MedPAC Proposal: Boon or Disaster for Residency Training?

Medicare Payment Advisory Commission recommendations to update hospital base payment rates and reduce indirect medical education, or IME, funding could enhance or prove disastrous to teaching hospitals' financial well-being, depending on how they are implemented, according to Perry Pugno, M.D., M.P.H., director of medical education at the AAFP.

The recommendations were part of discussions during MedPAC's Jan. 9-10 meeting. (PDF file: 423 pages / 524 KB. More about PDFs.) Commissioners recommended that, in Medicare-related legislation, Congress update hospital inpatient and outpatient base payment rates, while also reducing IME payments by 1 percent, bringing those payments to 4.5 percent.

MedPAC's payment recommendations will be included in its March report to Congress.

A hospital update would increase diagnosis-related group, or DRG, payments for patients with more severe conditions. Because teaching hospitals and their residents care for a higher number of more seriously ill patients, an adjustment to the DRG could increase a hospital's Medicare income and offset a reduction in IME payments, according to Pugno.

"From a pragmatic standpoint, no one knows what the real impact will be, but if an appropriate system for complex care patients is implemented, (teaching) hospitals could come out ahead," said Pugno. "But we need to be very cautious about this and ensure the reduction (in IME payments) doesn't go into effect before there's an appropriate compensation system in place for the care of these challenging patients."

Robert Dickler, senior vice president of the Association of American Medical Colleges, agrees. The current draft recommendation on IME payment "is at best premature," he wrote in a letter to MedPAC Chair Glenn Hackbarth, J.D., (PDF file: 6 pages / 58 KB. More about PDFs.) in early January. "We appreciate and share the Commission's desire that the DRG system be modified to better reflect patient severity. … However, we are concerned about linking an IME payment reduction with this change. … CMS has yet to propose a severity adjustment system, and it is not known to what extent such a system will fully address patient severity cost differentials."

Changes to DRG and IME payments to academic health centers affect resident training programs because, even though residency programs earn patient-care income, teaching increases a hospital's costs, according to Pugno.

In particular, primary care residency programs, although they generate income and are the foundation for subspecialty referrals, often are seen as more costly because payment for the CPT codes most commonly used in primary care has been lower than for those associated with subspecialty procedures. Without offsetting federal support for medical education, such as IME funds, training programs seen as less productive than others could become vulnerable, say medical educators.

"All the risks associated with this kind of change could have a negative impact on our single-sponsor, community-based family medicine residency programs, because they don't have the advantages of consultation and surgery income" that could buffer IME reductions, said Pugno.

Residency training programs began feeling a financial squeeze with the passage of the Balanced Budget Act of 1997. That law cut IME adjustments from 7.7 percent to 5.5 percent and capped the number of residency slots for IME and direct graduate medical education funds at 1996 levels.

"Because of physician workforce needs … a number of teaching hospitals have increased the number of residents they train beyond their 1996 caps," wrote Dickler in his letter to MedPAC. "Consequently, as of 2004, almost half of all teaching hospitals had IME resident counts exceeding their caps by an aggregate estimate of 4,884. These hospitals receive no Medicare IME support associated with the additional residents."

Complicating the picture is CMS' interpretation of statutes pertaining to the role of volunteer preceptors in community-based residency training. Since 2002, CMS has maintained that hospitals must pay community-based preceptors for their teaching time -- a position that further increases the financial stress on teaching hospitals. In meetings with CMS officials, the AAFP has called on the agency to alter its interpretation of the law. In addition, the Academy launched Speak Out campaigns and worked with Congress on legislation that would override the CMS position.

"They're already stretched thin," said Pugno of family medicine residency program finances and their teaching hospital sponsors. "We have national problems with health care access for many populations now, and if these (teaching) programs crash, it could be the straw that breaks the camel's back."