New York teaching hospitals will no longer be the exclusive beneficiaries of a pilot HCFA program that will pay hospitals for training fewer physicians.
A provision in the recently passed federal balanced-budget law opens the program to any of the nation's roughly 1,100 teaching hospitals willing to participate. The Medicare pilot was criticized by some who read it as a gift to New York hospitals.
The pilot asks hospitals to reduce the number of residents in their medical education programs. In return, it will pay them for a time as if they had made a smaller number of reductions.
Medicare reimburses hospitals for their direct costs associated with graduate medical education based on the number of residents they instruct.
Medicare also reimburses hospitals for indirect GME costs, which are attributable to treating the sicker and more complex patients typical at teaching institutions.
Direct and indirect GME payments to teaching hospitals totaled $7.1 billion in fiscal 1997.
Hospitals have been reluctant to shrink teaching programs because reducing their residencies would cut their Medicare monies.
The incentive to maintain or expand teaching programs has been blamed, along with other factors, for increasing the number of U.S. physicians to such an extent many experts now warn of a surplus.
A 1995 report from the Pew Health Professions Commission estimated that the U.S. had as many as 150,000 extra physicians (Nov. 20, 1995, p. 14).
The number of medical residents has crept to 104,612 in 1995/96, up 26% from 82,791 in 1988/89, according to the Association of American Medical Colleges.
That growth has come as managed care's expansion has reduced the demand for physicians, particularly specialists.
Congressional leaders said the new budget-law provision will reduce the number of residents and generate savings for the Medicare program while giving some transitional assistance to participating hospitals.
The five-year program begins for hospitals once they submit their applications, which are due no later than Nov. 1, 1999.
By the end of the five years, hospitals in the program must have reduced residencies by 20% to 25% depending on their size.
For the first 5% cut in residencies, there will be no subsidy. But as residencies are reduced further over the next two years, HCFA won't make corresponding reductions in its GME payments to the hospitals.
In the program's remaining three years, HCFA will gradually reduce its GME payments to the hospitals. In year five, they will receive roughly 25% of previous payments for the residency slots that no longer exist.
Savings from the pilot are projected at $900 million over the five years. No estimate is available on the potential reductions in residencies since participation in the program hasn't been determined.
To qualify, teaching hospitals with more than 750 residents must cut their rolls by 20% over the five-year period. Hospitals with less than 750 residents but more than 600 must trim 150 residencies. Those with fewer than 600 residents must reduce positions by 25%.
The provision is drawing praise from New York hospitals and the Association of American Medical Colleges. "It's directed at a real problem and will save money over time," said Richard Knapp, executive vice president at the AAMC.
The Greater New York Hospital Association is "very pleased" about the provision because it was concerned other institutions would not get the same opportunity as New York's, said Kenneth Raske, its president.
Under the original proposal, which was hailed as a national model, New York teaching hospitals would have received $400 million from Medicare over six years for reducing residencies by 20% to 25% (Feb. 24, p. 10).
Boston hospitals, which opposed restricting the demonstration to New York state, also said the budget provision is a good idea.
A spokeswoman for Partners HealthCare System in Boston said the program is "a step in the right direction." But she also said the initiative should not penalize hospitals for already having shrunk their programs.