Government and Regulations

Institute of Medicine Report Prompts Debate Over Graduate Medical Education Funding, Oversight


Ever since 1997, when the federal Balanced Budget Act froze Medicare’s overall funding for graduate medical education, debates have flared regularly over whether and how the U.S. government should support medical resident training.

Discussions about the possible redistribution of billions of dollars are bound to make people nervous, but the controversy reached a fever pitch in 2014 when the Institute of Medicine released a report penned by a 21-member committee that recommended significant—and contentious—changes to the existing graduate medical education (GME) financing and governance structure to “address current deficiencies and better shape the physician workforce for the future.”

Should Medicare shake up the system to redistribute existing training slots to where they’re needed most, as the report recommends? Should it instead lift its funding cap to avert a potential bottleneck in the physician pipeline, as several medical associations have requested? One year later, the report has gained little traction amid a largely unchanged status quo that few experts believe is ultimately sustainable. The continuing debate, however, has prompted fresh questions about whether the current GME structure is adequately supporting the nation’s healthcare needs and has spurred widespread agreement on the need for greater transparency, accountability, and innovation.

Deborah Powell, MD, dean emerita of the University of Minnesota Medical School and one of the report’s co-authors, says she has seen firsthand the challenges arising from a lack of physicians in multiple specialties, especially in rural areas. “We believed that simply adding new money to a system that is outdated would not solve the issues in physician education and physician workforce,” she says.

Some HM leaders and other physicians’ groups have cautiously welcomed the report’s focus on better equipping doctors for a rapidly changing reality.

“It wasn’t wrong for them to look at this,” says Darlene B. Tad-y, MD, FHM, chair of the SHM Physicians in Training Committee and assistant professor of medicine at the University of Colorado in Denver. “And it’s probably not wrong for them to propose new ways to think about how we fund GME.”

In fact, she says, efforts to align such funding with healthcare funding in general could be timely in the face of added pressures like ensuring that new insurance beneficiaries have access to primary care.

Scott Sears, MD, FACP, MBA, chief clinical officer of Tacoma, Wash.-based hospitalist management firm Sound Physicians, says healthcare is also moving rapidly toward managing populations as part of team-based care that increases quality while lowering costs. So why not better align GME with innovative Medicare initiatives like bundled payments, he asks, and then use the savings to reward those training programs that accept the risk and achieve results?

“Shifting some of our education to match what Medicare is trying to drive out in the real world, I think, is long overdue,” Dr. Sears says.

Other groups, such as the Association of American Medical Colleges, however, contend that the report’s prescriptions are far less helpful than its diagnoses. “Politically, there’s just stuff in there for everybody to hate,” says Atul Grover, MD, PhD, FACP, FCCP, the AAMC’s chief public policy officer. “I think [the IOM report] did a decent job of pointing out some of the things that we want to improve moving forward, but I’m not sure that the answers are quite right.”

An Uneven Funding Landscape

The strong opinions engendered by the topic underscore the high stakes involved in GME. Every year, the federal government doles out about $15 billion for residency training, including about $10 billion from Medicare coffers. Medicare’s share is divided into two main funding streams that flow primarily to academic medical centers: direct graduate medical education (DGME) and indirect medical education (IME) payments. The first covers training expenses, while the second reimburses teaching hospitals that care for Medicare patients while training residents.

Some skeptics have questioned whether the government should be funding medical education at all, noting that the arrangement is utterly unique to the field. Advocates have countered that the funding concept was embedded in the original Medicare legislation and that it correctly recognized the added cost of offering GME training while providing more complex Medicare beneficiaries with specialty services.

Nearly everyone acknowledges that there are still enough residency slots for all U.S. graduates, but Dr. Grover says residency programs aren’t growing nearly fast enough to keep pace with medical school enrollment, creating a growing mismatch and a looming bottleneck in the supply chain. Compared to medical school numbers in 2002, for example, the AAMC says enrollment is on track to expand 29% by 2019, while osteopathic schools are set to expand by 162% over the same timeframe.

It wasn’t wrong for the [Institute of Medicine] to look at this. And it’s probably not wrong for them to propose new ways to think about how we fund GME.

—Darlene B. Tad-y, MD, FHM, assistant professor of medicine, University of Colorado, Denver, chair, SHM Physicians in Training Committee

Fundamentally, the idea is not a bad one, to say that programs that were more aligned with national needs and priorities in terms of how they train physicians would get more funding, and those that did not wouldn’t. I think the challenge is that the devil’s in the details of how you do that.

—Vikas Parekh, MD, FACP, SFHM, associate director, hospitalist program, University of Michigan, Ann Arbor, chair, SHM Academic Hospitalist Committee

Despite the continued freeze in Medicare funding, many large medical institutions continue to add residency spots.

“We’ve been hundreds of residency positions over our cap for a very long time,” says Vikas Parekh, MD, FACP, SFHM, associate director of the hospitalist program at the University of Michigan in Ann Arbor. “The hospital funds them through hospital operating margin because in the net, they still view the investment as worthwhile.”

Alternatively, some non-university-based training programs have secured money from other sources to fund their residency positions, potentially creating new funding models for the future if the programs can demonstrate both quality and stability.

One key rationale for the IOM report’s proposed overhaul, however, is the longstanding and sizeable geographical disparity in Medicare’s per capita GME spending, which has skewed heavily toward the Northeast. A 2013 study, in fact, found that one-fifth of all DGME funding in 2010—an estimated $2 billion—went to New York State alone.1 Florida, which recently overtook New York as the third most populous state, received only one-eighth as much money. And Mississippi—the state with the lowest doctor-to-patient ratio—received only $22 million, or about one-ninetieth as much.

The IOM report also suggests that the long-standing GME payment plan has yielded little data on whether it actually accomplishes what it was designed to do: help establish a well-prepared medical workforce in a cost-effective way. In response, one major IOM recommendation is to maintain the overall level of Medicare support but tie some of the payments to performance to ensure oversight and accountability, and provide new incentives for innovation in the content and financing of training programs.

As with other CMS initiatives, however, getting everyone to agree on which quality metrics to use in evaluating GME training could take awhile. For example, should Medicare judge the performance of the trainees, the GME programs, or even the sponsoring institutions? Despite the proliferation of performance-based carrots and sticks elsewhere in healthcare, Dr. Tad-y says, such incentives may work less well for GME.

“One thing that’s inherent with trainees is that they’re trainees,” she says. “They’re not as efficient or as effective as someone who’s an expert, right? That’s why it’s training.”

Dr. Parekh, who also serves as chair of the SHM Academic Hospitalist Committee, agrees that finding the right outcome measures could be tough. “It gets very dicey, because how do you define who’s a good doctor?” he says. Currently, residents often are assessed via the reputation and history of the training program. “People say, ‘I know that the people coming out of that program are good because they’ve always been good, and it’s a reputable program and has a big name.’ But it’s not objective data,” he says.

Dr. Sears, of Sound Physicians, notes that it’s also often difficult to attribute patients to specific providers.

“Many times in graduate medical education, patients are going in and out of the program or in and out of the hospital, and how do you attribute?” he says. “I think it becomes very complex.”

A New Take on Transformation

Another IOM recommendation would create a single GME fund with two subsidiaries: an operational fund for ongoing support and a transformation fund. The latter fund would finance four new initiatives to:

  • Develop and evaluate innovative GME programs;
  • Determine and validate appropriate performance measures;
  • Establish pilot projects to test out alternative payment methods; and
  • Award new training positions based on priority disciplines—such as primary care—and underserved geographic areas.

A related recommendation seeks to modernize the GME payment methodology. For example, the committee urged Medicare to combine the indirect and direct funding streams into one payment based on a national per-resident amount and adjusted according to each location. In addition, the report endorsed performance-based payments based on the results of pilots launched under the transformation fund.

Dr. Sears says he appreciates the report’s effort to address shortfalls in primary care providers relative to specialists. “That’s not to say that specialty medicine isn’t incredibly important, because it is,” he says. “But I think incentivizing or reallocating spots to ensure that we have adequate primary care physician coverage throughout the country will have tremendous impact on the ability to care for an aging population in the United States, at least.”

I have had physicians tell me that they do not understand why our report said that there was not a physician shortage, and I try to point out that we did NOT say that. Rather, the report [and the committee] said that we could not find compelling evidence of an impending physician shortage and that physician workforce projections had been and are quite unreliable. —Deborah Powell, MD, dean emerita, University of Minnesota Medical School, IOM committee member

Shifting some of our [medical] education to match what Medicare is trying to drive out in the real world, I think, is long overdue. —Scott Sears, MD, FACP, MBA, chief clinical officer, Sound Physicians, Tacoma, Wash.

Dr. Parekh agrees, at least in part.

“Fundamentally, the idea is not a bad one, to say that programs that were more aligned with national needs and priorities in terms of how they train physicians would get more funding, and those that did not wouldn’t,” he says. “I think the challenge is that the devil’s in the details of how you do that.”

A priority-based GME system, he continues, could potentially influence what type of physicians are trained.

“In my mind, it’s not irrational to think that if GME funding was more targeted around expanding slots in certain specialties and not expanding slots in other specialties, that there would be some ability to influence the workforce,” Dr. Parekh says. Influencing where residents go may be more difficult, though a growing mismatch between medical graduates and available residency slots might add a new wrinkle to that debate, as well.

Currently, U.S. medical graduates fill only about 60% of residency slots for specialties like internal medicine—a main conduit for hospital medicine—while foreign graduates make up the remainder.

“So who’s the first that’s going to be squeezed out? It will be foreign medical graduates,” Dr. Parekh says. Many of those graduates come to the U.S. on J-1 visas, which carry a payback requirement: practicing in underserved areas. “One worry is, will rural and underserved areas suffer from a physician shortage because U.S. grads won’t want to work there after you start squeezing out all of the foreign medical grads?” he asks.

Clear Line of Sight?

Dr. Parekh also supports efforts to establish a clearer connection between the funding’s intent and where the money actually goes. The IOM report’s proposal to do so, however, raises yet another controversy around the true purpose of IME funding. Teaching hospitals argue that the money should continue to be used to reimburse them for the added costs of providing comprehensive and specialized care like level I trauma centers to their more complex Medicare patient populations.

Number one, [the IOM] came out and said, ‘We don’t know that there’s a shortage of physicians and we’re, if anything, going to remove money from the training system rather than putting in additional resources. We found that problematic, given all the evidence we have of the growing, aging population. —Atul Grover, MD, PhD, FACP, FCCP, chief public policy officer, Association of American Medical Colleges

A big part of the problem here is that people are free agents. If you make more residency spots, but the economics are such that people decide to become cardiologists because cardiologists make twice or more what hospitalists make, then you may have increased residency spots but [added only] a very small increment in the number of hospitalists. —Daniel Brotman, MD, FACP, SFHM, chair, SHM Education Committee, director, hospitalist program, Johns Hopkins Hospital, Baltimore

Accordingly, the AAMC panned the report’s recommendation to replace separate IME funding with a single fund directed toward the GME sponsoring institution and subdivided instead into the operational and transformation funds. Dr. Grover says setting up a transformation fund with new money would make sense, but not as a carve-out from existing support.

“You’re removing those resources from the system and not replacing them, which is a challenge,” he says.

Medical schools are more inclined to want the money directed toward training goals, especially if they are to be held accountable for GME outcomes. “Right now, the hospital gets it, and it’s basically somewhere in the bottom line,” Dr. Parekh says. “No one really knows where that money goes. There’s very little accountability or clarity of purpose for that dollar.”

Amid the ongoing debate, the call for more transparency and accountability in GME seems to be gaining the most ground. “I don’t see tons of downside from it,” Dr. Parekh says. “I think it sheds light on the current funding environment and makes people have to justify a little bit more what they’re doing with that money.”

Dr. Tad-y puts it this way: “If you made your own budget at home, the first thing you’d do is try to figure out where all your money goes and what you’re spending your money on.” If Medicare is concerned that its GME money isn’t being spent wisely, then, the first step would be to do some accounting. “And that means a little bit of transparency,” she says. “I don’t think that’s a bad thing, to know exactly what we’re paying for; that makes sense. I mean, we do that for everything else.”

SHM and most other medical associations also agree on the necessary goal of increasing the nation’s primary care capacity, even if they differ on the details of how best to do so. In the long run, however, some observers say growing the workforce—whether that of primary care providers or of hospitalists—may depend less on the total number of residency spots and more on the enthusiasm of program leadership and the attractiveness of job conditions such as salary and workload.

“A big part of the problem here is that people are free agents,” says Daniel Brotman, MD, FACP, SFHM, chair of the SHM Education Committee and director of the hospitalist program at the Johns Hopkins Hospital in Baltimore. “If you make more residency spots, but the economics are such that people decide to become cardiologists because cardiologists make twice or more what hospitalists make, then you may have increased residency spots but [added only] a very small increment in the number of hospitalists.”

Whatever happens, Dr. Parekh says hospitalists are well positioned to be integral parts of improving quality, accountability, and innovation in residency training programs.

“I think if more GME money is targeted toward the outcomes of the GME programs, hospitalists are going to be tapped to help with that work, in terms of training and broadening their skill sets,” he says. “So I think it’s a great opportunity.”

Bryn Nelson is a freelance medical writer in Seattle.


  1. Mullan F, Chen C, Steinmetz E. The geography of graduate medical education: imbalances signal need for new distribution policies. Health Aff. 2013;32(11):1914-1921.

Recommended Reading

Experts Urge Extension to Medicaid's Parity Program
The Hospitalist
Hospitalist's Study Cited in Federal Recovery Audit Legislation Passed by Senate
The Hospitalist
CMS Proposes Changes to Two-Midnight Rule
The Hospitalist
Medicare Initiatives Improve Hospital Care, Patient Safety
The Hospitalist
Medicare Rankings Favor Small, For-Profit Hospitals
The Hospitalist
   Comments ()