Many institutions rely on trainees to support clinical services, but more importantly, the dollars that complement their presence are a key revenue stream for facilities.

Now that discussions are proceeding in our nation’s capital to reduce the debt, dollars to subsidize training programs are in play, and cuts to federal graduate medical education (GME) dollars are likely.

This is a good opportunity to review what GME is, and how it affects hospitals.

First, for context, here is the federal portion of total health care dollars ($2.2 trillion) allotted for education:

Given the slice is minute, your reaction might be, “why go after training programs?”

The answer is  threefold: 1) it is low hanging fruit and does not impact beneficiaries directly, 2) the health system is thousands of analogous small programs and this is what reductions look like (there are no “home runs”), and 3) the government is doubtless overpaying, or at minimum, subsidizing inefficiently for these services.

Take note, I am not rendering judgment on the number or type of trainees needed, only how hospitals are paid, by how much, and how they utilize it.

For the first two decades after Medicare implementation (1965), training hospitals apportioned their educational costs into charges.  Hospitals billed, and payers paid.  Easy.

That changed in the early 1980′s however, and the government separated these costs, with training hospitals collecting direct and indirect medical education subsidies (DME and IME) to cover training activity expenses.  Hospitals received payments for medical care separately under the prospective payment/DRG system which we utilize today.

We hear these terms, DME and IME, frequently, and to comprehend the intrigues behind proposed cuts, you must understand their distinctions and assumed purpose.

DME:

“[…] is intended to cover Medicare’s share of costs directly related to running GME programs, such as trainees’ salaries; faculty time; administrative costs; and teaching programs’ share of institutional costs of, for example, facilities overhead and malpractice insurance. Medicare assigned hospital-specific per-resident amounts (PRAs) on the basis of cost reports from fiscal year 1983. Although these amounts have been adjusted for inflation, the baseline estimated cost of a resident’s education has not changed in more than 25 years […]“

Translation: DME = PRA x resident quantity x % hospital revenue due to Medicare

IME:

“[…] were intended to reimburse teaching hospitals for the increased costs of patient care related to teaching programs. Never fully elucidated, these costs were believed to involve longer lengths of stay, additional testing, need for more advanced diagnostic and therapeutic modalities, and a more complex mix of patients. The mechanism was an adjustment that teaching hospitals receive to their Medicare billings on the basis of their resident-to-bed ratio […]“

Indirect subsidies comprise a far greater proportion of the total GME payment and currently are at greatest risk of reduction.

Best estimates for breakout costs of trainee education are as follows:

• Salary = $50,000
• Benefits= $15,000
• Training Expense = $50,000

Therefore, the total estimated cost to train one resident is $115,000.

Conversely, why do the AAMC (the association for the academic medical community), AHA, and some members of congress object to this potential reduction? Why then, does MedPAC (the congressional Medicare advisory body) wish to tamper with this seemingly reasonable sum?

I will address these questions in my next post.