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Second Opinion

Learn about policy issues important to medical schools and teaching hospitals, with Executive Vice President Atul Grover, M.D., Ph.D.

A Bruising Fall and Winter for the Nation's Health

October 28, 2011

Let me get something off my chest. Policymakers are worried about the economy and long-term impact of the federal debt. Teaching hospitals and medical schools—among the few sectors that have maintained or increased employment during this recession—provide 3.3 million full-time jobs in communities across the country. In fact, total hospital employment in the United States increased by 4 percent between 2007 and 2010.

Yet independent economic analyses by Tripp Umbach show that the various graduate medical education (GME) cuts under consideration as part of deficit reduction would eliminate between 20,000 and 73,000 jobs  at AAMC-member teaching hospitals, and cause up to $10 billion in annual losses for the national economy. One major health system reported that they would likely eliminate 1,000 jobs if GME cuts are enacted.

To me, policies that purport to save jobs shouldn't eliminate them. But that's just my narrow logic. Aside from the lost jobs, here are more troublesome aspects of the various proposals to reduce Medicare support for physician training and other unique teaching hospital programs.

Medicare cuts will hurt beneficiaries for years to come

The president's fiscal commission (Simpson-Bowles) last December recommended slashing funding for GME by 60 percent, despite the fact that we already have a shortage of physicians that will grow to at least 90,000 by 2020. While average 65 year olds can (thankfully) now expect to live 20 years beyond their date of Medicare eligibility, we can't promise beneficiaries they will have access to a doctor. The physician shortage will only get worse if Medicare backs away from its 45-year commitment to cover a portion of the costs associated with training physicians and maintaining patient care services only teaching hospitals can provide.

Medicare payments already fall short: DGME

According to Medicare cost report data, teaching hospitals incur a total of $13 billion in direct costs associated with training physicians. Medicare helps cover a portion (Medicare's "share") of those direct graduate medical education (DGME) costs by providing about $3 billion in DGME payments annually. Some (but not all) state Medicaid programs provide an additional level of support for physician training (a total of about $3 billion annually). However, Medicaid GME support is rapidly declining as many states significantly reduce or fully eliminate payments due to their own budget constraints.

So, if you deduct $3 billion in annual Medicare DGME payments and up to $3 billion in annual Medicaid GME support from the estimated $13 billion in total direct costs, teaching hospitals themselves must fully cover (and self-fund) at least $7 billion in annual DGME costs.

Moreover, the inflation-indexed per resident amount (PRA) used to calculate Medicare's share of DGME costs (generally around 40 percent) is about $94,000 annually. But the actual total cost (also reported on Medicare Cost Reports) averages about $145,000 annually. In effect, Medicare currently underpays its share of DGME costs by approximately $2 billion a year.

At the same time, teaching hospitals now fully support almost 10,000 GME training positions annually, over the Medicare "resident cap." Since these positions don't receive any level of Medicare support, they are fully funded by teaching hospitals at an additional cost of $1 billion annually.

Medicare payment shortfalls: Overall Medicare margin

In general, Medicare's patient care reimbursement rates are more equitable than those under Medicaid. Even so, Medicare's inpatient and outpatient reimbursement rates still fall short. In aggregate, AAMC-member teaching hospitals and health systems (approximately 300 acute care hospitals, excluding VA facilities) receive about $32 billion a year in Inpatient Prospective Payment System(IPPS) reimbursement. Yet, on average, their overall Medicare margin (which combines payments for inpatient, outpatient, rehabilitation, and other Medicare services) is negative 2.9 percent. This represents a $1 billion annual loss on Medicare patients for major teaching hospitals.

All told, Medicare's annual underpayment to teaching hospitals exceeds the $3.5 billion in IME support that MedPAC identifies as "not empirically justified." This is perhaps one of the reasons that MedPAC (as of June 2010) does not recommend that Congress cut IME payments to teaching hospitals.

What happens if Congress cuts GME support?

1. A $1 billion reduction in annual teaching hospital support would likely result in at least 10,000 fewer physicians trained (10 percent less than at present). This would further exacerbate the projected physician shortage by 25,000 doctors and bring the total physician shortage to 115,000 doctors by 2021.

Keep in mind that physician training costs are rising as teaching hospitals use simulation centers, adopt new multi-professional and team-based curriculum, and incorporate other new aspects that promote patient-centered care and the transformation of health care delivery.

According to the August 2011 survey "The Potential Impact of Reduction in Federal GME Funding in the United States: A Study of the Estimates of Designated Institutional Officials" by the Accreditation Council for Graduate Medical Education (ACGME), which represents 70 percent of all physician training programs, Medicare GME cuts would trigger a reduction in training positions across the nation. According to the survey, the cuts contained in the Simpson-Bowles proposal would result in the loss of one-third of all residency positions. This is a concern for medical students who will be the physicians caring for the nation's rapidly expanding Medicare population.

2. Services unavailable elsewhere in the community (e.g., trauma and burn care) and emergency response services like the deployment of mobile assistance to victims of natural and man-made disasters would be at risk. Almost every news story about individual tragedies and mass disasters includes the response of a teaching hospital or academic medical center. Their Level I trauma centers care for victims of gunshots, floods, car accidents, tornados, and other calamities. Eighty percent of trauma centers are operated by only 6 percent of the nation's hospitals.

3. GME cuts would jeopardize care for the most vulnerable, including low-income seniors, the poor, the disabled, and Americans in underserved communities. While AAMC-member teaching hospitals account for only 6 percent of all hospitals, they provide almost 40 percent of all charity care. In real dollars, these hospitals provide $8.4 billion a year in charity care. Any reductions in support erode the resources necessary to preserve their educational and community service missions. This proportionately small group of the nation's hospitals also provides over one-quarter of the inpatient care for Medicaid beneficiaries (typically at a significant loss because of poor Medicaid reimbursement). Medicare cuts would force each institution to choose between providing patient care or maintaining physician training programs—or reducing both.

GME cuts have broad and long-term implications

Clearly, GME cuts have broad and long-term implications that will affect all Americans. In addition to jeopardizing health care access for Medicare beneficiaries and their families by exacerbating the growing physician shortage, and reducing or eliminating standby access to life-saving care, thousands of health care jobs would be lost. The prescriptions that many in Washington are offering may cure the economy... but do so by jeopardizing the health of every American.

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About the Author

Atul Grover, MD, PhD AAMC Executive Vice President

Atul Grover, MD, PhD
AAMC Executive Vice President

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@AtulGroverMD



For More Information

Peters Willson
Sr. Specialist, Policy and Constituency Issues
Telephone: 202-862-6029
Email: pwillson@aamc.org