But do GME programs make money for hospitals?
The short answer is nobody knows. That is because a complete accounting of total payments received by and expended by teaching hospitals from federal, state and insurance sources has never been conducted, said Patrick McGuire, CFO of St. John Providence Health System.
McGuire said direct payments can be tracked within a hospital to show expenses paid to residents, teaching physicians and benefits. But indirect payments have not been accounted for because they freely flow through the entire hospital, he said.
"We don't do a profit and loss (statement) on our residency programs," McGuire said. "Our mission (for residency programs) is to provide good patient care and to offer the community" fully trained doctors.
However, the Medicare Payment Advisory Commission, or MedPAC, which advises Congress, has estimated indirect payments may be $3.5 billion higher than actual indirect costs. Overall, federal spending for GME has been increasing for decades and now is at about $10 billion for direct and indirect payments.
But McGuire is concerned about a pending state regulation in 2016 that will require teaching hospitals that accept GME state general funds to conduct cost-accounting of revenue and expenses of residency programs.
"It will be relatively difficult, depending on what the state is looking for," he said. "It is producible, but will be more difficult on the indirect side because our residents (and teaching doctors) provide whatever care is necessary" without concern for billing or tracking expenses.
Atul Grover, chief public policy officer for the Association of American Medical Colleges, said there is a feeling by some policymakers that hospitals make money on GME.
"They don't. We don't do a good job to show that the services residents provide, that are getting billed for, would cost more if hospitals had to replace them with someone else to do that service," Grover said.
The AAMC, which represents 129 U.S. and Canadian allopathic medical schools and dozens of large teaching hospitals, has called for GME programs to provide greater financial transparency and for the adjusting of the GME payment formula to include performance-based measures. In exchange, AAMC wants Congress to increase Medicare GME funding to add 3,000 residents at a cost of $1 billion to help future physician supply and care for new Medicaid and insured patients under Obamacare.
Overall, teaching hospitals receive about $125,000 to $200,000 from state and federal sources for GME programs, said Leah Gassett, a consultant with ECG Management Consultants in Boston.
With average resident salaries at $50,000, benefits and perks averaging another $50,000 and administrative expenses adding another $25,000 to $50,000 per resident, the average cost to train a single resident is $120,000 to $145,000, Gassett said.
Medicare direct payments "absolutely do not cover the costs," Gassett said. "What we find is some hospitals do not account for all faculty and other costs."
But Gassett acknowledged that if indirect payments are added, some hospitals are close to breaking even or making money, Gassett said.
"We see lot more people getting into the GME than not," she said. "They believe there is a strategic benefit with or without" positive GME profit margins.