could then be thought of generically as a GME Prospective Payment System (PPS) and more specifically as a mechanism to preserve the viability of academic health centers and GME. Management of expenditures in this way requires the fund to be distributed more evenly, be related to teaching intensity, and be responsive to information about the financial health of teaching hospitals. There is the risk, of course, that leveling reimbursement may also level centers of excellence.

The GME Trust Fund would allow separation of at least a portion of GME payments from Medicare inpatient hospital DRG rates. The present IME formula directly links Medicare payments to the level and complexity of the Medicare caseload and the resident-to-bed ratio; payments are also affected by the annual DRG payment rate update, which reflects decisions based on the condition of the overall hospital industry. A predetermined, fixed trust fund would establish a payout controlled by a different set of policy variables. For example, the trust fund could distance IME funding from PPS considerations. The annual DRG update would have no impact; only the trust fund update would affect payment.

The AAPCC includes hospital costs with associated GME costs to fee-for-service Medicare beneficiaries. These costs are included, in turn, in Medicare per capita payments to health plans or managed care organizations that enroll Medicare beneficiaries on a capitated basis. Hospital payments from these plans are negotiated separately and are not made through DRG rates (the PPS). These payments need not, and in most, if not all cases, do not include the GME subsidy. The subsidy remains within the plans. This issue of AAPCC diversion of GME payment from teaching hospitals to plans would become a moot point with a trust fund because any aggregate financial impact of capitated patients on GME hospital payment would be eliminated. Once a decision on the National GME Trust Fund amount was made, that amount would be distributed, no more, no less. The percentage of Medicare patients joining capitated plans could not affect the total distributed. As noted, a coefficient to recognize the proportion of Medicare capitated patients in a hospital could improve proportional distribution to that facility from the defined total National GME Trust Fund. The AAPCC would, of course, continue to reflect any GME payments from the fee-for-service sector, but that could not reduce the Trust Fund. Congress could decide whether this arrangement was appropriate. In summary, increasing the separation of the hospital rate and GME decisions encourages consideration of what the different policy variables should be, how they should change over time, and how to address the separate problems of teaching hospitals and their GME functions.


The committee's principles guided its decisions on distribution of GME funds. These principles specified the public value of GME and of its direct and indirect components, and the important distinction between direct support of training and indirect support to maintain the teaching environment. Failure of

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