Graduate Medical Education Payments: Do we Need to Fix the System?

With the reimbursement so complex and antiquated, should Congress investigate?

Medicare reimbursement payments to hospitals for graduate medical education are based on calculations so complicated, it boggles the mind. 

The computation for direct graduate medical education (GME) payments starts with an allowable cost per resident (ARPA) determined in the early 1990s – almost 30 years ago. The APRA is multiplied by the number of residents working in the hospital. For each resident, teaching hospitals must submit data including:

  • The resident’s name
  • Social Security number
  • Date of medical school graduation
  • The name of the medical school
  • For foreign graduates, the date they passed their ECFMG exams
  • The number of years in other residencies they have completed
  • The name and type of their first U.S. residency programs

In addition, the count of residents has limits put in place in 1996, over 20 years ago.

In addition to direct GME payments, teaching hospitals also get a payment for the indirect cost of teaching residents, or “indirect medical education.” Again, there are caps in counting the number of residents, going back to 1996, in the computation. 

The IME computation is based on the ratio of residents to available hospital bed days. The idea is that the mere presence of residents makes the overall running of the hospital less efficient. This number is way harder to determine than the number of licensed or available beds. It is the weighted average available beds over the period reported. As beds are added or removed from service on a daily basis, getting the correct number is very difficult.  

Now that your head is spinning, the IM reimbursement formula includes taking ratios of the last three periods in a “rolling average” count of residents, with different counting rules than that used for direct GME reimbursement. For a final bit of fun, the calculation takes the allowable ratio of residents to available beds and runs it through an equation that includes raising amounts to the .405 power. Does anyone remember square roots?

The equations are so complex that only reimbursement people filling out cost reports understand them, and most of them don’t really understand it. With a huge number of teaching hospitals limited in reimbursement, based on 30-year-old allocations, is any of it is fair?

GME payments are often so large that teaching hospitals raise more revenue from them than the Medicare Prospective Payment System funding that would be paid if the hospital did not have GME. Many hospitals without GME programs think GME payments are grossly unfair, and skew the playing field. 

I can’t see it happening any time soon, but at some point, Congress must look at the whole system of paying for graduate medical education.   

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Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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