Case Overview, Medicare Funding of Graduate Medical Education

          The financing of medical care in the United States is enormously complex. Without a single payer system payments to providers can be a combination of government, insurance, and individual out-of-pocket reimbursements. There is no one formula and payment schemes vary dramatically, even from hospital to hospital or from one doctor to the doctor next door in the same medical building. It all depends. Indeed, it all depends on just about everything that is relevant to the health care system.
          The payment system is also dynamic, changing constantly as rates and reimbursement formulas are adjusted. One particularly large change came with the Balanced Budget Amendment of 1997. After the dramatic and expanding budget deficits that developed during the Reagan and Bush administrations, the Republicans found religion and began pressing for budget cuts to reduce and eventually end the federal deficit. President Clinton also had an interest in balancing the budget to make good on his campaign promises and to demonstrate the fiscal discipline that seems to have eluded presidents Reagan and Bush. Among the many targets of the Balanced Budget Amendment were payments to hospitals for the training of doctors and other health professionals, such as pharmacists and nurses. These funds are part of Medicare, an expensive government program because it pays for the medical bills of senior citizens.
           The rationale for paying hospitals for training those just out of their medical schooling is that these employees are being trained by those hospitals for careers that will be spent at other institutions. Once a resident finishes his or her training at their hospital, they will typically go off to join another hospital, HMO, health center, or private practice. As one government analyst explained, "Because the firm [training hospital] can't retain that person, they can't retain the benefits from providing the education and training, so there's no incentive to pay the costs of that training." Medicare not only pays the direct costs of a resident (their salary and benefits) but it also provides an indirect medical education (IME) benefit. This is an add-on payment that teaching hospitals get for every Medicare case they treat. The justification for the IME is that teaching hospitals have higher costs, largely due to seeing sicker patients and, often, carrying a larger indigent clientele.
          In the 1997 Act the number of medical residencies per hospital was reduced and the funding formula went from 7.7 percent of the government's payment schedule for services to patients to 5.5 percent. Said one lobbyist simply, "That was a big hit." In the wake of this big hit, various hospital and professional associations began working to try to increase the payments they received under the new formulas. Each in its own way-associations representing pharmacists, nurses, medical students, teaching hospitals and other interests-trying to demonstrate that their needs were really special and they weren't (in one lobbyist's words), just "pigs at the trough." In addition to lobbying Congress directly where legislation had been introduced to change the system, two different commissions were studying the broad problem of the government's role in the payment system.
          For its part the 106th Congress was hesitant to open up the proverbial can of worms. If legislation moved forward, members would have to say yes or no to all the various lobbies that were beseeching them for help. Some constituencies did find modest help through the separate appropriations process, but the broader legislation stalled in committee. Similar relief legislation was introduced into the 107th Congress but those bills went nowhere.