The question of who is and who should be footing the bill for medical education and research has caught the attention of several state legislatures.
Although healthcare analysts grumble about the need for fewer physicians and fewer medical schools, there is clear consensus that strong medical education and research programs are essential.
Traditionally, funding for education and research has come from the federal and state governments, but those contributions are declining. Increasingly, fingers are pointing to managed-care and health insurance companies to make up the difference.
"A lot of people think the responsibility for paying for graduate medical education should fall not just on the shoulders of a couple of public payers," says Tim Henderson of the National Conference of State Legislatures. "Perhaps the responsibility should be spread around. And when you look at who else that would logically fall to, you can't overlook or ignore managed-care plans and insurers. They're big players in the healthcare system, and they obviously benefit from the training of these professionals."
States annually make about $3 billion in Medicaid payments to academic health centers. But as more of the nation's population shifts to managed-care plans, there is concern that the Medicaid dollars intended for education are going directly to managed-care companies and not trickling down to the AHCs.
In the past, teaching and research at academic health centers was subsidized by inflated patient-care charges. Teaching hospitals and faculty-practice plans charge more -- sometimes as much as 60% more -- than community hospitals to cover the additional expense of training residents and conducting research, according to the Commonwealth Fund in New York. The price for AHCs' teaching and research in 1997 was estimated to be $18 million; AHCs spent an average of $2,681 per case for teaching and research (see chart, page 32).
More than 140 million people are enrolled in HMOs or PPOs, according to the American Association of Health Plans, and these private payers often are unwilling to pay AHCs' inflated charges. About 4.3 million, or 11%, of Medicare beneficiaries were enrolled in a risk-contracting plan in 1997, a number that is expected to grow to 23% by 2002, according to the Commonwealth Fund. About 8 million people, or one-third of all Medicaid patients, are enrolled in some type of managed-care program, according to the American Public Welfare Association. Because historically Medicare and Medicaid dollars have accounted for more than half the total inpatient revenues of AHCs, the shift in where patients are being treated has hit teaching institutions especially hard.
Some have seen as much as a 10% decline in clinical revenues in recent years. Between 1990 and 1993, the annual rate of growth for graduate medical education spending at AHCs in markets with high HMO enrollment was 7%, compared with 11% for AHCs in markets with low HMO enrollment, according to the Commonwealth Fund.
"If you are in charge of a managed-care plan, one of the first ways you would reduce your costs would be to not send patients to academic institutions," says Brian Biles, M.D., senior vice president at the Commonwealth Fund.
To offset the drop in AHC revenues, several states -- Arizona, California, Georgia, Illinois and Maryland -- are looking for new ways to steer public dollars toward teaching institutions. Others -- Michigan, Minnesota, New York, Tennessee, Texas, Utah and West Virginia -- already have developed new GME funding initiatives. For example, last year in Minnesota, where about half the state's Medicaid members are enrolled in managed-care programs, the Legislature approved a plan that called for a "carve-out" of medical education dollars from the capitated rates of the Prepaid Medical Assistance Program and Prepaid General Assistance Medical Care (Minnesota's Medicaid program).
Beginning in 1999, about $22 million will be carved out of the capitated rates and transferred to a trust fund for teaching facilities; the amount of funding available to each facility will be based on the number of Medicaid patients it sees. In urban Hennepin County, about 6% of the capitated rate will be directed into the trust fund. In rural areas about 1% will be set aside, and in other areas 2% will be set aside.
"The idea is to pull it out and give it directly to the teaching programs, rather than going through the HMOs," says Lynn Blewett, director of the health economics program at the Minnesota Department of Health. "It's a better targeting of those dollars."
Allina Health System, a Minneapolis-based managed-care company with 850,000 enrollees, expects the carve-out will cost it about $7 million. The majority of Allina's 72,000 Medicaid enrollees are in Hennepin County, according to spokeswoman Marie Dotseth.
But Blue Cross and Blue Shield of Minnesota, the state's largest health plan with more than 1.7 million enrollees, doesn't expect to be hit too hard. The Blues has about 12,000 Medicaid enrollees. Tom Lehmann, the plan's lobbyist, says the Blues is "strongly supportive of continued funding for research and education," but he wonders whether the carve-out is the best solution.
"Medical education and research benefits all consumers; and since it's a public good, the public should pay for it," he says. "You don't ask one payer to fund something that everyone benefits from. It's like public education or public roads -- all of us should pay."
Minnesota's carve-out is modeled on a similar plan at the federal level. The Balanced Budget Act of 1997 set aside a portion of Medicare managed-care dollars for medical education. Before the budget law was passed, a portion of the rate Medicare paid managed-care plans was supposed to go toward supporting medical education; but there was some concern it wasn't being used for that purpose, says Linda Fishman, associate vice president for government relations at the Association of American Medical Colleges. Managed-care plans were never told how much of the capitated payment was intended for education so, more often than not, Fishman says, they kept the entire payment. As a result of the budget act, a percentage of the Medicare payment now will be paid directly to teaching facilities that treat Medicare managed-care patients.
"The carve-out was simply saying the money was not being used for the purpose for which Congress intended it," Fishman says. "It was going to the plans and they weren't necessarily using it for graduate medical education."
But some HMOs are not going to just eat that loss, Blewett warns; they're going to pass it on. Hospitals, for example, can expect to see health plans cut their reimbursement rates, she says.
Minnesota did not consider an all-payer tax, which is an assessment on all private purchasers of healthcare, because many purchasers would be exempt under the federal Employee Retirement Income Security Act. ERISA prevents states from regulating the plans of large employers that self-insure.
"What Minnesota has chosen to do is use a general fund and identify medical education as a public good," Blewett says. "It's a different financing approach; we wanted a broader-base tax than what we could get in an all-payer
New York has successfully avoided that issue by creating a GME fund, which is optional to private payers. However, payers who do not contribute pay a premium when enrollees go into the hospital; so most find it makes more financial sense to contribute to the fund.
The New York system is unique; it is the only state in which private payers contribute to an education and research fund. More states are following the lead of the Minnesota Legislature, which will decide this year which facilities are eligible for payments from the general fund. Some healthcare observers say states could save themselves some of the trouble and haggling that Minnesota is dealing with by setting up a medical education fund sooner rather than later.
States that are just beginning to move their Medicaid populations into managed-care programs should decide now how they will fund medical education, says Edward Salsberg, director of the Center for Health Workforce Studies at the University at Albany, State University of New York. If they plan on carving out a portion of the capitated rates, they should do it upfront rather than retroactively like Minnesota has.
Whatever approach states take, it is clear some alternative funding is needed, says Robert Dickler, executive vice president at the AAMC. "This is a problem that is fundamentally rooted in the way we are transforming our healthcare delivery system," he says. "If you are moving to a price-competitive system, then you are setting up a system in which people will seek the lowest possible price for services. Some fund-raising mechanism has to be found that will cut across all segments of society."