At first blush, a new Medicare payment demonstration trotted out in New York last week seems to flout common sense.
HCFA officials and hospital executives who gathered on Presidents' Day last week to unveil the program contend it's a perfectly logical response to existing Medicare payment incentives, which reward hospitals for training more doctors. But critics questioned the political wisdom of giving New York hospitals a special break at a time when national Medicare graduate medical education policy is being debated.
Under the demonstration, HCFA will pay New York state teaching hospitals not to train more doctors, particularly specialists. As an incentive, the agency will dole out $400 million over six years to hospitals that reduce residency slots by 20% to 25%. That would shed at least 2,000 of the 10,286 residents now being trained by the 41 hospitals in the program.
For each position eliminated, hospitals will continue to receive full reimbursement in the first year of the project. Those payments would be gradually reduced to 25% in year six and disappear in year seven (See chart). The hospitals will continue to receive full funding for other residents.
In the short run, HCFA will spend more than it would have if hospitals were paid only for the residents they train. But eventually the program will save Medicare an estimated $200 million to $300 million annually. As it is, New York hospitals receive about $1 billion a year in GME payments for direct costs such as resident salaries and the higher "indirect" costs associated with running a teaching hospital.
The demonstration, first reported by MODERN HEALTHCARE (Sept. 2, 1996, p. 4), was touted last week as a "national model" for shrinking the number of physicians trained while maintaining or increasing primary-care training opportunities.
It's "probably the boldest and largest" GME project in the nation's history, added Kenneth E. Raske, president of the Greater New York Hospital Association, which conceived and designed the program. Most of the 41 hospitals that volunteered to participate are based in the metropolitan New York area.
For a government program, the demonstration also is remarkably "nonprescriptive," said HCFA Administrator Bruce Vladeck. Within broadly drawn parameters, hospitals will be allowed plenty of flexibility in shrinking residency slots. They'll receive payments from the transition pool as long as they meet proposed reductions. If they fail to make the cuts, they won't receive future payments and they'll have to reimburse the Medicare program for prior payments.
Many hospitals agreed to participate because the $400 million incentive program will cushion the blow of needed reductions in residency slots. "The transition can now be measured and smooth," said Barry R. Freedman, executive vice president of Mount Sinai Medical Center.
Teaching hospitals realize that federal lawmakers are likely to reduce future Medicare GME payments anyway. While the demonstration doesn't exempt hospitals from those cuts, it does provide an opportunity to adjust their residency complements, said Pat Wang, GNYHA's senior vice president for health economics and finance.
For example, Jacobi Medical Center in the Bronx will use the transition money to assess its ambulatory-care needs and rejigger its residency slots to focus on primary care, said LaRay Brown, senior vice president of the New York City Health and Hospitals Corp. Brooklyn's Kings County Hospital Center, another HHC hospital, will increase its use of mid-level providers, such as physician assistants, to fill in service gaps created by the loss of residency positions, she said.
Meanwhile, a consortium of Buffalo, N.Y.-area hospitals began planning for shrinkage about a year and a half ago. Participants have figured out how to shed nearly 105 of 680 training slots. In the first year, "there's no one particular program that gets cut disproportionately," said Richard Braun, vice president of finance and chief financial officer of Buffalo General Health System. But in future years, "we're going to need to consolidate programs as well as cut residents."
For various reasons, some teaching institutions are taking a pass on the demonstration.
"We don't think it's intelligently applicable," said Carol Hauptman, a spokeswoman for North Shore Health System.
"We will make some reductions, but they will be done at our pace, where they will not impact on quality of care," she said.
Brooklyn's Lutheran Medical Center chose not to participate because virtually all its 133 residency slots represent primary-care training opportunities.
Albany (N.Y.) Medical Center studied the program but concluded that it "would really begin to do some quality damage to the residency program here," said James Barba, chairman and chief executive officer. But, he said, "For those centers who know they absolutely have to cut their numbers because they are so `over-residented,' of course it makes sense."