Medicare Direct Graduate Medical
Education (DGME) Payments
Clinical settings are key sites for the education of future physicians.
Typically, teaching hospitals and associated ambulatory settings
provide such an educational environment for the training of resident
physicians ("residents"). Residents have graduated from medical
school and then go on to complete several years of supervised, hands-on
training in a particular area of expertise, such as primary care
or surgery. This phase of their training is called "graduate medical
education" (GME).
Hospitals that train residents incur real and significant costs
beyond those customarily associated with providing patient care.
The Medicare program makes explicit payments to teaching hospitals
for a portion of these added costs through direct graduate medical
education (DGME) payments.
Purpose of the DGME Payment
The DGME payment compensates teaching hospitals for "Medicare's
share" of the costs directly related to the training of residents.
Medicare does not make payments related to the clinical education
of medical students. The added direct costs of GME incurred by teaching
hospitals include: stipends and fringe benefits of residents; salaries
and fringe benefits of faculty who supervise the residents; other
direct costs; and allocated institutional overhead costs, such as
maintenance and electricity. Other direct costs include, for example,
the cost of clerical personnel who work exclusively in the GME administrative
office.
When Congress established Medicare in 1965, it recognized that:
Educational activities enhance the quality of care in
an institution, and it is intended, until the community undertakes
to bear such education costs in some other way, that a part of the
net cost of such activities (including stipends of trainees, as
well as compensation of teachers and other costs) should be borne
to an appropriate extent by the hospital insurance program (House
Report, Number 213, 89th Congress, 1st session 32 (1965) and Senate
Report, Number 404 Pt. 1 89th Congress 1 Session 36 (1965)).
DGME Payment Methodology
In general, Medicare pays each teaching hospital a portion of the
hospital's "per resident amount" (PRA). As further described
below, the PRA represents the DGME costs incurred by a teaching
hospital in a base period (generally1984 or 1985) divided by the
number of full-time equivalent (FTE) residents during that base
year. The PRA is updated annually by an inflation factor and then
multiplied by the hospital's resident count, subject to its cap
(see below). Medicare pays its portion of this amount based on the
ratio of the number of total inpatient days Medicare patients spend
in the hospital divided by the hospital's total inpatient days for
all patients.
In general, each hospital has two separate PRAs because in Fiscal
Years (FYs) 1994 and 1995 the PRAs for non-primary care residents
were not updated for inflation, while the primary care PRAs were
updated. Thus, each teaching hospital receives slightly higher payments
for residents training in primary care specialties and slightly
lower amounts for residents in other specialties. Primary care specialties
include family medicine, general internal medicine, general pediatrics,
preventive medicine, geriatric medicine, osteopathic general practice,
and obstetrics/gynecology.
In addition, the program pays lower amounts for residents in subspecialties.
For training periods beyond the years required for a resident's
initial board certification in his/her first specialty (not to exceed
a maximum of 5 years), the Medicare DGME payment is reduced by 50
percent. The 50 percent payment continues indefinitely, as long
as the resident remains in an approved program (ie, certified by
the appropriate accrediting body).
The period for full payment may be extended up to two years for
additional training if it occurs in a geriatric or preventive medicine
residency or fellowship. For "combined" primary care residency programs
(eg, internal medicine/pediatrics), the BBA of 1997 defined the
period for full DGME payment as the minimum number of years of formal
training required to satisfy the initial board requirements of the
longest program, plus one year.
As discussed above, Medicare now imposes a limit on the number
of residents it supports. The limit is based on the number of FTE
residents in approved allopathic or osteopathic training programs,
before application of the 50 percent weighting factor, according
to the hospital's most recent cost report period ending on or before
December 31, 1996. Dental and podiatric residents are excluded from
the residency limits.
Since July 1987, hospitals have been allowed to count the time
that residents spend in settings outside the hospital, such as freestanding
clinics, nursing homes, and physician offices, so long as the hospital
incurs "all or substantially all" of the costs in the nonhospital
setting, and subject to certain other requirements.
Selected Legislative Background
Since the inception of the Medicare program, the federal government
has paid its proportionate share of the direct costs associated
with GME. The remaining costs are financed by a variety of sources
such as Medicaid, the Departments of Veterans Affairs and Defense,
state and local government appropriations, faculty practice plans
hospital revenues, and philanthropies. From 1965 until the mid 1980s,
Medicare paid for its share of DGME costs based on each hospital's
historical, "Medicare-allowable" costs. Reimbursement was open-ended:
if a hospital increased its DGME costs, the Medicare program would
pay its share of the actual allowable costs incurred.
In April 1986, Congress passed the Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985 (P.L. 99-272), which dramatically
altered the DGME payment methodology in two ways. First, Medicare
uncoupled the relationship between "open-ended" GME costs and DGME
payments by paying each hospital based on its DGME costs incurred
in a base year period (1984 or 1985) divided by the number of residents
counted in the base year (the PRA). The program audited each hospital's
reported costs to establish this hospital-specific PRA. The hospital's
DGME payments are based on this PRA updated annually by a set inflation
factor, regardless of the hospital's actual GME costs in a given
year. Second, the Medicare program limited the number of years for
which it would fully support its share of residency training costs,
by paying only 50 percent of the calculated amount for fellowships.
In August 1993, Congress again modified the DGME payment methodology
(P.L. 103-66), making slight adjustments to the existing COBRA methodology.
The Balanced Budget Act (BBA) of 1997 (P.L. 105-33) made several
changes to the DGME payment methodology. It placed limits on the
number of FTE residents that hospitals can count for DGME payments
and also that the DGME payments be based on a resident count that
reflects a three-year rolling average methodology. The BBA also
provided that the Medicare "share" would reflect Medicare managed
care patients (previously, only inpatient days associated with fee-for-service
patients was recognized).
The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act
(BBRA) of 1999 (P.L. 106-113) established a "floor" for hospital
PRAs. Effective FY 2001, BBRA set the floor at 70%, of a locality-adjusted
national average PRA. Under the "Medicare, Medicaid and SCHIP Benefits
Improvement and Protection Act (BIPA) of 2000" (P.L. 106-554), the
floor was reset at 85 percent. The Medicare Prescription Drug, Improvement
and Modernization Act (MMA) of 2003. (P.L. 108-173) provided that
hospitals with PRAs above 140 percent ceiling of the locality-adjusted
national average would not receive updates through FY 2013.
Contacts:
Christiane Mitchell, Director, Federal Affairs
AAMC Government Relations
cmitchell@aamc.org
(202) 828-0526
Karen Fisher, Sr. Director, Health Care Affairs
AAMC Health Care Affairs
kfisher@aamc.org
(202) 862-6140
Atul Grover, M.D., Ph.D., Chief Advocacy Officer
AAMC Government Relations
agrover@aamc.org
(202) 828-0410
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