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Fall 2014 Vol. 14 Number 1

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Financing Graduate Medical Education

Every year, approximately $15 billion in public funding is invested in "graduate medical education," which is the residency training that medical school graduates must complete to become licensed to practice. The majority of this financing comes from the Medicare program -- an estimated $9.7 billion in 2012.

Medicare has provided a secure and stable source of funding for residency training for almost 50 years; however, today's health care system is very different from that of 1965. The burden of chronic disease, the need for greater emphasis on preventive care, and modern information technologies have all shifted health care increasingly to clinics and community settings. Yet -- much as it did in 1965 -- physician training continues to take place at large training hospitals rather than in the health care settings used by most Americans.

A new report by the Institute of Medicine calls for a significant overhaul of this financing system, which currently requires little accountability, allocates funds regardless of workforce needs or educational outcomes, and offers few opportunities to train physicians in settings other than hospitals.

Teaching hospitals receive the majority of Medicare's funding for physician training, and the funds are distributed to these hospitals through complicated formulas linked to the volume of Medicare patients treated, even though physicians in training treat patients from all walks of life. These hospitals control how the funds are spent, but few data about the costs, effectiveness, or outcomes of the training programs exist, the report says. The mix of available physician training slots may be driven more by the needs or priorities of individual teaching hospitals rather than U.S. health care needs. Between 2003 and 2013, for example, there was a disproportionate increase of physicians being trained as specialists despite a greater demand for generalists.

The U.S. Department of Health and Human Services should establish a two-part governance infrastructure to oversee policy and decision making and fund distribution, the report says. Medicare support should be provided through two distinct funds -- an operational fund to finance ongoing residency training activities and a transformational fund to finance new training slots where needed, provide technical support, and support much needed research and innovative pilot programs.

To encourage training at a variety of settings, funds should be distributed directly to hospitals, clinics, universities, and other sponsors of the training, and the payment methodology should be based on a single national, per-resident amount. These improvements should be made during 10-year transition period to allow careful planning and avoid intended harm.

-- Molly Galvin

Graduate Medical Education That Meets the Nation's Health Needs. Committee on the Governance and Financing of Graduate Medical Education, Board on Health Care Services, Institute of Medicine (2014, 232 pp.; ISBN 978-0-309-30355-2; available from National Academies Press, tel. 1-800-624-6242; $67.00 plus $5.00 shipping for single copies).

The study was co-chaired by Donald M. Berwick, former president and CEO of the Institute for Healthcare Improvement; and Gail Wilensky, economist and senior fellow at Project HOPE. The study was funded by the American Board of Internal Medicine Foundation, Aetna Foundation, California Endowment, California HealthCare Foundation, Commonwealth Fund, East Bay Community Foundation, Jewish Healthcare Foundation, Kaiser Permanente Institution for Health Policy, Josiah Macy Jr. Foundation, Missouri Foundation for Health, Robert Wood Johnson Foundation, UnitedHealth Group Foundation, Health Resources and Services Administration, and the U.S. Department of Veterans Affairs.

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