Association of American Medical Colleges, the Cardin bill contained the following provisions:

• Hospitals would receive about $3.2 billion in additional revenue, and Medicare’s contribution would decline by about $1.4 billion
• The amount paid to each hospital would be calculated by adjusting the actual national average costs of resident salaries and fringe benefits by area wage indices and changes in the consumer prices index.

The establishment of "A Medical Education Trust Fund" is the focus of two bills, S. 210, introduced by Daniel Patrick Moynihan, and H.R. 2771, introduced by Nita M. Lowey. These proposals promote revamping the financing of GME in the United States.

Other proposals include:

• H.R.1645, introduced by Fortney (Pete) Stark. The "Medicare Critical Need GME Protection Act of 1999" seeks to amend title XVIII of the Social Security Act to provide for full payment rates under Medicare to hospitals for costs of direct graduate medical education of residents for residency training programs in specialties or subspecialties which the Secretary of Health and Human Services designates as critical need specialty or subspecialty training programs.

• S. 1631, introduced by Conrad Kent. "The Graduate Medical Education Fair Technical Amendments Act of 1999," provides for the payment of the graduate medical education of certain interns and residents under title XVIII of the Social Security Act.

• H.R.1785, introduced by Charles Rangel. "Graduate Medical Education Payment Restoration Act" seeks to amend title XVIII of the Social Security Act to stabilize indirect graduate medical education payments.

Graduate medical education is the midpoint of medical education for U.S. medical school graduates. It has been AMA policy that, in the event of reductions in GME positions, access should be maintained for U.S. medical school graduates and for IMGs already legally present in the U.S. (Policy H-255.974). It also is AMA policy to support the position that IMGs who plan to return to their country of origin have the opportunity to obtain GME in the U.S. (Policy H-255.968) but that the issues involved in support of such physicians be separated from the issue of support for U.S. citizen or permanent resident IMGs (Policy H-255.989).

The AMA has longstanding policy that advocates workforce planning based on data (for example, Policy H-200.987). Data analysis and planning should be conducted by a private/public advisory body that is immune from anti-trust constraints. Such a body, which would exist outside the regular governmental structure and be exempt from antitrust constraints, could develop recommendations for the total number of GME positions to be funded and for the general distribution of positions across specialties. The workforce advisory body also should advise on the distribution of the funds to support GME from Medicare or from a new payment system. So that they may engage responsibly in the national debate on the physician workforce, our AMA believes that it and other professional organizations (such as the Accreditation Council for Graduate Medical Education, Residency Review Committees, and national medical specialty societies) should be given sufficient explicit immunity from antitrust constraints.

Our AMA believes it is essential that any funding source for GME be stable, to allow for meaningful planning within programs, institutions, and consortia. This requires a budgeting system that is not subject to a fluctuating annual appropriations process. The AMA has had policy in support of an all-payer system for the direct costs of GME since 1992 (Policy H-305.956). The all-payer concept has met resistance from Congress and from third-party payers because it has been perceived to be a new tax.

An all-payer system could create a Graduate Medical Education Trust Fund. These funds to support the direct costs of GME should be housed elsewhere than in the Health Care Financing Administration. Instead, our AMA believes that a GME Trust Fund authority should be established that is outside the regular governmental structure. The private/public sector advisory body should, in addition to making recommendations about the number and distribution of GME positions, develop a mechanism to distribute funds from the GME Trust Fund. Your Governing Council also notes that would resolve a current problem, being that community residency programs not directly administered by hospitals now have to rely on "pass-through" IME/DME funds. A Graduate Medical Education Trust Fund could pay the site of training directly.

An all-payer system requires a more explicit determination of GME costs. An accurate assessment of the total costs of maintaining a residency program (including resident salaries, supervisory costs, and program overhead) would be necessary to determine the size of the all payer pool. The budgeting system should be based on a "per resident" amount, that will move over time to greater comparability across locations. Calculation of per resident costs should also take into account regional costs differences. Once the size of the pool has been calculated, each payer should contribute proportionately according to a data-based formula that is developed by the workforce advisory body. There should be a phase-in of any increased standardization of direct medical education payments. (Our AMA also believes that, absent the establishment of an all-payer system, funding for the direct costs of GME remain within Medicare. This would maintain the predictability in funding that is critical for program stability.)

The preceding approach to the development of a more standardized per-resident amount for the direct costs of GME lends itself to the creation of a "voucher system" (Policy H-305.945). The voucher is a guarantee for the direct costs of each eligible residency position, and can be designed to provide funds to the site where training occurs. Funding, through a voucher or other similar system, should be guaranteed for the length of residency training, not on a per-year basis.

Our AMA convened an open hearing on March 20, 1999, during the AMA National Leadership Development Conference. Invitations were sent to a number of groups within and external to the AMA with interests in graduate medical education (GME), including the AMA-YPS and the AMA Resident and Fellows Section.

The principles of the 1997 "Consensus Statement on the Physician Workforce," developed by our AMA (and supported by the AMA-YPS) in collaboration with the American Association of Colleges of Osteopathic Medicine, the American Osteopathic Association, the Association of Academic Health Centers, the Association of American Medical Colleges, and the National Medical Association, served as the starting point of discussion. The principles in the Consensus Statement, can be summarized as follows:

• Align the number of entry-level graduate medical education positions more closely with the number of graduates of accredited U.S. medical schools;
• Provide opportunities for non-citizen/non-permanent resident international medical graduates to train in the U.S., but do not finance this experience from Medicare or any future GME funding pool;
• Establish a national physician workforce advisory body to monitor and periodically assess the size and specialty composition of the physician workforce;
• Establish a national all-payer pool to provide a stable funding source for the direct costs of graduate medical education; and
• Establish a stable source of funding for teaching institutions to cover the higher costs associated with a more complex case mix, the participation of learners in the delivery of care, and the conduct of research and development of new technology

In June 1999, our AMA House of Delegates ratified the following principles for GME reform, as proposed by its Council on Medical Education and modified by the House of Delegates:

(1) The number of federally-funded entry-level graduate medical education positions should be reduced, over time, to no more than 120% of the number of 1997 graduates of U.S. MD- and DO-granting medical schools. The number of federally-funded entry-level positions should be monitored and there should be flexibility in the number and allocation of positions, so that regional and specialty needs can be met.

(2) Planning for the number of residency positions should take into account the contributions to patient care made by other health professions and occupations, considering that other health professions and occupations do not substitute for physicians.

(3) Guidelines for the number of funded positions should be developed by a private/public sector advisory body, which should exist outside of the regular governmental structure. The advisory body should have significant representation from the medical profession and the academic medical community.

(4) Explicit immunity from antitrust constraints should be provided to private professional groups, to allow participation in the national debate on the physician workforce.

(5) Program quality, based on an assessment of educational program outcomes under the leadership of the Accreditation Council for Graduate Medical Education and its Residency Review Committees, should be a factor in the allocation of funded residency positions.

(6) There should be no increase in the number of graduates from U.S. MD- and DO-granting medical schools over 1997 levels.

(7) The direct costs of graduate medical education should be supported through a Graduate Medical Education Trust Fund that receives contributions from all payers for health care. The private/public sector advisory body should study and develop mechanisms for the distribution of funding from this Trust Fund.

(8) Financial support for residency training should be sufficiently stable to allow for meaningful planning. This requires a budgeting system that is not subject to an annual appropriations process. If a Graduate Medical Education Trust Fund is not established, funding for the direct costs of graduate medical education should remain within the Medicare program.

(9) Budgeting for the direct costs of graduate medical education should be based on a per-resident amount, which should move toward comparability across locations. The direct costs of GME include resident salaries, supervisory costs, and educational program overhead. Regional cost differences should be taken into account.

(10) Funding should follow residents to all educational sites. Any authorization, capitation, or "voucher" system should permit such distribution of funds to the sites that incur the costs of training.

(11) The indirect medical education adjustment (IMEA) through Medicare should be restored to a level that permits the maintenance of the education, research, and charity care missions of teaching institutions. This mechanism should be maintained until there are explicit alternatives to support the costs associated with higher acuity in teaching institutions and indirect costs associated with the presence of a teaching program.

(12) Transitional funds should be provided to teaching institutions that lose residents as a result of cuts in the number of funded positions. (CME Rep. 10, A-99) [Policy H 305.935, "Policy Options for Support of Graduate Medical Education]

These AMA principles have been communicated to federal and state policy-makers, and will serve as the basis of our Association’s attempts to influence the emerging government policy on the physician workforce and the financing of graduate medical education. Most recently, the AMA joined with some forty national medical specialty societies to send a letter to MedPAC members regarding Graduate Medical Education Funding. For a copy of the letter, , click here.

GME reform is a complex problem, currently being approached by several agencies, including the Association of American Medical Colleges, The Institute of Medicine, the Council on Graduate Medical Education, the Pew Commission, and the Kellogg Foundation. Various national medical specialty societies also are contributing to the debate. Our AMA has input through a slotted seat on COGME, some influence on Med-Pac (whose membership includes D. Ted Lewers, MD) and through its Washington, DC legislative staff. AMA policies are communicated to federal and state policy-makers, and serve as the basis of our Association’s attempts to influence the emerging government policy on the physician workforce and the financing of graduate medical education.

The AMA-YPS Governing Council anticipates a great deal of continuing discussion regarding GME funding. We feel that it is very important for young physicians to participate in these discussions. We encourage all young physicians to learn more about GME funding and to forward recommendations for YPS and AMA action. The following websites have been created to provide current information on this evolving issue: