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FINANCING GRADUATE MEDICAL EDUCATION IN PRIMARY CARE: OPTIONS FOR CHANGE Sandra C. Peinado, M.D. Fellow, General Internal Medicine and John M. Eisenberg, M.D., M.B.A. Sol Katz Professor of General Internal Medicine University of Pennsylancia School of Medicine Abstract To satisfy the nation's need for well-trained primary care physicians, graduate medical education in primary care requires adequate financial support. The current mechanisms of GME financing favor inpatient and procedural care, making the support of primary care programs difficult, since they are more oriented towards outpatient evaluation and management. The majority of graduate medical education funding comes from patient care reimbursement through Medicare Part A direct and indirect payments, and other third party payers. This scheme results in difficulties for primary care programs in resident and faculty compensation, as well as general difficulties for primary care program development. Criteria for evaluating proposals that aim to improve the financial support of primary care programs include financial, administrative, and educational implications of the options, as well as the views of interested stakeholders. The alternatives for sources of funds to support primary care GME include changes in existing Medicare payments, an increase in categorical GME funding, an increase in ambulatory payment, an increase in grants, commitments from future employers, and a redistribution of current funds. Alternatives for spending these funds to aid primary care programs include dividing the sources in three ways: on a per-resident basis, by competitive grants, or by incentives for primary care education. An analysis of the alternatives for changing GME financing is discussed in the paper. The most favorable options are summarized and recommendations for further analysis are made. The education of primary care physicians is of growing national concern. However, graduate medical education (GME) is principally funded through patient care reimbursement for inpatient and procedural care. While there has been a ~97

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general shift from inpatient to outpatient sites for all medical training, primary care programs provide a greater proportion of care in ambulatory settings, and are less procedurally oriented than other specialties. Thus, residencies in family medicine, general internal medicine and general pediatrics are less likely to be adequately reimbursed by patient care funds. Alternatives for improved financing of primary care GME must be explored if the nation's need for an adequate supply of well-trained primary care physicians is to be fulfilled. Financial support is needed to assure both an adequate supply and a high level of quality in primary care programs. The current mechanisms for funding GME will be reviewed briefly here and the resulting difficulties encountered by primary care programs discussed. We delineate a set of criteria by which any alternative method of graduate medical education financing should be judged. The range of options for change is described and then analyzed in terms of the ability of each option to satisfy the proposed criteria. Current GME Financing Funds for residency programs are generated primarily from patient care reimbursement by third party payers. Additional funds derive from direct federal, as well as state and local support. The degree to which the financing of general internal medicine, general pediatrics, and family medicine programs differs, if at all, from the general pattern of GME financing is not well known. Payment for Patient Care Under the Prospective Payment System, Medicare Part A reimburses teaching hospitals for a proportion of the direct costs of medical education. These include residents' salaries and fringe benefits, administration and supervision costs of teaching physicians, education supplies, space costs, and associated overhead. Faculty salaries can be included if the teaching physician is salaried by or works under a written agreement with the hospital. Teaching hospitals are paid a set amount by Medicare for each resident, based on each hospital's 1984 costs, adjusted for inflation. Estimates of the magnitude of these payments in 1988 range from $975 million) to $1.4 billions. In addition to these direct cost payments, Medicare Part A pays teaching hospitals for the indirect costs associated with graduate medical education. Introduced by HCFA in 1980, these payments reimburse hospitals for the higher operating costs associated with resident-directed patient care. As described by 198

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Judith Lave in a review of these payments, published in this volume, reasons for the higher costs of teaching hospitals may include: "the increased use of ancilIarsr services due to the residents' inexperience; the tendency in teaching hospitals to tog to make a more accurate diagnosis both for educational purposes and to satisfy the more academically minded physicians' need to know; the increased availability of state-of-the-art testing facilities and treatment technologies; the fact that very sick patients may be treated more aggressively and more innovatively; the decreased productivity of other employees such as nurses who have to break in the new residents and increased record keeping requirements."3 The indirect payment is based on a percentage of a hospital's ratio of residents to beds. For fiscal year 1989, PPS payments to teaching hospitals are increased by 7.7 percent for each 0.! increase in a hospital's resident-to-bed ratio). In 198S, these payments were estimated to be $2.02 billion dolIarsi. In addition to these payments to teaching hospitals under Medicare Part A, teaching physicians can bill for patient care under Medicare Part B. This includes patient care services provided while fulfilling supervisory duties. Medicaid has lagged behind Medicare in its reimbursement to teaching hospitals for the costs of GME. Of 37 states with Medicaid prospective payment systems, 23 include "some type of adjustment for teaching costs."2 Some states have threatened to withdraw their support of graduate medical education through Medicaid. Private insurers have traditionally paid teaching hospitals' higher charges, which have included the costs of GME. Specific funds are not targeted as a GME contribution by insurance companies, in large part because hospitals have not specified what portion of their charges could be attributed to resident and fellow training. With the advent of HMO's, PPO's, and other managed care organizations negotiating for lower hospital charges, however, a lower proportion of GME costs can be expected to be obtained from these sources4. Direct Federal Support The Veterans Administration currently supports 12% of residency positions in the U.S. In 1988 the VA invested $224 million in resident salaries and fringe benefits alone. As of 1986, this included 15% of all general internal medicine residents, only 1.~% of family medicine residents, and none in general pediatrics5. Title VIT of the Public Health Service Act enables the Bureau of Health Professions to help support approximately 10-15% of residencies in internal medicine and pediatrics. In 198S, 79 awards, totalling $13.S million, were 199

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approved for general internal medicine and pediatric residencies. Grants to 184 programs in family medicine were approved for a total of $20 millions. Originally designed to help increase the overall number of physicians today, grants under Title VII are awarded to programs that aim to redress perceived geographic and specialty maldistribution of physicians7. This section of the Public Health Service Act also enables the Bureau of Health Professions to support faculty development in family medicine, general internal medicine and general pediatrics. In 198S, 29 family medicine programs received $4.5 million for this purposed. Direct State Support State support of GME is highly variable but generally stems from three sources other than Medicaid payment. State governments provided operating subsidies to teaching hospitals in 29 states as of 19872. Direct support for resident education was provided by 37 states, 17 of which targeted this support to family practice programs. State support to medical schools indirectly aids GME in its support of supervising physicians' salaries2. Issues For Primary Care GME Raised By Current Funding Scheme Primary care residencies spend most of their resources on personnel costs. The main components of their budget include the following: full and part-time faculty salaries, residents' salaries, administrative costs of academic units, operating costs of outpatient centers, and educational evaluation and/or quality controlled. These costs have been particularly difficult for primary care residencies to cover for several reasons. These include the facts that 1) the services pronded by primary care residents and faculty are generally paid at relatively low levels compared with inpatient and procedural services; 2) primaly care residents' contributions to the operation of hospital inpatient programs may be perceived by the hospital administration to be less essential than that of residents in other specialties; 3) primary care residencies include a number of rotations on other specialty services, usually in outpatient settings, where the residents' abilil~r to pronde service is limited; and 4) primary care programs generally include substantial amounts of formal education in topics such as prevention, medical decision-making, and doctor-patient communication, and this time in conferences and workshops may occur at the expense of service time. From the point of view of primary care residencies, the current scheme of financing graduate medical education principally through hospital payment is flawed. Physician payment also favors surgical and certain medical fields by paying them disproportionately for patient care, so that physicians' revenue from 200

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patient care is less capable of cross-subsidizing educational programs. Other funds are insufficient for primary care program development. In the following paragraphs, the problems of the current GME reimbursement scheme are discussed in somewhat more detail in terms of how the arrangements result in difficulties in resident and faculty compensation, as well as general difficulties for primary care program development. Resident Compensation 1. Since the majority of patient care payment (and also the majority of GME financing) is obtained through hospital care, residents and their educational programs are disproportionately reliant on inpatient hospital services ii. 2. Residents are an important and apparently economical source of manpower for teaching hospitals. Several studies have shown that replacing residents with fully trained workers would cost hospitals more than residents' salaries 12. In shifting the training of residents, especially primary care residents, to the outpatient setting, hospitals will be forced to hire more clerical and technical support, nurses, and house physicians, and to develop better clinical information systems. Thus, unless hospitals are reimbursed for the time spent by residents in outpatient settings, they are likely to oppose the development of curricula that focus on those settings and deploy residents away from traditional inpatient settings. 3. Under Medicare Part A direct medical education payments, wide variation exists in per-resident costs among hospitals. The range of per resident amounts for the base year varies from below $10~000 to over $100~000 per residenti3. This differential is now fixed at 1984 levels and embedded into the formula used by Medicare7. This has almost certainly led to inequities among teaching hospitals in their ability to fund primary care programs and to support reform of residency education. 4. The Omnibus Budget Reconciliation Act of 1986 allows, under Medicare Part A direct GME payments, that residents' time in outpatient settings may be paid by hospitals if those hospitals incur "all or substantially all" of the cost of training. How this will be interpreted is important for the continued development of an adequate variety of outpatient teaching sites. While proposed rules have been published in the Federal Registerlll3, the final explication of those rules has not been established. 5. Although Medicare Part A direct GME payments pay for time spent by residents in outpatient sites, there is no requirement that these payments actually 20~

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be allocated to support the teaching costs of those practices. Thus, faculty may report time spent in graduate medical education and the hospital may be paid for their efforts, but the hospital need not channel these funds directly into the teaching program. 6. Medicare Part A indirect medical education adjustment payments exclude the time spent by residents in outpatient sites other than hospital clinics from their calculations. 7. Most state Medicaid programs and private payers do not recognize teaching as a reimbursable cost in the outpatient setting. Faculty compensation 1. Outpatient payment for physician services is generally less than inpatient payments, allowing less for the support of residency programs. Medicare Part B reimburses 80% of an allowable physician charge for outpatient visits, and the customary charge for hospital-based teaching practices is set at 85% of the prevailing rate (in part to avoid it being even lower because of the lower profile of charges often rendered to the low-income clientele of these clinics). The population served by most teaching clinics is generally poor, resulting in low collection rates, and preventive services (almost all of which are outpatient) are infrequently covered by third party payersi4. For these reasons, outpatient sites are less able to support supervisory and other faculty costs. 2. Outpatient teaching is generally more facul~-intensive than inpatient teaching. Fewer residents and students can be involved in an ambulatory visit, and faculty must be present for the entire period of care. Patient visits are also longer, on average, in a residency practice, but are reimbursed under Medicare Part B and other payers at best as if in a private practice setting7. The fee differentials between evaluation/mana~ement ("cognitive") and procedural services ~. ~. . ~. . ~. compound the problem. Adoption ot a Resource based Relative Value Scale may partially compensate for this differential if it redresses the perceived inequity in payment levels for evaluation/management and procedural services. ~ Be Faculty billing for outpatient visits may be paid at a rate that may provide more net income for hospital-based clinics than for non-hospital-based clinics (this results, in part, from the way in which payers assume overhead is paid by the hospital and thus pay a fee corrected for what overhead is assumed to have been). This formula may provide a disincentive to the development of community-based practices for resident training. 202

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4. Primary care faculty may have a disproportionately difficult time developing their own teaching and research skills since they are often required to spend a large proportion of their time in patient care to generate practice income. Development of teaching and research skills is particularly needed at this time to improve the quality and efficiency of primary care residency programs. In addition, primaly care research tends to be poorly funded by federal agencies, thus making it more difficult for these faculty to gain support for their academic activities and to progress in academic careers. 5. Faculty time is reimbursable as supervisory time under Medicare Part A direct GME payments only if faculty are salaried employees of or have a written work agreement with the hospital. The fear of double dipping by faculty, that is billing under Part B while being reimbursed for time spent under Part A, has led to restrictive rules on faculty's ability to bill for services rendered by residents they are supervising. This presents a potential problem for reimbursement of clinic services under Part B. for the employment of part-time faculty, and for the partial compensation of voluntary teachersi5. General Concerns 1. Medicare Part A indirect medical education adjustments are based on an estimate that was doubled in the establishment of the Prospective Payment System to cover increased costs associated with case mix and market factors). This may cause an inequitable distribution of payments: hospitals with larger programs may be reimbursed relatively more since their increased costs of clinical care can be spread over more residents, though their costs may not be proportionately higher. The recent introduction of a declining rate of indirect adjustments addresses this issue, although the decrease in payment per resident is relatively small. On the other hand, if the indirect costs of medical education are disproportionately higher with larger programs (which tend to be located in major medical centers), smaller programs might benefit. Whether this relatively fixed rate of indirect payment per resident helps or hinders primary care programs is not known. 2. Support through Title VIT of the Public Health Service Act (for training grants administered by the Bureau of Health Professions) is small and suffers from year to year uncertainty. It also requires that at least 25% of a resident's time be spent in a continuity setting, which many programs find difficult to accomplish and unduly restrictive on their curriculums. The requirement that residents spend at least 25% of their time in a continuity practice has limited the 203

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ability of programs to experiment and to utilize other ambulator care sites than continuity settings, such as specialty clinics and practices, home care, geriatric practices, and occupational health. 3. Internal Medicine and Pediatrics receive little state support. Family Medicine and Pediatrics receive little VA support. 4. The proportion of GME financing paid by HMO's and PPO's, which is unknown, may actually decline, as these managed care systems negotiate for smaller payments or switch to nonteaching hospitalst6. Criteria For Evaluating Alternative Proposals Any proposal for altering the current mechanism of financing GME with the purpose of improving primary care training should be judged from at least four viewpoints. As discussed here, these include 1) financial implications; 2) administrative requirements; 3) educational impact; and 4) views of interested stakeholders. (Table 1) Although we discuss these criteria individually, we recognize that to use them to evaluate any proposal, the complexity of the interrelationships between the criteria must be considered. Simply adding up a score of how well any one proposal meets the individual criteria may oversimplify its relative advantages or disadvantages. We do not expect any one proposal to satisfy all criteria, but by judging all proposals against the same criteria, we may find certain alternatives that make more sense than others. Financial Criteria 1. The proposal should be budget neutral, at least in terms of the federal budget. During a time of fiscal constraint for the U.S. government, it would be politically infeasible to raise total federal spending for GME substantially. Therefore, increases in funding for primary care graduate medical education would be likely to require decreases in funding in other federal expenditures, not necessarily but probably in other expenditures related to GME. The ideal of social budget neutrality also suggests that a reduction in other outlays will probably be required to identify additional funds for primary care education. It is likely that these reductions will be in the health care sector. While these reductions may occur in the funds available for hospital or physician 204

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payment, they could also imply reduced profits or surpluses for third party payers or managed care systems, decreased state expenditures in other areas, lower salaries for residents or faculty, or decreased funds available for medical care services. Politically more difficult, but certainly possible, would be increased health insurance premiums, surcharges, or higher taxes. 2. AU those who benefits from GME In pr~marSr care should contribute to paying its costs. All of those entities which benefit from quality education of primary care physicians should contribute to its costs. These entitites include hospitals, patients, health maintenance organizations, physicians themselves, payers (e.g., HCFA, insurance companies), and society as a whole. 3. Funding should be preclictable. The financing of GME should not vary widely from year to year to such an extent that programs cannot plan for several years in advance. Program directors need to be exempt from year to year uncertainty in funding in order to develop stable, high quality residencies. Policy makers, in both professional and legislative organizations, also need time for continued development of financial policy and structures. 4. Funding should be sufficient. The support of GME in primary care should be enough to cover all reasonable costs. The definitions of "sufficient" and "reasonable" are clearly important. They would include clear delineation of what appropriate costs of residencies are, and should attempt to adjust those costs for inflation. The definition of "sufficient" should include some mechanism for adjusting to the shifting nature of GME. Curricula for primary care residencies will change, of necessity, and funding should be flexible enough both to adapt to those changes and to allow the decisions for curricular change to remain in the hands of qualified educators. The percentage of residents' time spent in an ambulatory setting is expected to increase in the next few years and "sufficient" funding options should be able to cover the cost of that increase. Another component of this criterion is a decision regarding the number of doctors this funding should support. For example, "sufficient" funding may be limited to that of all graduates of American medical schools, to all teaching hospital positions, or to all graduates who agree to fill federal health manpower needs. 205

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Administrative Criteria 1. The implementation of any proposal should be administratively feasible. The initiation of any new funding scheme should be simple and not unduly expensive. If new administrative mechanisms are required, the design and development of these mechanisms could delay, complicate, or even prevent effective deployment of the funds to support primary care education. 2. The ongoing administration of any new funding scheme should be simple. Ideally, present administrative mechanisms should be simplified rather than made more complex. It is likely that administrative complexity would make the program difficult to monitor and unwieldy to payers, hospitals, and educators. 3. The ongoing administration of any new funding scheme should be e nexpenslve. In order to maximize the portion of funds actually available for support of primary care education, the ongoing administration of the program should be designed to minimize the bureaucratic overhead required at all levels, from payer to educator. Educational Criteria I. Curmoular autonomy and flexibility should be maintained. The funding of GME in primary care should provide autonomy for educators in the choice and implementation of curricula, as well as flexibility for the development of innovative educational programs. 2. The growth and development of primary care curricular elements should be fostered. Change in GME financing should provide incentives for the development and strengthening of primary care in established programs. This applies not only to the creation of primary care elements within traditional internal medicine and pediatric programs, but also to the support of family medicine curricula and already established programs in primary care internal medicine and pediatrics. In internal medicine and pediatrics, emphasis should be placed on transforming 206

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traditional programs to a primary care emphasis rather than adding still more residency positions in these disciplines. 3. High quality programs in non-p~mary care specialties should not be adversely affected. If any change in GME funding results in decreased funding available to non- primary care specialties, a mechanism should be adopted to prevent across-the- board-cuts to these programs. The better programs should not lose money, but marginal programs should be eliminated, especially in those specialties perceived to have more training positions than necessary for the nation's needs. However, for specialties now handsomely paid for physician services, loss of GME financing will probably have less impact on the viability of residency programs. 4. Incentives should favor high-quality primary care programs. No specific type of program is implied here. Rather, some recognition should be made of those programs that strive to achieve strong educational goals and are not simply sources of inexpensive manpower for their teaching hospitals. Stakeholders' Criteria Stakeholders are the entities that are most likely to be interested in and/or affected by change in GME financing. The categories are intended to be generic. We do not expect to be able to predict the response of any specific individual or individual organization (with the exception of HCFA) to any one option. 1. Society: U.S. citizens who benefit from an adequate supply of well-trained physicians, and tax payers whose dollars contribute to the training of physicians. 2. Federal Government: Congress, elected officials, and federal departments and agencies. 3. Health Care Financing Administration: considered separately because of its particular interest in and importance to the policies discussed. 4. State Government: state legislatures, elected officials, and agencies. 5. Private Payers: insurance companies, self-insured businesses, health maintenance organizations (HMOs), preferred provider organizations (PPOs), individual practice associations (IPAs), and employers who contribute to a health insurance plan. 207

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academic unit, increased resident ambulatory time, or for cooperative efforts between primary care residencies (options II.A - II.H in Table 3). These options fail in predictability, although this could be offset by setting the term of the grants as five years or more and by assuring a tapering period at the initiation and termination of the grant. They would also require significant start-up costs and a new or expanded administration to review grants, make site visits, dispense funds, and follow-up on their use. The ongoing costs of administration may also be significant. While the quality of some programs would certainly improve, not all primary care programs would receive grants and thus, a greater discrepancy in quality than currently exists could develop. Depending on the source of funds, both primary care and non-primary care educators, specialties, and residents may object to these alternatives. However, a more limited program of competitive grants, superimposed upon a program of basic payment for all programs, would be more popular and would likely stimulate improved training in primary care. The third cluster of spending options appears less feasible. These consist of those alternatives which Provide a system of incentives for Primary care education and corresponding disincentives for non-primary care education (options IlI.A- IlI.H in Table 3~. These fulfill few criteria, have significant administrative requirements, and would depend entirely on a set of criteria that would need development. In addition to educators, specialties, and residents (in both primary care and non-primary care), teaching hospitals could be expected to object to most of these alternatives as yet another set of regulations with which to comply and a potential loss of funds for their residencies. Summary The growth and development of graduate medical education in primary care has been hindered by current financing mechanisms. The alternatives discussed in this paper would attempt to rectify the situation. Criteria by which policy makers may judge funding alternatives have been proposed. These include financial' administrative, and educational implications of the options. The views of interested stakeholders also need to be considered, since many of the options would affect more than primary care educators and residents. We believe that no single remedy will be sufficient; instead, several solutions will be needed simultaneously. Judged against the criteria proposed here, our preferred options for raising money for primary care graduate medical education are as follows: 0 Adopt a Resource Based Relative Value Scale for payment of physicians and improve coverage of outpatient services. 2~9

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o Include residents' primary/ambulatory care time in the calculation of resident FTEs for Medicare direct and indirect medical education payment, add incentives for primary care training in direct payments, and recalibrate payment per resident to maintain budget neutrality. 0 Increase state support through Medicaid participation in payment for GME and through grants for primary care education. O Require participation in payment for GME by other payers, including HMOs and private insurers, coupled with a surcharge or tax on revenues of non- teaching hospitals. O Increase and redistribute Title VIT funding for faculty development, curriculum design and other innovations. Encourage foundation support for similar purposes. Faculty development, in particular, should be allowed a separate funding stream. 0 Experiment with programs to commit residents to future employers, who in turn would support primary care GME. O Experiment with a direct medical education subsidy for outpatient payments to complement payment to hospitals to cover the costs of medical education. Consider an indirect adjustment to compensate for the higher cost of practice (e.g., overhead, more severely ill patients) in teaching settings. The spending options we judge best would involve division of the funds on a per resident basis to residencies in internal medicine, pediatrics, and family medicine for the development of primary care curricular elements through faculty stony site costs, curricular support, academic unit and primary care cooperative efforts, or to use as the individual residency chooses. This base funding would be coupled with competitive grant funding to stimulate innovation and faculty development. In addition, the appropriate and designated use of Medicare direct payments should be enforced by HCFA. support, resident support, ambul" costs, increased ambulator time, Recommendations For Further Analysis 1. A sensitivity analysis should be applied to all options to consider how the effects might change if the definition of primary care is changed to include only general internal medicine, general pediatrics, and family medicine; or if it were to be broadened to include geriatrics, occupational medicine, obstetrics-gynecology, and/or preventive medicine. 220

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2. A calculation of the amount of funds being discussed in each case is beyond the scope of this paper. The lOM Committee may want to support a study to determine these amounts. 3. With most options, a mechanism for preserving quality non-primary care residencies needs to be adopted. 4. More options for both raising money and for spending for primary care may need to be considered than are presented here. One means of obtaining the most relevant options, especially for spending, might be to conduct a survey of primary care program directors to solicit their opinion on the components of their programs that are the most difficult to fund. 5. Since few options fulfill all criteria, and few fulfill the criterion that all who benefit from GME should pay for it, the IOM committee should consider combinations of two or more compatible options. 6. The criterion of "sufficient" funding needs to be defined. Most, if not all, of the options proposed may need an adjunct mechanism to fulfill the requirement of adaptation to the changing nature (and cost) of primary care education. 7. The lOM Committee to Study Strategies for Supporting Graduate Medical Education in Primary Care should investigate the costs of administering the current system of GME financing. The present requirement that teaching hospitals collect time and effort reports from faculty to estimate the cost of GME is Invalidated, time-consuming, and subject to interpretation and gamine. A more efficient, equitable system should be feasible. O S. Two methods of changing GME financing to benefit primary care training should be evaluated. The first would involve options that redistribute GME funds to bolster payment for ambulatory care education, and would thus support not only primary care programs but all specialty training programs with an important outpatient component. The second method would seek those options that are specifically targeted to aid primary care training. If the latter is preferred, the TOM Committee should evaluate each option for source and expenditure of funds in light of how well it specifically helps primary care programs. 22~

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Table 1 Criteria for Evaluating Alternative Proposals for GME Financing Financial 1. The proposal should be neutral for the federal budget. 2. All those who benefit from GME in primary care should contribute to its costs. 3. Funding should be predictable. 4. Funding should be sufficient. Administrative, i. Implementation should be feasible. 2. Ongoing administration should be simple. 3. Ongoing administration should be inexpensive. Educational 1. Curricular autonomy and flexibility should be maintained. 2. Primary care curricular elements should be fostered and developed. 3. High-qualiJGy programs in non-primary care specialties should not be adversely affected. 4. Incentives should favor high-quality primary care programs. 222

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Paw 2 Stakebolders 1. Society 2. Federal Oovernment 3. "C~ 4. State Covernment 5. Private Piers 6. Teaching hospitals 7. Non-teaching hospitals O ~ . O. scions O. Primal care specialties 10. Non-prima~ care specialties 11. Primp care educators 12. Non-prima~ care educators 13. Primal care residents 14. Non-prim care residents 15. Patients

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Table 2 Alternatives for Sources of Funds Changes in Existing Medicare GME Pavments 1. Eliminate Part A direct and indirect payments 2. Eliminate Part A direct payments 3. Eliminate Part A indirect payments 4. Reduce Part A direct payments 5. Reduce Part A indirect payments 6. Limit Part A direct and indirect payments to first certification 7. Add incentives and disincentives to Part A direct payments Increase in Categorical GME funding S. Increase Medicaid 9. Mandate or encourage payments for GME payments by insurers and HMOs 10. Impose a tax on physician services If. Impose a tax on non-teaching hospital services 12. Impose a tax on third party payers 13. Impose a surcharge on physician licenses Increase in Ambulatory Payment 14. Adopt Resource Based Relative Value Scale 15. Extension of outpatient insurance coverage 224

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Page 2 16. Adopt a Medicare Part B teaching adjustment to ambulatory sites 17. Allow resident billing including cost of supervision Increase in Grants 18. Foundations 19. Title VI] residency support 20. Title VIT faculty development grants 21. VA support 22. State grant support Commitment from Future Employer 23. HMO's 24. States 25. HRSA 26. National Health Service Corps Redistribution of Funds 27. Redistribute Title VIT money 28. Redistribute clinical income within teaching hospitals and faculties 225

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Table 3 Alternatives for Expenditures I. Divide funds on a per-resident basis A. Use as each primary care residency chooses or, targeted for; Il. Divide funds on the basis of competitive Grants B. Primary care faculty C. Primary care residents D Primary care outpatient siteLs) ITI. Divide funds on the basis of incentives for primary care education of residents E. Primary care curriculum F. Primary care academic unit G. Increased ambulatory time for primary care residents H. Primary care cooperative efforts 226

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Outs ~ appreciate the contr~ut~ns of James S. E~ricb, Edna P. Scb~, M.D~ and Herald T. Perky M.~.

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REFERENCES 1. Anthony CR. Medicare support of medical education. Health Affairs 1988, Supplement: 158-62. 2. Watt dM. Discussion paper on the costs and financing of graduate medical education. The Subcommittee on Graduate Medical Education Programs and Financing of the Council on Graduate Medical Education. September 1987. 3. :Lave dR. The Medicare adjustment for the indirect costs of medical education: Historical development and current status. Association of American Medical Colleges January, i985. 4. Moore GT. HMOs and medical education: Fashioning a marriage. Health Affairs Spring 1986:147-53. 5. Gronwell dA. The Veterans Administration and graduate medical education. Health Affairs 198S, Supplement: 163-67. 6. Weaver DL. Director, Division of Medicine, Bureau of Health Professions. Personal communication, May 8, 1989. 7. Council on Graduate Medical Education. Report of the Subcommittee on Graduate Medical Education Programs and Financing, 1988. S. Delbanco TE, Calkins DR. The costs and financing of ambulatory medical education. Journal of General Internal Medicine 1988; 3(March/April, Supplement)534-43. 9. Pawlson KG, Watkins R. The costs of a family practice residency ambulatory care program. Journal of Family Practice 1979; 9:6, 1059-61. 10. Stern RS, et al. Graduate education in primary care. New England Journal of Medicine 1977; 297:12, 638-43. Il. Colwill dM. Financing graduate medical education in family medicine. Academic Medicine, in press. 228

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Page 2 12. Eisenberg dM. Who finances graduate medical education? Presentation to the Graduate Medical Education Financing Subcommittee, Council on Graduate Medical Education, September 2, 1987. 13. Health Care Financing Administration. Medicare Program: Changes in Payment Policy for Direct Graduate Medical Education Costs. Federal Re~ster 1988 (September 211; 53:36589-36603. 14. Hadley J. Tique P. Financing graduate medical education: An update and suggestion for reform. Health Policy and Education 1982; 3:157-71. 15. Colwill JM. Dilemmas in Medicare reimbursement of teaching physicians in primary care residency programs. Family Medicine Teaching 1979; Summer:20-22. 16. Petersdorf RG. Current and future directions for hospital and physician reimbursement. Journal of the American Medical Association 1985; 253:17, 2543-48. 17. Petersdorf RG. A proposal for financing graduate medical education. New England Journal of Medicine 1985; 312:20, 1322-24. 18. Perkoff GT. Graduate medical education confronted. Journal of the American Medical Association 1988; 259:3, 402-4. 19. Perkoff GT. Teaching clinical medicine in the ambulatory setting. New England Journal of Medicine 1986; 314: 1, 27-31. 229