The Medicare Payment Advisory Commission released a report to Congress late last week recommending combining direct and indirect medical education payments to teaching hospitals.
A single payment system "better accounts for the higher costs of the enhanced patient care those hospitals provide to Medicare beneficiaries," according to MedPAC.
But teaching hospitals disagreed, saying the report fails to recognize the "indispensable role" Medicare plays in financing graduate medical education.
Medicare pays teaching hospitals for direct medical education costs, which help pay for training physicians. Separately, the program reimburses the hospitals for the indirect costs of medical education, such as overseeing the training program and caring for more complex medical cases.
In fiscal 1998 Medicare paid teaching hospitals $2.2 billion for the direct costs of teaching and $3.9 billion for the indirect costs.
"The distinction between direct and indirect costs is an accounting artifact that should not continue to guide Medicare's payments to teaching hospitals or other providers," concluded the report, which Congress required as part of the Balanced Budget Act of 1997. "We believe that payments to teaching hospitals for the direct costs of operating approved medical residency programs should be viewed as payments for patient care, not as payments for training."
In a written response, the Association of American Medical Colleges said the report "sends a very troubling message to Congress and our nation's teaching hospitals."
MedPAC said it believes Medicare should pay teaching hospitals more because their costs of care are higher. It is not clear from the report whether the payment policy change would result in lower overall medical education reimbursements to teaching hospitals.
But combining the two payments might make it easier for federal budget cutters to trim in the future as opposed to tinkering with two payments.
The AAMC is clearly worried about the financial impact of such a policy but said it is awaiting further details on the proposal.