MODEL STATE GME FINANCING INITIATIVES
Several States in particular are using or considering new and innovative GME financing approaches that improve their accountability to address State health workforce needs and that serve as potential models for national GME financing.
State Appropriations
Arkansas
State support for community-based family practice started in 1973. From 1975–1980, Arkansas created six new family medicine residency programs (in addition to one existing in Little Rock, the State’s largest city) in collaboration with the State’s AHECs. The only residency programs located outside of Little Rock are in family medicine. Although it is more expensive to operate seven residency programs spread statewide, State officials in 1973 demanded a new model that would be more effective in distributing physicians to needy populations across the State.
These six community-based family medicine residencies have made a significant impact on physician supply in Arkansas. In their over 25 years of existence, the residencies provide most of the State’s rural physicians. Forty-five percent of graduating residents practice in communities with populations of fewer than 20,000. As the number of residents graduating from these programs has grown, most have sought work in rural areas of the State where practice opportunities are more plentiful. Arkansas is a leader among States in the proportion of its physician residents choosing family medicine who remain in the State to practice.
All the State’s students in its one (public) medical school are currently from Arkansas. State law prohibits the medical school from taking any out-of-State students if there is a qualified Arkansas resident. Under the State’s recently established community match program, eligible communities in Arkansas are encouraged to make agreements with medical students in their first year of training. The agreements entail their willingness to pay half the student’s tuition. In return, the student must choose a primary care residency and must agree to practice in that community for a designated period upon completion of the training.
Recently, the Arkansas legislature agreed to appropriate $4 million of the State’s tobacco settlement to support the community residency programs. There is interest in using these funds as a State match to receive additional Federal matching funds through the State Medicaid program. These funds would enhance the GME payments that Medicaid makes to teaching hospitals affiliated with the community residency programs.
Colorado
State statutes creating the Commission on Family Medicine in 1977 call for all of Colorado’s family medicine residencies to work together to address issues on physician workforce access in the State. A key focus of the Commission is to meet the need of rural and urban underserved communities for family physicians. The Commission is governed by representatives from training programs, Governor-appointed consumer representatives from across the State, the medical school dean, and a representative of the Colorado Academy of Family Physicians.
Colorado has a higher percentage of medical school graduates who were first-year residents in family medicine than the United States as a whole, and over half of Colorado graduates who chose a family medicine residency enter an in-State family medicine residency. The State’s 10 family practice residencies currently train about 200 residents. Although about 80 percent of these residents typically are from medical schools outside Colorado, two-thirds of graduating residents remain in the State to practice. Of those remaining in the State, about 25 to 30 percent opt for a rural or urban underserved area practice. The Commission requires that all family medicine residents training in Colorado complete a rural rotation. To this end, the Commission has approved 13 rural practices and coordinates the scheduling of the rotations.
The Commission reports to the State legislature through the Governor’s Office of State Budgeting and Planning and the Joint Budget Committee. The Commission’s Executive Director is employed by the University of Colorado Health Sciences Center. The annual appropriation by the legislature to support the Commission and affiliated residencies is about $2.4 million. Commission staff works to fulfill the legislative charge to the residency programs and to collect statewide data on physician workforce needs in the State.
Texas
In 1977, the legislature made State financial support available for postgraduate training in family medicine. The law gives the Texas Family Practice Residency Program, administered by the Higher Education Coordinating Board (HECB), authority to allocate State funds to family practice residencies on a contract basis. The program initially appropriated about $852,000 to 12 operating residencies to support 267 positions and to 9 new programs for planning activities. By the late 1990s, the State provided about $11 million to 26 programs sponsored by Texas medical schools, supporting more than 700 positions. Six other family practice residency programs and 100 positions do not receive State support.
HECB requires all programs to have substantial sources of support from other entities, such as patient revenue, hospital and local funds, or medical schools. Funds are limited to no more than 35 percent of a program’s total budget. HECB also is required by law to perform the following functions: 1) provide for prior budget review and audits of all funded programs and 2) collect information from programs about the area distribution of family physicians and about the improvement of medical care in underserved communities.
An extensive 1989 law required HECB, the newly established Center for Rural Health Initiatives, and medical and other health care education schools to cooperate to improve and expand programs for rural areas, including the following: 1) encourage and coordinate the creation or expansion of a rural preceptor program among medical schools and teaching hospitals; 2) require family practice residency programs to provide an opportunity for residents to have a 1-month rotation through a rural setting; 3) develop relief service programs for rural physicians to facilitate access to continuing medical education; and 4) require medical schools to incorporate into their programs a third-year clerkship in family practice for all medical students and to report on its efforts to fulfill the intent of having at least 25 percent of first-year primary care residents in family practice.
A follow-up 1995 law included several new provisions to improve the supply of family practice physicians. The new provisions pertaining to medical education include: 1) new statewide preceptorship programs in both general internal medicine and general pediatrics modeled after the existing family practice preceptorship program; 2) an additional $1 million for a family practice residency training program; 3) three family practice residencies to provide services in economically depressed or rural areas of the State; and 4) support for 150 additional community-based primary care residency positions phased in over 5 years, although per-resident allotments will not increase.
Although the number and size of Texas’s family practice residencies have grown, per-resident spending (adjusted to 1996 dollars) has declined since the early 1980s. The aforementioned 1995 law provided an enhanced level of funds for family practice training and expanded the number of State-supported primary care residency positions but did not increase the per-resident allotment.
Many workforce experts believe that an increasing number of residency programs will operate from a service vantage rather than from an educational perspective. In response, some medical educators in 1996 proposed that the State cover the entire cost for a primary care resident that can be attributed to education. They also proposed that the State pay up to 35 percent of a program’s current total resident training costs, including a portion of faculty expenses, through direct general revenue appropriations. In part, the rationale behind seeking further State support for graduate training is that funds for community-based faculty to supervise residents is inadequate. The further rationale is that revenue to support academic missions is threatened by the reduction of Medicare GME support and the explosive growth of commercial and Medicaid managed care plans, which may exclude these teaching programs from participation.
In addition, the Texas Medicaid program makes payments to support DME and IME in the State’s teaching hospitals. A 1997 law authorizing Medicaid to up-weight GME payments to favor primary care residency training was never funded. Recently, the State has considered various ways to increase Medicaid GME payments including use of an IGT of State general funds that support public medical schools to draw down additional Federal matching funds.34
Medicaid Payments Linked to State Goals
Georgia
Beginning in the late 1990s, Georgia became interested in finding ways to enhance support for medical education programs in the State. The legislature created a GME study commission to examine the feasibility of creating a GME trust fund to finance physician education in Georgia. At the same time, the State’s AHECs and affiliated rural residency training programs were losing Federal seed funds and began seeking other sources of financial support.
Beginning in 2000, Georgia’s Medicaid program agreed to pay the Medical College of Georgia a lump sum amount provided through an existing legislative line-item appropriation. The purpose of these funds was largely to support core clinical training activities in the State’s five AHECs. These State funds are made available through the resident instruction budget within the State university system and are allocated to a budget account to support the AHEC program. Using the IGT mechanism, the college agrees to transfer these funds temporarily back to the Medicaid program. In this way, Medicaid can draw down additional Federal matching funds to finance further AHEC activities that benefit Medicaid beneficiaries in the State’s rural and medically underserved communities. Matching funds are intended to provide educational support for clinical training of physician residents affiliated with the AHECs. Georgia’s State-Federal Medicaid match rate is 1:1. The current value of this reimbursement in State funds and Medicaid Federal matching payments totals $1.45 million.
Request for State support in 2003 reflected an increase of $300,000 to fund a new AHEC and to support the clinical training of medical students, physician assistant and nurse practitioner students, and other health professional students. The State deemed these students to be needed within medically underserved regions of the State served by AHECs. With Federal matching funds, the total AHEC budget was increased to $1.8 million.
Michigan
Medicaid GME policy in Michigan changed significantly in 1997 when the State sought to structure payments to bring physician education more in line with its specific public policy goals: 1) to train appropriate numbers of primary care providers, 2) to enhance training in rural areas, and 3) to support education in ways of particular importance in the treatment of the Medicaid-eligible population. Historically, training programs were not obligated to meet accountability requirements because funding was based on cost and because the State had no idea how much money it was contributing to GME.
Most of the nearly $200 million in GME funds previously included in both Medicaid payments for FFS hospital patient care and MCO capitation rates were carved out and directed for redistribution into two different pools. For the first 3 years of the new policy, a historic cost pool reimbursed each hospital the same amount in payments that it received in 1995 based on that year’s costs for medical education. A second pool, the primary care pool, seeks to encourage the education of young physicians in the primary care fields of general practice, family practice, preventive medicine, obstetrics, and geriatrics. Payments from the primary care pool to hospitals are based on the institution’s number of residents in primary care and its share of Medicaid patients. To qualify for reimbursement from either pool, a hospital must submit a report to the State detailing resident profiles and the way in which it is using the funds to support specific public policy goals and priorities.
A third pool, the Innovations in Health Professions Education Grant Fund, was established with GME funds formerly included in capitation payments to MCOs. The purpose of this pool was to foster innovations in health profession education and to accelerate the pace of change currently sweeping the State’s health care delivery system. Grants are awarded competitively to programs that support the goals of the new GME initiative, with emphasis on innovative training in managed care arrangements. Only consortia consisting of at least a hospital, a university, and an MCO are eligible to apply. Early funding under this pool supported such activities as making changes in curriculum to add exposure to managed care (physician profiling—a resident “report card”); developing teaching experiences in evidence-based medicine—case management, disease management, training of public health nurses, and epidemiology; and establishing an interdisciplinary education curriculum with other health professions. The funding size of the pool depends on the annual availability of funds.
The State has concluded that funds in this pool have been well spent. Residency educators say that they can now make much-needed changes. University, hospital, and health plan officials have been forced to communicate with one another in productive and positive ways on GME issues. The new managed care curriculum is largely viewed as useful, but it is too soon to tell whether such changes can be sustained.
The initiative’s overall impact on addressing State workforce goals is not yet known. The State does believe that such programs would be more effective if a more coherent policy approach could be developed between Medicaid and Medicare and other payers. Such State efforts as Michigan’s may need to exercise caution in the specific ways in which they direct their initiatives to State workforce needs. Physicians have typically responded to other market changes more quickly than to State financing changes. In Michigan, there appears to be no shortage of primary care physicians, but there is evidence of a shortage of some specialists willing to be part of managed care networks.
In 2001, a new formula was established that takes into consideration use by and service to the State’s Medicaid population. Previously, funds were distributed based on hospital costs. New formulas use physician intern and resident full-time equivalents (FTEs) with weighting for Medicaid use, hospital case mix, physician enrollment in Medicaid, and physician board certification to distribute funds. Teaching hospitals are now required to submit annual updates on their intern and resident FTEs. The new policy also required participation in a managed care plan for a hospital to receive GME funds.
Furthermore, beginning in 2001, Medicaid agreed to provide funding to educate third- and fourth-year students at the State’s one public dental school that is developing specialized curricula and programs intended to increase further the participation of dentists in Medicaid. Funding covers teaching and other administrative costs that are matchable under Medicaid’s IGT mechanism. The State match is used to draw down additional Federal matching funds and to provide new revenue for the State’s dental school.
Recently, Medicaid also agreed to use the IGT mechanism to fund two physician residency programs in psychiatry that provide a lot of training in community mental health settings. The programs’ affiliated universities use State general funds and a Medicaid GME innovations grant as the State match under IGT to obtain Federal matching funds. These non-hospital-based residencies are not otherwise eligible for the State’s Medicaid GME payments.
Tennessee
In 1996, Tennessee, under its replacement Medicaid program (TennCare), became the only State to stipulate that GME money flow directly to medical schools. This stipulation circumvented the requirement that teaching hospitals may use only GME funds to educate students in hospital-based settings. GME funding now follows residents to training sites and is distributed to the State’s medical schools to pay the residents’ basic stipend. This funding also provides conditional stipend supplements that encourage primary care training in community sites as well as the placement of those trainees in underserved areas. Thus, these new provisions represent a radical departure from Medicaid’s typical support for GME before TennCare and from the turmoil that followed in 1995 when it briefly stopped paying for GME altogether.
Early problems with TennCare centered on the lack of primary care providers in many rural areas of the State. The need became apparent to change the manner in which GME funds were distributed and to set new standards of performance during the process of restoring GME support by TennCare. The plan developed by the TennCare GME Working Group was to be phased in over a 5-year period. By July 1, 2000, 50 percent of the aggregate residency positions under the sponsorship of the State’s four medical schools were to be in one of the primary care specialties. For any school not achieving this target, that school’s allocation from the TennCare GME fund for that year was reduced by one percentage point for each percentage point that it failed to reach its filled residency target. In addition, each medical school was required to comply with rigorous annual State reporting requirements.
Upon completion of the phase-in period, TennCare officials concluded that linking GME payments to health workforce objectives does produce results. They also concluded that having a separate program from Medicaid promotes accountability for reaching objectives. The number of training sites has expanded, but almost all GME funding is still passed on to hospitals from the medical schools. However, the GME funding formula does not appear to attract and retain primary care physicians in underserved areas (because there have been few takers on the program’s stipend). Rather, the formula penalizes medical schools for training specialty physicians by deterring them from procuring funding for specialty education and clinical research (e.g., National Institutes of Health fellowships). Out-of-State migration of graduating physicians also has increased.
TennCare has extended the GME program through 2007 as part of its Federal waiver, hoping to better integrate GME into the overall TennCare program. In this process, GME payments now flow first through the managed care plans before being distributed to the medical schools. Payments to the medical schools cover teaching physician and resident salaries. The medical school may distribute these payments to an affiliated hospital or clinic setting where residency education occurs.
More important, State workforce priorities will be better linked to GME program design. For example, evidence indicates that statewide interest by physician residents in the TennCare primary care stipend and loan repayment program has been minimal. Therefore, TennCare has agreed instead to set aside $2 million to support new efforts by the State’s medical school to recruit and retain residents interested in rural practice. The medical schools have funded a recent statewide assessment of physician demand to be used to plan this new physician recruitment and retention program. The program is being modeled after a similar program in Minnesota where recruiters work with communities and with physicians and look for opportunities for spouses and their children. Other future uses of the $2 million set-aside suggested for consideration by State officials include support for training other needy health professions in short supply, including dentists, advanced practice nurses, and psychologists.
Utah
In 1995, two technical advisory groups to the Utah Health Policy Commission concluded that the State’s major academic health center and residency training programs were being significantly threatened by changes occurring in the health care system and by projected changes in Federal policy for GME funding. To develop a basis for making policy decisions in response to these changes, the Commission requested an independent study to determine GME costs and revenue sources statewide. The Commission anticipated that Utah’s academic training centers would have to compete further on price and quality for patients. Therefore, it was interested in possibly using the study results to begin the difficult task of separating the cost of training from the cost of patient care in these institutions.
With the study concluding that GME funding sources were being eroded, the State legislature in 1997 created the Medical Education Council to address various issues associated with funding for health profession education in Utah. The Council’s mission is to find ways to stabilize such funding by effectively determining the costs of health profession education and to better understand and address the State’s health workforce needs. The Council is currently conducting extensive workforce planning and analyses that, combined with the cost study findings, will provide the basis for distributing GME payments more accountably and for developing a rational policy for the State health workforce.
In its effort to improve GME funding and to address State health workforce needs, the Council in the late 1990s developed and submitted a proposal to HCFA (now CMS) that would allow Utah to establish a broad-based, multiple payer mechanism to finance GME. The proposal called for payments under this mechanism to be made directly to the training programs and not to the affiliated service institutions (teaching hospitals). Payments would reward outcomes that address State workforce objectives.
Although HCFA initially insisted the demonstration incorporate Medicare, Medicaid, and other State funds, ultimately the Federal waiver that was approved will apply only to Medicare GME payments. Effective January 2003, all Medicare funds covering direct and indirect GME costs are being paid directly to the statewide Council for 5 years. Under the demonstration, the Council will create a new formula for distributing Medicare indirect GME funds based on actual documented costs. The Council also will develop a statewide physician resident rotation information system to assist with payment verification.
In 2001, the Council reached an agreement with the State Medicaid program to begin using appropriated State medical school funds as the State share for drawing down Federal matching funds under the IGT mechanism to enhance Medicaid support for GME to Utah’s three teaching hospitals. The total amount in the Medicaid GME payment pool is estimated at close to $20 million. Funds in the Medicaid pool also cover dental and podiatry education based at these hospitals. The additional Federal matching funds are weighted to provide increased support to train certain physician specialties that the Council considers to be in short supply.
Furthermore, the Utah legislature in 2001 appropriated $566,000 in general funds to the University of Utah regional dental education program. The legislature’s intended for the funds be used as the State share under IGT to obtain Federal matching funds to enhance dental residency education at the university. Utah does not have a dental school.
Pooling Multiple Payment Sources
Minnesota
Finding that medical education was important to the State’s economy and that a more competitive health care market threatened many State teaching hospitals, the Minnesota legislature in 1993 charged the Commissioner of Health with estimating the total costs of medical education and research in the State. A subsequent series of advisory committee reports rigorously identifying the need and support for explicit funding of medical education and research culminated in a 1996 estimate that approximately $37 million (the deficit between teaching program costs and revenue) was at risk of being lost to competition in the State’s managed care market (excluding any reductions in Medicare GME payments).
To partially address the deficit, the legislature that same year authorized creation of a medical education and research cost (MERC) trust fund to capture new and existing State sources of medical education funds. In 1997, lawmakers appropriated $5 million in new funding from the State’s general fund and $3.5 million from an existing State health care provider tax pool.35 Sponsoring institutions are eligible to apply on behalf of their accredited programs and are responsible for distributing the funds to the more than 300 training sites that actually incur the cost of medical education (including non-hospital settings). Eligible applicants are accredited programs that train physicians, advanced practice nurses, physician assistants, doctor of pharmacy practitioners, and dentists. Reports from the training institutions are required to document that the distribution was made appropriately. In 1998, the legislature provided ongoing support for the trust fund by appropriating $10 million from the State general fund for distribution in FY 1999 and by increasing the Department of Health budget by $5 million annually beginning in FY 2000.36
Lawmakers also agreed in 1997 to carve out GME funds from Medicaid managed care rates beginning in 1999. The funds are directed to the MERC trust fund for direct distribution to teaching programs. Distribution of payments, which did not begin until 2001, is based on the amount of medical education and on Medicaid revenue volume at a given teaching site.
Currently, funding sources for the MERC trust fund include:
MERC funds go to support over 2,000 FTE trainees at 400 training sites. The funding formula is cost based—for the cost per trainee in each discipline. In the first 3 years, MERC has distributed over $53 million. Distribution of payments is not linked to State workforce or policy goals because officials do not feel that they have enough good data to determine for what professions and objectives they would want to develop incentives.
New York
New York’s payer pool is funded by both Medicaid and commercial insurers in the State. All payers pay the same rate. In 1997, the State managed to negotiate new payment rates for every payer except Medicaid. Public policy objectives are financed through surcharges that are intended to cover hospitals that provide uncompensated care. Through negotiated rates, hospitals are guaranteed a stable form of payment.
The State’s goal in supporting GME through this stable funding pool allows teaching hospitals to continue research and teaching as well as to negotiate for additional funds that they were unable to receive through the pool. Funds from the pool are distributed regionally based on a 1995 resident count and are weighted to emphasize primary care. All payments, made quarterly, go directly to the affiliated service institution based on receipts. There is no requirement to link GME expenditures with GME revenue received.
In 1997, the State set aside $54 million ($31 million in 2000) to establish GME reforms. The Commissioner of Health is authorized to distribute these funds annually from the GME reform pool to approved GME consortia and hospitals. This distribution is based on performance in achieving workforce goals consistent with recommendations of the Commissioner and the New York Council on Graduate Medical Education. Goals include reducing the number of physician residents trained in the State, increasing the percentage trained in primary care, and increasing the number of underrepresented minorities and those trained in ambulatory settings.
State officials conclude that the payer pool has helped to reduce the number of physician residents trained in the State, has increased the emphasis on primary care education, and has established funding through the innovations pool to support education related to addressing State workforce policy goals.
Use of Special Medicaid Financing Strategies
Little is known about how widespread the use of special Medicaid financing strategies, such as disproportionate share hospital payments, provider taxes, and the ITG mechanism, for supporting GME is by States. Medicaid programs in at least 10 States, Arkansas, California, Georgia, Idaho, Michigan, Minnesota, New York, Oklahoma, South Carolina, and Utah, have adopted IGT in various forms to help pay for GME. In addition, Missouri uses provider taxes to support GME. Other States, including Nevada, Texas, and West Virginia, have discussed or considered using the IGT mechanism to expand GME payments. Recent legislation in Nevada to create a statewide Medical Education Council (similar in mission to Utah’s Medical Education Council) promotes Medicaid’s use of IGT to support various Council initiatives. In the late 1990s, Medicaid and higher education officials in West Virginia discussed options for using IGT to expand support for GME in community-based, rural settings.37