November, 2011

The last issue of Perspectives focused on the connection between the high cost of medical education and the challenge of preparing a physician workforce sufficient to meet the demand for both primary and specialty care. But as you may know, the process of training physicians doesn’t end when they receive their M.D. degrees. Graduate Medical Education (GME), or the additional years of internship, residency, and fellowship training, is the next step in preparing new physicians to obtain licensure and practice their chosen specialty. Just as the high cost of medical education poses a challenge, there are obstacles to funding GME at a level sufficient to train the number of physicians we need in the future. In particular, the future of federal funding for graduate physician training is currently in question, as Congress weighs options for cutting federal spending and deficit reduction.

Funding for Graduate Medical Education Under Fire

Graduate Medical Education (GME), the required hands-on training phase of physician education, is supported by teaching hospitals, though the clinical experience occurs in a variety of settings including the outpatient clinic. Medicare currently supports a portion of both the direct and indirect costs of GME. However, the level of support Medicare provides for GME has eroded in recent years, and proposals currently under consideration in Congress could cut that level of support even more dramatically. The ramifications of the proposed cuts to GME funding are significant; cuts not only threaten to worsen physician shortages, but would also make it more difficult for teaching hospitals like Penn State Hershey Medical Center to provide the life-saving care and jobs that communities depend upon.

Medicare, through its Direct Graduate Medical Education (DGME) payment system, compensates teaching hospitals for Medicare’s share of the costs directly related to training residents. The cost to hospitals of training a resident averages $100,000 or more per year; Medicare’s share of that cost is usually around $40,000. With about 110,000 residents in training each year, teaching hospitals’ direct costs of training are approximately $13 billion a year. Medicare supports about $3 billion of that total. Academic medical centers and teaching hospitals are where young doctors gain the crucial skills they need to care for all patient populations. As a part of Medicare, DGME reimburses academic medical centers for about one-third of the direct costs associated with training the next generation of doctors, including salaries, malpractice insurance, equipment and the extra time necessary for senior doctors to teach new doctors.

Proposals to reduce Medicare funding for graduate medical education would inevitably decrease access to care for Medicare beneficiaries and other patients. Medicare’s support for its share of GME costs has been effectively frozen since 1997, contributing to the current shortage of physicians. Further decreasing support for GME would only worsen the projected shortfall of 90,000 physicians by 2020. Cuts would also adversely affect the ability of teaching hospitals to maintain vital, life-saving services, such as trauma and burn units, that often are unavailable elsewhere in communities. Although they account for only 6 percent of all hospitals, teaching hospitals provide one-fifth of all hospital care, and operate more than 80 percent of the country’s Level 1 trauma centers and burn care units.

The impact of proposed cuts to GME to the Commonwealth of Pennsylvania would be significant. If implemented, both the House Ways and Means Committee proposal and the Simpson-Bowles Commission proposal would reduce DGME reimbursements in Pennsylvania by $78 million per year or $846 million over ten years. These cuts would yield a nearly $3 million annual loss to Penn State Hershey Medical Center.

Any reduction in Medicare’s support for GME would dramatically and rapidly increase physician shortages. For the next 19 years, 10,000 Americans will turn 65 every day. While many will live longer and more active lives, many also will develop multiple chronic conditions that will require regular medical care. Unless the nation trains more physicians, seniors and others will find it increasingly difficult to find the doctors they need. Yet the number of physicians per capita is expected to fall within the next decade, just as patient needs are rising. Timely access to physicians is in jeopardy unless Medicare expands GME support, and any cuts will only reduce access to care nationwide, particularly for those that are already underserved.

Medicare also supports a share of the higher costs of patient care in teaching hospitals that are not directly related to education, but which reflect the costs of treating a more complex patient population as well as of providing highly specialized services and emergency or standby services that are unavailable elsewhere in a community. All patients in a community can benefit from these services if they become severely ill, regardless of whether or not they are Medicare beneficiaries.

Because Medicare pays teaching hospitals the same basic rate per discharge as other hospitals (which often is less than the cost of care), Congress created the Indirect Medical Education (IME) payment to help defray these higher patient care costs. Despite its label, IME is a patient care payment made to teaching hospitals because they treat a more complex patient population and provide services that others cannot. Since its inception in the 1980s, the size of that additional patient care payment has been cut in half, from an adjustment of 11.59 percent to 5.5 percent. Currently, Medicare supports approximately $6.5 billion of these higher patient care costs through the IME adjustment. Yet the actual cost of providing these services that benefit communities and the health and well-being of patients is much higher. These costs have only increased over time, yet Medicare’s support has been effectively capped since 1997.

If implemented, both the House Ways and Means Committee proposal and the Simpson-Bowles Commission proposal would further reduce the IME reimbursement percentage from 5.5% to 2.2%. This would result in a one-year reduction of nearly $370 million and a ten year impact of just over $4 billion in Pennsylvania alone. These same proposals would be equally devastating to Penn State Hershey Medical Center, which would lose $14.1 million per year in IME reimbursement and $153 million over ten years.

Cutting funds that support training will make caring for Medicare and Medicaid patients a challenge and lead to the direct loss of up to 20,000 jobs in American communities—health care jobs from nursing to custodial staff. Communities in all regions of the country typically rely on teaching hospitals for job creation, advanced research, new business development, and education of medical professionals in addition to the clinical care they provide. According to the economic consulting firm Tripp Umbach, Pennsylvania’s reduction of IME reimbursements would yield a total economic loss of over $935 million resulting in projected the elimination of approximately 6,200 jobs (direct).

Medicare’s support of GME and IME includes paying its share of the costs of training but also support for the higher costs of patient care that communities rely upon when they need care the most. Without adequate support, teaching hospitals’ ability to provide that care would be threatened. As the Commonwealth’s only medical facility to be accredited as both an adult and a pediatric Level 1 trauma center, we treat the most complex patients, maintain standby capacity for a full range of emergency services many of which are unavailable elsewhere in the community, are an early adopter of cutting-edge technology, and provide specialized trauma care. In addition, we conduct life-saving clinical research and serve as a safety net provider in our community. Cuts to GME funding will directly impact our ability to provide care to those who need health care the most – seniors and the underserved.

Penn State Hershey Medical Center is committed to meeting the health care needs of all patients who look to us for care, and will continue to serve our large Medicare patient population no matter what happens with GME funding. As one of the nation’s few truly integrated academic health systems, we are in a stronger position than many other teaching hospitals to cope with the challenges presented by proposed cuts; nonetheless, we have reason to be concerned about how these cuts would affect our institution, our patients, and our nation’s healthcare system. In addition to the devastating effect that cuts to GME would have on patient access and care, there would also be a significant adverse impact to the local and state economies. Communities in all regions of the country typically rely on teaching hospitals for job creation, advanced research, new business development, and education of medical professionals in addition to the clinical care they provide.

Reducing American’s budget deficit is essential. But cutting funds for physician training is a bad idea that will hurt the nation’s health.

Harold L. Paz, M.D.
Chief Executive Officer, Penn State Hershey Medical Center
Senior Vice President for Health Affairs, Penn State
Dean, Penn State College of Medicine