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APPENDIX A PROGRAM AND PROCEEDINGS OF A WORKSHOP Held By The Committee to Study Strategies for Supporting Graduate Medical Education for Primary Care Physicians In Ambulatory Settings Institute of Medicine April 17 and is, 1989 65

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PROGRAM April 17, 1988 S:30 am WELCOME AND INTRODUCTION Samuel 0. Thier, M.D., President, Institute of Medicine Daniel D. Federman, M.D., Chairman, Committee to Study Strategies for Supporting Graduate Medical Education in Primary Care 9:00 am CHARACTERISTICS OF PRIMARY CARE GRADUATE MEDICAL EDUCATION IN THE AMBULATORY SETTING Evan Charney, M.D., Professor & Chairman, Department of - Pediatrics, University of Massachusetts Medical School Jack M. ColwitI, M.D., Professor & Chairman, Department of Family & Community Medicine, University of Missouri-Columbia Jordan Cohen, M.D., President APDIM, Dean, School of Medicine, SUNY at Stony Brook Fred Tinning, Ph.D., President, Kirksville College of Osteopathic Medicine & Chairman, Board of Governors, Association of Colleges of Osteopathic Medicine Moderator: Richard E. Rieselbach, M.D., Associate Dean, University of Wisconsin Medical School 10:30 am COST AND REVENUES FOR GRADUATE MEDICAL EDUCATION Judith R. Lave' Ph.D., Professor of Health Economics, Universitr of Pittsburgh Ruth S. Hanft, M.A, Research Professor and Health Policy Consultant, George Washington University Robert Derzon, M.B.A., Lewin/ICF, Inc. Moderator: Sheldon S. King, President, Stanford University Hospital 66

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11:30 am LESSONS FROM PROGRAM DIRECTORS Larry ~ Green, M.D., Professor & Chairman, Department of Family Medicine, University of Colorado Health Sciences Center doe! A. Alpert, M.D., Professor & Chairman, Department of Pediatrics, Boston University School of Medicine, Chief of Pediatrics, Boston City Hospital Steven ~ Wartman, M.D., Ph.D., Director of the Division of General Internal Medicine, Brown University Moderator: Henry W. Foster, cr., M.D., Professor and Chairman, Department of Obstetrics & Gynecology, Meharry Medical College 2:00 pm ALLOCATION OF RESOURCES AT THE INSTITUTIONAL LEVEL Sheldon S. King, President, Stanford University Hospital Norman G. Levinsky, M.D., Professor & Chairman, Department of Medicine, Boston University Medical School John d. Collins, cr., M.D., Vice President for Professional and Physician Services, Mercy Health Services Harry N. Beaty, M.D., Dean, Northwestern Medical School Moderator: Daniel D. Federman, M.D., Dean for Students and Alumni Professor of Medicine, Harvard Medical School 3:00 pm BREAK 3:30 pm POLICY OPTIONS Sandra C. Peinado, M.D., Fellow, General Internal Medicine, University of Pennsylvania John Eisenberg, M.D., M.B.A, So] Katz Professor of General Internal Medicine, University of Pennsylvania Moderator: Daniel D. Federman, M.D., Dean for Students and Alumni Professor of Medicine Harvard Medical School 5:00 pm ADJOURN 67

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April 18, 1989 8:30 am POLICY OPTIONS, Continued Peter Bouxsein, d.D., House Subcommittee on Health and the Environment John K. Ki~redge, Former Executive Vice President, The Prudential Insurance Company of America C. Ross Anthony, Ph.D., Associate Administrator for Program Development, Health Care Financing Administration Arthur M. Fournier, M.D., Associate Dean for Community Health Affairs, University of Miami Medical School 12:00 pm ADJOURN 68

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Introduction _ 1_ ~ 1 ~:1 ~1 There is a growing consensus that changes in the way in which health services are provided require that residency programs for primary care physicians increase their emphasis on ambulatory care experiences in order to prepare physicians for the real world of primary care practice. There is also a growing sense that new strategies are needed to enable these programs to overcome the financial disadvantage at which they operate, compared with other medical specialties. The Institute of Medicine, with support from the Josiah Macy Jr. Foundation and the Health Resources and Services and Administration of the Department of Health and Human Services, appointed a committee to plan a workshop and recommend strategies for surmounting the fiscal constraints that bind primary care training programs. By bringing together experts from primary care education and practice, health care institutions, federal agencies, insurance and health care financing and others, the workshop was to be both a useful event for the participants and provide the basis for the committee's deliberations. The workshop was held in Washington, D.C., April, 1988. Summaries of presentations and discussion at the workshop follow. 69

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CHARACTERISTICS OF PRIMARY CARE GRADUATE MEDICAL EDUCATION IN THE AMBULATORY CARE SETTING Primary Care Residency Training in Pediatrics: Current Status, Current Issues, Suggested Solutions Evan Charney, M.D. Professor and Chairman Department of Pediatrics University of Massachusetts Medical School Demographics of Pediatric Training and Practice There are currently 230 fully approved three-year pediatric residency programs in the United States with just over 6,000 residents in training. Approximately half of these programs are in University hospitals and half in community hospital settings (with varying degrees of university affiliation). Of the 35,000 pediatricians in the United States (physicians who limit their practice to children and adolescents) 80 per cent are in off~ce-based primary care practice; one-fifth of those physicians devote a portion of their time to subspecialty as well as general pediatrics. Fifteen per cent of pediatricians are in full-time subspecialty practice and, except for the age specific areas of neonatology and adolescent medicine, are in areas comparable to internal medicine (e.g. organ system specialties, infectious disease, immunology). The remaining five per cent of pediatricians are in public health and administrative positions. The Setting of Residency Training The hospital setting in which pediatric residency is based presents certain problems for primary care education: On hospital inpatient services, children have illnesses more complex and more severe than in the past. Attending physicians are increasingly specialized, and children are often segregated by disease category to more efficiently pronde that care (separate intensive care units for neonates and older children with full-time attending supervision, inpatient units divided by subspecialties, emergency departments staffed by specialists rather than generalists). The technology appropriate to such care becomes correspondingly more complex as well. Moreover, the 70

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shortened inpatient length of stay further reduces the time available to absorb (much less metabolize) the available learning. 2. Patients in most general pediatric clinics are disproportionately drawn from poor or socially disorganized families. Those children cared for in the emergency department tend to have more acute problems than do most patients in practice, and usually are unknown to the physician providing care. Those in subspecialty clinics have more complex or unusual conditions. In fact the management sale with patients with the same clinical condition often varies between office practice and hospital practice. For example, the emergency department physician commonly orders far more extensive laboratory investigation for a well-appearing but febrile one year old than does the office-based physician who knows the child and family. While each st3rIe is probably appropriate to its own setting, trainees may get mixed messages about what is optimal or correct. 3. The community-based practitioner is less visible (perhaps less welcome) within the hospital and emergency service than in the past. The average practicing pediatrician hospitalizes fewer children now and, therefore, spend less time in the hospital, except for full-term newborn care. As a result, when a child is hospitalized, pediatricians are less able to direct that care without consultant help than they were ten or twenty years ago. The common denominator of these changes is that in 1989 the average pediatric resident is less likely to observe the average primary clinician functioning knowledgeably and comfortably in the hospital setting than was true in the past. Medical Education as an Apprenticeship Model Graduate medical education is based on an apprenticeship model, as opposed to the classroom/seminar approach typical of law and engineering schools, for example. The core philosophy of this education is to expose trainees to appropriate patients, in appropriate settings, taught by role-model faculty. This has worked well, by and large, for the trainee who will go on to become a consultant pediatrician, and appears to provide a reasonable foundation for further subspecialty training. I believe it has worked less well for general pediatric education for the reasons stated above. While general or ambulatory pediatric divisions have been established within 71

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most teaching programs, The problems of a hospital environment remain. As noted, the patients in hospital ambulatory settings are often poor, with complex social and psychological problems that would tax the most skilled practitioner. Moreover, the "continuity practice" they are enrolled in is an artificial construct, an educational device that has little resemblance to most practice settings. In contrast, we do not place residents in artificial intensive care or emergency room settings for their education and expect that they will learn principles to apply later in ''real' practice: we place them in functional care systems practicing alongside skilled clinicians. The point here is that primary care practice within the hospital may not resemble community-based primary care practice either in setting' patient mix, or facula. The Residency Review Committee The Special Requirements for pediatric residency programs have been modified (revised in 1985 and 1990) with the goal of making standards more explicit and more stringent in several areas. Primary care training must now include one half- day per week in a continuity practice in all three years of training, a more clearly defined experience in child development, behavior and adolescent medicine, and a minimum of six months in general ambulatory settings. With the added continuity clinic time the mandated minimum general ambulatory time now comprises 27 per cent of the three-year residency. However, other changes in the Special Requirements will have an impact on general pediatric training; there is an explicit requirement for more subspecialty faculty available at the parent institution, and the hospital inpatient setting is more clearly defined as a tertiary referral center for children with severe~and diverse illness. The result will be that smaller programs (with fewer subspecialists and less complex inpatient services) may have difficulty meeting standards, which will lead to an increase in the proportion of pediatric residents trained in large tertiary care hospitals. What will be the effect of these changes on primacy care education? Although it is not valid to assume that high quality primary care education is always characteristic of small training programs, it is clear that a general pediatric orientation is not easy to cultivate in the climate of a tertiary care center. Moreover, pediatric department chairs are subspecialists for the most part. Although they have a strong commitment to pediatricians providing primary care for children, the demands of running a service, teaching, and conducting research in a tertiary care environment make issues of primary care education seem less immediate and compelling. Challenges of Primal Care Education Our challenge is to develop education settings and curricula (in the continuity practice and in the community) to accomplish for primary care what has been achieved for subspecialty education. Simply stated, trainees need to observe 72

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successful practice by skilled clinician-teachers in a variety of situations applicable to practice. In office practice: residency programs need either to establish (potentially under hospital auspices) or affiliate with real-life, functional pediatric practices. There are a variety of such settings which can be utilized, depending on where the residency program is located. These include urban group practice with indigent or mixed social class patients; suburban group practice with predominantly middle class patients, rural practices, which in addition to primary care, may involve a consultative role with family practitioners, and a major role with hospitalized children. Such teaching practices should be able to demonstrate the pediatrician's role with children and adolescents with chronic medical conditions, with behavioral and developmental problems, as well as with parent and child preventive health education. The role of allied health professionals and office staff, organization of practice, medical records, consultation and referral decisions to both medical and psychosocial resources are all proper subjects for learning. In community settings: Primary care practitioners (optimally) play important roles as consultants in community settings outside of their office and trainees should have the opportunity to observe and learn these roles. These occur, for example, in day care facilities, schools (elementary through college level), settings for children with chronic handicapping conditions, and detention facilities for juvenile offenders. The role of the generalist in a community hospital without housestaff is a very different one from the practicing physicians whose principal hospital is a regional tertiary center, with available residents and subspecialists. Although some of these skills can be learned in short block rotations in office practice, there is considerable value to learning how skilled primary care physicians manage problems over time, and that is best achieved by a longitudinal, several year experience (particularly for the primary care practice). This strategy requires identifying promising clinician/teachers within the community, and providing them a structured (and ongoing) educational program to grow as teachers. They need to be compensated for the time they spend teaching and not practicing. I believe it is more logical to place residents in "educationally prepared" community settings than to bring practitioner-teachers into tertiary settings to observe and teach residents in hospital clinics. These comments are not meant to ignore the role of subspecialists. They are vital to graduate education for primary care and, in general, I think subspecialty teaching is of high quality. At present, subspecialists play a vital role in conveying to pediatric residents a body of knowledge about disease and up-to-date diagnostic, technical and management skills in dealing with children with complex illness. However, if trainees only observe neurologists caring for children with seizures, 73

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endocrinologists caring for diabetics, and psychologists caring for children with behavioral disturbances, a powerful message is communicated to the trainee about who provides optimal care. Our education needs to occur, at least in part, where excellent generalist teachers are seen to play a central and satisfying role with such children and their families. Funding Constraints Funding constraints present a realistic barrier to implementing the changes in primary care education outlined above. In hospital inpatient and ambulator settings patient care reimbursement provides a significant portion of resident and faculty salaries. If residents spend time outside of the hospital in community settings alternate payment mechanisms need to be devised for resident (and faculty - supervision) time. Hospital services will continue to require staff time, and either more residents need to be recruited (but there are a limited number of American medical school graduates available) or new allied health manpower (physician assistant, nurse clinician) need to be trained. Moreover, community-based primary care, child development and behavioral services tend to be poorly reimbursed, without considering the additional educational expenses required to teach n those settings. Current Title VII funding for primary care residency training has allowed for the funding of these activities (apart from usual hospital sources) and can provide valuable data on the costs of such education. In summary, pediatrics retains its strong commitment to primary care: the majority of pediatricians are engaged in that activity. Changes in the Residency Review Committee Guidelines for pediatrics should enhance primary care education, but may tend to concentrate residency training in larger tertiary care centers where such educational experiences must compete with the service demands of complex patient care. A variety of curricular innovations are needed to strengthen primary . . . ~ e , e care education In pectlatrlcs, and the flexibility to develop and assess these curricula is highly desirable. Funding support to place trainees in functioning primary care settings in the community (and prepare the appropriate faculty) is required, which will necessitate some restructuring of present reimbursement mechanisms. 74

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BIBLIOGRAPHY Bryke C, Tunnessen W. Scully T. Oski F. Pediatric residencies between 1959/60 and 1984/85. Pediatrics 82:752, 1988. : Differences Mathieu O. Alpert d. Residency training in general pediatrics: The role of federal funding. Am ~ Dis Child 141:754, 1987. Reuben D, McCue ], Gerbert B. The residency-practice training mismatch. Arch Int Med 148:914, 1988. Sargent it, Ashley M. Comparison of patient populations seen by pediatric residents and by practicing community pediatricians. Med Ed 61:610, 1986. 75

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The bottom line is that, in the current climate, federal grant support is crucial to develop and to sustain the primary care programs. It may prove to be even more vital in the next few years as economic pressure continues to increase on teaching hospitals. Discussion Discussion of the presentation by program directors noted that if program directors are to be able to negotiate with hospital administrators and establish beneficial arrangements, the financial relationship between teaching hospitals and the primary care residency programs needs to be properly understood. Some discussants pointed out that hospitals derive greater revenues from patients admitted by subspecialists than from the smaller volume of admissions by primacy care physicians. Other discussants however suggested that there needs to be proper appreciation of the savings that can be derived from the existence of the primary care outpatient clinic. The length of hospital stay is reduced because preadmission diagnostic workups as well as post discharge follow-up are performed in the clinic. This reduction in inpatient costs is particularly important for hospitals that provide uncompensated care. However, it was also noted that while such savings to the hospital are real, the benefits to the hospitals of primary care ambulatory programs are small when compared with the benefits from other programs. THE ALLOCATION OF RESOURCES AT THE INSTITUTIONAL LEVEL This session of the workshop used a case study method of discussion whereby four panelists were given, in advance, a problem to address. A moderator guided the discussion. Panelists were the dean of a medical school, the chairman of a department of medicine, the president of a major teaching hospital, and a vice president of a major, not-for-profit, hospital system. Each participant was asked to consider the financial resources that he would try to obtain to support the residencies, and the negotiations in which he would engage with other actors. The exercise was developed for to illuminate the following: o the decisions that need to be made o the coalitions that must be built 0 the different sets of constraints on people involved in various positions in the negotiations process :32

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o the trade-offs and options available The Problem An academic health science center with an internal medicine program wants to establish a primary care track eventually totaling 18 residents -- six per year. The existing internal medicine program has 45 slots, 15 per year. Since it is not possible to expand the overall size of the program the primary care track will reduce the number of residency slots for the existing track to 27. Because the program intends to apply for a federal grant, each resident must, in the course of three years, meet at least the federal 25 percent continuity requirement. Thus in the first year at least one half day per week is needed in the ambulatory setting, in the second year two half days per week, and in the third year four or five half days per week are needed. Alternatively residents could do at least three half days per week in the ambulatory setting throughout three years. The ambulatory experience will be in an outpatient clinic in your hospital. The federal grant award will provide $60,000 in the first year, $90,000 for the subsequent two years, and there is no assurance that the grant will be renewed. Because of low Medicaid payments by your state, and a large non-paying patient load, patient revenues will cover roughly one third of the cost of the program (residents stipends, faculty salaries, administrative overhead). This leaves you with approximately 55 percent of costs unfunded. The problem for you to address is how to fund the remainder of this program. In particular we would like to know under what conditions you would be able to obtain funds from the program, or hospital, the faculty practice plans or other institutional sources. The state has no history of support for graduate medical education. Who in the hospital and the medical school will support and who will oppose your attempts to fund the program? Also, how would you replace the inpatient care services lost when the residents move to the outpatient clinic? Internal Medicine The director of the department of general internal medicine greeted the proposal with enthusiasm, believing that the nation needs general i33

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internists, and that individuals who complete such training programs have a higher probability of practicing primary care in underserved areas than those trained in subspecialties. Since most primary care in his state is provided by internists, establishing the primary care internal medicine track, rather than a family practice program, articulates well with established, practice patterns. Moreover, some faculty members have been Urbana the chairman to move to ~ ~ ~I ~en ~ _# ~ establish a prlmar~r care track. One program is Iortunate, and pOSSloly unusual' in having faculty with the necessary qualifications, background and interest to provide a core of teachers for the primary care track, and to write a grant applying for federal funds. The chairman believes that if a totally primary care oriented program is the eventual goal, to initially establish a track is the more prudent approach. It avoids antagonizing subspecially faculty, and allows a period during which it will be possible to test the availability of support for the training. One possible source of financial support for the program that is sometimes controlled by the department chairman is the faculty practice plan. It should, however, be noted that there exist many of ways of organizing faculty practice plans. In some schools the dean controls none of the income, in some schools the dean controls it all; similarly the control of the department chairman varies. The two principle decisions-makers with whom the chairman must trSr to negotiate for support are the dean of the medical school, and the president of the university hospital. The chairman would ask the dean for some faculty support, arguing that the medical school benefits from the teaching sernces of residents; that the new thinking and behavior taught in the primary care track would the education of medical students; and that the work of the facula in enhance the new track would be supportive of the educational and research goals of the medical school as it adapts to the changing environment and the needs of the twenty first century. The chairman would ask for support from the hospital administration on the grounds that hospital revenues would be enhanced by increased admissions. - Other sources of funds that the chairman would t~y to tap include: o o o affiliated hospitals, on the grounds that having residents would help these hospitals develop faculty and gain prestige. the local community, on the grounds that the program could help the locality provide care for low-income, or uninsured populations. the state, on the grounds that the program could put satellite clinics in underserved areas and that graduates of the program might settle in those areas. :34

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Dean of Medical School In most schools the issue of providing support for the new primary care track would be discussed between the dean and the chairman, without much involvement of other departments. The dean would view a proposal to create a primary care general internal medicine track from the position of a decision-maker with responsibility first for medical students. Graduate medical education takes second place. Thus, the chairman's argument that the new track would strengthen faculty in ways that mesh with the missions of the medical school would carry weight. The dean would discuss the ambulatory practice arrangements and the quality of the practice, and consider whether the model would be one into which he might ultimately want to integrate the medical students. The dean would agree to provide some support for faculty, but finds no reason to directly support residents in this track. Since federal grant support may cease after three years, the dean would not put himself in the position of offering ongoing financing of residents, which might in the future conflict with his primary responsibility -- medical students. Sometimes the dean has substantial control of the faculty practice plan, making it possible for the dean to make allocation decisions that benefit the institution as a whole, and the hospitals with which the medical school is closely affiliated. Even so, the dean must be assured of the support of the members of other departments. Since he does not believe that the new residents would bring significant numbers of new patients to the subspecialists, and since it is not clear that the additional patient volume would be composed of paying patients, it would be very difficult to make a case for giving the department of medicine a greater share of the faculty practice plan income for the purpose of supporting the primary care track. This would be the case despite the fact that there is precedent for some cross subsidy for support of facula from the high earning groups to the lower earning groups. Hospital President Before embarking on discussions of what support the hospital would offer the primary care track, the hospital president wanted to clarify some notions that the chairman of internal medicine may have. First, it is often stated that the prime reason that hospitals have residents is because they provide less expensive care than fully trained physicians. It would be more accurate to say that hospitals support house staff programs in response to faculty definition of what the residents need, and that despite its own service needs a hospital would not create a residency program unless there was a qualified department head, adequate patient volume, and a belief that it is appropriate to train the particular type of resident. ~ 3 5

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Second, the notion that the hospital benefits from the revenue from ancillary services generated by house staff is false. Hospitals are increasingly reimbursed on a per diem, per case. or cavitation basis. ~ ~ ~e ~`_ ~ ~ _ ~_ . ancillary services is financially negative, not positive. Thus increased use of The approach that the hospital president would take to a request for support of the primary care track residency is one of bargaining. How would the faculty help with coverage of the inpatient services that are left uncovered by the reduction in inpatient service time of the residents? Would the faculty build a cadre of non-teaching patients for whom they would be responsible? The department must help the president of the hospital reconcile the competing values of sustaining a financially viable hospital while fulfilling the requirements of a quality teaching program. Thus the more important question for the hospital president is whether the size of the residency programs relates to the population being served, and whether the residency programs together form a coherent and uniformly strong whole. These are the overarching considerations within which the question of financing a residency is considered. Community Hospital Administrator The principle question that the administrator must ask, is whether the ambulatory care residency fits into the hospital's long range plans. Will the residency undermine plans for the relationship with community physicians? How does it mesh with the plans for physician recruitment? The administrator must also ask whether the hospital has the prestige needed to recruit physicians into the primacy care residency program. To enhance its academic standing an affiliation with a nearby medical school might be warranted. However, this is feasible only if the teaching hospital and the community hospital do not compete with each other. Whether an affiliation can be established is to a large extent dependent on the leadership of the institutions, particularly on how the department chairman views the role of the community hospital. With interested leaders the chances of establishing a successful affiliation are high. i36

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POLICY OPTIONS Sandra C. Peinado, Fellow, General Internal Medicine end 'John M. Eisenberg, Sol Katz Professor of General Internal Medicine University of Pennsylvania School of Medicine (This presentation summarizes the paper that can be found in Appendix B). 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 financial criteria are: 1) Any proposal should be budget neutral, at least in terms of the federal budget; 2) All those who benefit from GME in primary care should contribute to paying its costs; and 3) Funding should be both predictable and sufficient. The administrative criteria are: 1) The implementation of any proposal should be administratively feasible; 2) The ongoing administration of any new funding scheme should be both simple and 3) inexpensive. The educational criteria include: 1) Any proposal should maintain curricular autonomy and flexibility for primary care educators; 2) The growth and development of primary care curricular elements in already established residencies should be fostered; 3) High quality programs in non-primary care specialties should not be adversely affected; and 4) Proposals should include incentives that favor hi~h-nllr~lit.v primacy care programs. ~^~ ~ ~ ~ ^ ~ ~ _~ ^ VJ Stakeholders are the entities that are most likely to be interested in and/or affected by change in GME financing. These stakeholders include the following: society; the federal government; the Health Care Financing Administration; state governments; private payers; teaching and non-teaching hospitals; physicians; primary care specialties' educators and residents; non-prima~g care specialties, educators and residents; and patients. 137

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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. Each alternative for changing GME financing was analyzed using the criteria and stakeholder views outlined. No single remedy will be sufficient to rectify current GME financing mechanisms. Instead, several solutions will be needed simultaneously. Judged against the proposed criteria, the 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. o Include residents' primary/ambulatory care time in the calculation of resident FTEs for Medicare direct and indirect medical education payment, add incentive for primary care training in direct payment, 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. 0 Require participation in payment for GME by other payers, including HMO's and private insurers, coupled with a surcharge or tax on revenues of non- teaching hospitals. O Increase and redistribute Title VI] 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 setting. 138

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The spending options judged 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 support, resident support, ambulatory site costs, curricular support, academic unit costs, increased ambulatory time, 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. Discussion Discussion of the paper presented by Dr Pienado and Dr Eisenberg focused mainly on the implications of the options for change listed in the paper. A theme that underlay most of the discussion was the pervasive sense that health policy today is being driven by the politics of deficit reduction. Thus the federal, state or local government budget impact of recommendations was frequently the subject of comment. I, The option of paying for services on the basis of a resource based relative value scale (RBRVS) was generally thought to have potential for both facilitating the financing of primary care residency programs, and for making the primary care specialties more attractive to physicians by decreasing the income differential between primary care and other specialties. There was also support for the elimination of the differential in payment for the same services when performed by different specialists that occurs under the customary, prevailing and reasonable basis of payment used by Medicare. While the adoption of the RBRVS by Medicare would effect only Medicare payments, (by one estimate the impact would be on only 10 percent of the revenues of the average family physician) it would be an important move signaling to the medical profession and others an enhanced appreciation of the importance of primary care services. Equally important, it would increase revenues available to faculty practice plans thus easing the financial stress of financing ambulatory training. On the other hand RBRVS would not substantially increase support for training programs with substantial numbers of non-paying patients. Unless all payers adopt a RBRVS, is a strong possibility that physicians who provide procedurally-oriented care will continue their usual charges for 139

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services, or even increase them to make up for income lost by reductions in Medicare payments, while primary care physicians are likely to charge all payers at the increased medicare level. Thus total costs for physician services in the private sector would be at risk of escalation. Whether third park payers would be able to counteract this is doubtful. However, groups such as Preferred Provider Organizations may be able to negotiate RBRVS payments on a budget neutral basis. Medicare Payment for Direct GME Costs The Pienado and Eisenberg paper suggests the option of incorporating incentives for the development of primary care GME programs into the Medicare direct GME payments, and recalibrating the per resident payment to maintain budget neutrality. This idea was included in a bill introduced by Congressman Henry Waxman in 1985. Although some other restructuring of Medicare direct payments has been accomplished, this proposal was not adopted. It is now, however, a more familiar concept than when first proposed, and may therfore have a greater chance of success. While this proposal incorporated incentives to expand primary care programs, it did not directly tackle the question of funding residencies in ambulatory settings However, the additional revenues obtained by primary care programs should help make available resources to succors ambulatory training. _. ~ , ~ . . . . . . . . . ~ , _. . . O ~ ,, {I Policy approaches to improving the specialty distribution of physicians and the appropriateness of primary care training that try to equalize the financing of training for primary care and other specialties are based on the assumption of deficiencies in the revenues streams, and excesses in the costs of Primarv and ~ ~ -~ ambulatory training for which compensation must be found. This policy approach requires analyses of comparative costs and revenues for which the data are today inadequate, and is subject to change as methodologies develop. A policy that creates financial incentives for primacy care training uses a simpler concept. It is based on the notion that if existing funding patterns do not generate the desired outcome incentives should be introduced that will encourage the desired behavior. Such a policy can be evaluated by the extent to which its goals of furthering primary care manpower are achieved, rather than by using cost accounting methods to calculate whether a level playing field between primary care and other specialties has been achieved. Medicaid The option of mandating that Medicaid programs should support GME by following Medicare regulations, or any other procedure, in an era of constrained budgets requires a reallocation of resources. It will be difficult, and undesirable, to persuade policy-makers that GME deserves support at a time when states are attempting to assemble resources to sustain or improve coverage of such populations as pregnant women and children. :40

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Medicare Payment for the Indirect Costs of Education It is argued that ambulatory settings that train residents incur additional costs similar to those incurred by inpatient GME training. This provides a rationale for fully extending Medicare indirect payments to ambulatory settings. Furthermore, Medicare indirect cost payments are roughly double the direct cost payments, therefore reallocation within that pool wait be less painful to the losers. However. since the level of Medicare indirect payments is being reexamined and cuts are likely to occur, the impact of a policy based on manipulation of this shrinking revenue sources is likely to be weakened. Furthermore, cuts in revenues from Medicare indirect cost payments that erode hospital operating margins are likely to reduce commitment to GME, with primary care bearing the brunt of cuts. , , Federal Grant Programs Grants to sunnort family medicine. general internal medicine, and pediatrics training programs have played a major role in generating new primary care residency programs. However, it is unrealistic to believe that any expansion of the grant programs will occur, and even if additional money were to become available it would not be prudent to rely on grant money to rectify the fundamental financial problems of placing primary care residents in ambulatory settings. Grants can be vital to the initiation phases of a programs and provide the impetus for innovation, but should not be relied upon for ongoing support. Third Party Payers Policy options to improve GME financing through contributions from third party payers are sometimes based on the proposition that This proposition is disputed on the third party payers do not contribute to GME. grounds that GME is incorporated in charges paid by third partner payers. However, this contribution is being eroded as payers increasingly negotiate discounted charges. A proposal to urge third party payers to make voluntary contributions to GME is unrealistic. The insurance industry is highly competitive and operates with low margins, as evidenced by the number of companies that have abandoned health insurance because of low or zero profitability. In such a market the industry wait neither absorb the cost nor be able to pass it on to the payers, generally employers, who are becoming increasing concerned about the cost of health care coverage. The alternative -- trying to pass legislation to tax the insurance infusing is also problematical. The increase would be passed on to employers, who are vocal in legislative arenas. Furthermore, such a tax would be inequitable since it id:

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could not be imposed on self-insuring corporations, and by increasing insurance costs it would also be likely to cause greater numbers of employers to turn to self insurance. Another, indirect, approach to taxing third party payers would be to tax hospitals which, in turn, pass the cost on to the third party payers. This strategy poses dangers to hospitals that provide large amounts of uncompensated care and may lack a sufficient base of charge paying patients on whom to pass the cost. Furthermore, some states use a tax on hospitals to garner revenues with which to pay for uncompensated care, making this mechanism less accessible for use by policy makers attempting to enhance GME revenues. 142