2001). As the numbers in Table 4-1 indicate, Medicare is the largest single source of GME funding. Medicare is also currently the most reliable source of GME funding because federal law requires annual entitlement payments to institutions that serve Medicare patients to subsidize both “direct” and “indirect” costs associated with training new physicians. Direct medical education (DME) payments subsidize resident stipends and benefits, faculty teaching time, and educational infrastructure. Indirect medical education (IME) payments, which are nearly twice as large as DME, are designed to subsidize the less visible costs associated with GME, including the fact that trainees tend to deliver less efficient care than do more experienced physicians (e.g., overprescribing tests), and that teaching hospitals typically treat the most severely ill patients. In an effort to minimize short-term operating costs, nongovernmental third-party payers are inclined to avoid GME costs that do not relate directly to patient care (e.g., certain IME costs or stipends for residents doing research training) (Knapp, 2002). This inclination has placed general financial pressure on the educational mission of institutions that train residents. It has also led to the introduction of proposed federal legislation aimed at ensuring that all users of medical care contribute equally to GME funding—legislation that was originally introduced by the late Senator Moynihan (D-NY) in 1999 and that has the strong support of the Association of American Medical Colleges (AAMC, 2001).

TABLE 4-1 Sources of Graduate Medical Education Funding


Amount (billions of dollars)



(2.7 direct, 5.1 indirect)





Private-Sector Payers



aYear: 2000.

bYear: 1998.

cVeterans Administration/Department of Defense/National Institutes of Health.

dIn 2001, NIH training grants and fellowships accounted for $300 million of this amount. As these training and fellowship grants include Ph.D.’s and medical residents, the NIH contribution to GME is well below that $300 million dollar amount.

SOURCE: Anderson et al. (2001).

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