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Report Redefines Medicare Payments to Teaching HospitalsIn the 1997 Balanced Budget Act, which made the most significant changes to Medicare since the program began in 1965, Congress mandated the creation of a 17-member Medicare Payment Advisory Commission (MedPAC) and directed the commission to prepare a report on issues in graduate medical education, focusing on the effectiveness of Medicare's GME payment policies. The report, issued on August 4, includes a proposal first suggested by Joseph Newhouse, HMS professor of health care policy and vice chair of MedPAC, that aims to redefine Medicare's role in GME payments while reducing variations in per-resident payments among hospitals.Medicare now pays hospitals in two ways: costs for direct medical education (DME) include intern and resident salaries, costs of faculty teaching, and some overhead costs such as hospital libraries. Indirect medical education (IME) costs are the residual differences in expenses borne by teaching and nonteaching hospitals. The sources of IME are not as easily defined, but generally reflect "a costlier than average mix of patients and a different patient care product because the resident is there," Newhouse says. DME payments are fixed, hospital-specific dollar amounts per resident. IME payments are figured as a percentage add-on to the DRG payment (diagnosis-related group, the general system of Medicare payments according to patient diagnosis) based on number of residents per bed. Under this system, which was instituted in 1984, hospitals would benefit by labeling costs as DME. To head off a flurry of creative accounting, Medicare froze the per-resident payments at 1984 levels, which were calculated differently by different hospitals, with adjustments based solely on the consumer price index. As a result, payment schedules (assuming 100 percent Medicare patient-days) vary widely, from around $30,000 per resident to more than $100,000, with some hospitals in New York receiving more than $200,000. "That's a huge variation, and there's been some agitation to reduce this variation or just average out the payments," Newhouse says. Some Republicans in Congress believe the government should not pay for doctors' training and want to eliminate federal payments for GME altogether. Others would take the payments out of the Medicare system, removing their entitlement and subjecting them to the annual appropriations process. The Balanced Budget Act already mandates the reduction of IME payments by $5.6 billion over four years and DME by $700 million over five years. As an alternative, MedPAC's report represents "a new way of looking at the problem," Newhouse says. The commission recommends that DME costs be folded into the IME financing mechanism, which would reduce variation in per-resident payments. The proposal is based on the "general training theory" formulated by Gary Becker, who won the 1992 Nobel Prize in economics. "In any industry, whether construction workers or farmers or residents, if you are trained on the job and the training is equally useful in any firm, it is not in the employer's interest to pay the costs of the training," Newhouse explains. "So the cost of the training gets netted out of the wage you're paid." A comparison of the salaries of residents versus staff physicians, he says, makes it apparent that this principle is already at work in the hospital setting. "In effect, there never really were any costs of training showing up on hospital cost reports. Those were being netted out of what the residents got," he says. "What's showing up is the costs of a different patient care product than at a nonteaching hospital," such as round-the-clock coverage by residents. "The practical implication is that there's no substantively meaningful distinction between direct and indirect medical education payments," he says. "It should all be regarded as additional costs of patient care." The report states that "the Commission believes that the value of the enhanced patient care provided to Medicare beneficiaries in teaching hospitals justifies the costs of providing it....Medicare should adjust its payments to teaching hospitals to reflect the higher costs of the care they furnish." Putting all costs together and paying them under the current IME system would clarify that Medicare is paying for patient care rather than physician education, and would also even out the inequities between hospitals. Some in the medical education community found mixed blessings in the commission's report. The Association of American Medical Colleges (AAMC), for example, took exception to the redefinition of Medicare's role. "MedPAC's report sends a very troubling message to Congress and our nation's teaching hospitals by concluding that Medicare should no longer explicitly support physician training," said Jordan Cohen, AAMC president. In a health policy report in the July 22 New England Journal of Medicine, John K. Iglehart writes that "although Congress will consider the commission's report carefully, whether its recommendations will be adopted may remain unclear until at least the 2000 election." --Tom Reynolds |
