The State of Graduate Medical Education and Meeting Our Nation’s Health Needs

The Institute on Medicine (IOM), the health arm of the National Academy of Sciences that provides analysis and advice on national health issues, released its report “Graduate Medical Education that Meets the Nation’s Health Needs” on July 29, 2014. Citing a lack of transparency and accountability in our current system and discordance with producing the types of physicians necessary to meet our nation’s health needs, the IOM recommended a significant overhaul of our current system of graduate medical education (GME) financing and governance over the next ten years.

Since the creation of Medicare in 1965, the federal government has provided the majority of funding for the post-graduate training of physicians with about two-thirds provided by Medicare. Originally intended as a temporary measure until a more suitable one could be found, this system has financed GME since 1965. Approximately, $15 billion ($9.7 billion from Medicare) was spent in 2012 to support GME funding.1 The IOM’s report remain recommendations unless enacted into law by Congress so aggressive lobbying efforts are expected in the forthcoming months.

In fact, there has already been quick and varied response by multiple academic medical organizations: the American Association of Medical Colleges (AAMC), the American Hospital Association (AHA), and the American Medical Association (AMA) vehemently opposed and warned that the IOM’s recommendations would destabilize our current GME infrastructure while the American Association of Family Physicians (AAFP) supported the recommendations and the American College of Physicians (ACP) falls somewhere in between. If we break down the major recommendations of the report, the reasons for each organization’s opinions become more apparent but this does not necessarily help us to determine the best way to distribute GME funding to address our future healthcare workforce needs.

Currently, there are two components to GME funding from the federal government: direct and indirect. Direct graduate medical education (DGME) funding provides for the “direct costs” of teaching hospitals for the training of residents: the salaries and benefits of residents and the faculty who supervises them, the salaries of GME administrative staff, and allocated institutional overhead costs such as electricity, space rental, and maintenance. Each hospital receives DGME funding as a per-resident amount (PRA) which is hospital specific and calculated as the DGME costs in 1984 (or 1985) divided by the number of full-time equivalent (FTE) residents per year.2 This PRA is updated annually with an inflation factor and adjustment for that hospital’s resident count, limited, of course, by that hospital’s resident cap (number of allowed total residents) set by the Congressional Balanced Budget Act (BBA) of 1997.

The Medicare portion of DGME is calculated by a ratio based on the number of total in-patient days in that hospital spent by Medicare patients divided by the total number of in-patient days by all patients. There are separate PRA’s for primary care and non-primary care residents with those in primary care specialties (family medicine, general internal medicine, general pediatrics, OB/Gyn, preventative medicine, geriatric medicine, general osteopathic medicine) receiving a slightly higher amount. This is due to a congressional freeze on PRA inflation updates on non-primary care residents in 1994 and 1995.

Indirect graduate medical education (IME) funding are additional amounts paid to teaching hospitals for the “indirect costs” of being a teaching hospital. They generally incur more costs than non-teaching hospital settings due to having a sicker patient load and more “non-quantifiable” costs (eg – residents ordering extra tests).3 This payment is based on a formula that takes into account the ratio between the number of interns and residents and the number of patient beds (IRB ratio) adjusted with a variable multiplier and IRB ratio caps that are set by Congress. IME funding is not weighted like DGME funding where the number of residents in their “initial residency period” (IRP) are counted as 1.0 FTE and those beyond this period as 0.5 FTE.

Of course, these funding formulas can get very complicated and are adjusted with each new Congressional legislative action on GME. But now that you have a rudimentary idea of how the federal government and Medicare fund our education as residents, let’s consider the recent IOM recommendations.

IOM Recommendation #1: aggregate GME funding should remain at current levels ($15 bil/yr) with adjustments only made for inflation over the next ten years while the recommended new GME policy is implemented; the bulk of funding ($10 bil/yr) will continue to come from Medicare.

Supporting Argument: the current GME system is unsustainable and needs to become more performance- and value-based as healthcare system evolves under healthcare reform; this would provide stable (albeit not increased) funding over this transitional period.

Opposing Argument: for years, academic medical associations and their allies have recommended an increase in GME funding stating that the rate of increase has not kept up with inflation and the expense of educating our nation’s future healthcare workforce; additionally, they have consistently recommended lifting the GME cap with little success.

IOM Recommendation #2: a new GME Policy Council should be established within the Office of Health and Human Services to provide guidance on GME issues and a new GME Center within the Centers for Medicare and Medicaid Services to administer GME funding.

Supporting Argument: more transparency and accountability is needed to make sure that our dollars are well spent to produce more efficient use and better health outcomes for patients.

Opposing Argument: more bureaucratic and inefficient “red tape” and hoops to jump through without added benefit.

IOM Recommendation #3: eliminate the DGME and IME structure and replace with an Operational Fund to finance existing GME programs; the other portion of funding would support a Transformational Fund focused on innovation and programs in needed and underserved areas.

Supporting Argument: the Operational Fund would provide for currently existing programs so as not to destabilize GME funding during the proposed transition; the Transformational Fund would be targeted to address the current geographic and subspecialty maldistribution that exists.

Opposing Argument: the geographic and subspecialty maldistribution is nothing new but merely funneling more money toward these areas will not necessarily provide more healthcare professionals in these underserved areas or specialties, especially as long as student loan financing structures remain as they are currently. This recommendation also will significantly affect the funding amounts currently received by teaching hospitals, especially urban based hospitals, where the majority of GME takes place.

IOM Recommendation #4: provide funding based on PRA only with geographic adjustments and end payments based on Medicare in-patient days, IRB ratio, and other factors currently in the funding formula. These PRA funds would be directed to the GME sponsors who are responsible for the actual educational content for the training of interns and residents rather than to teaching hospitals alone. GME sponsors can be teaching hospitals, educational institutions, community health centers, or GME consortia.4

Supporting Argument: funding would go directly to those responsible the actual educational content which may be a non-teaching hospital setting; studies do not support a physician workforce shortage, especially in primary care specialties.

Opposing Argument: this recommendation again will disproportionately hurt teaching hospitals as they tend to have a sicker patient load, have more patient beds, and have access to more expensive tests and treatments than more community-based and/or non-teaching hospitals; teaching hospitals often are the main settings for GME, although not necessarily the only settings, and may need to make cuts based on resident education versus operational costs of the hospital with reduction of resident slots as the outcome when a physician workforce shortage is looming.

The IOM recommendations assert to support a more targeted, performance-based investment in the training of our future healthcare workforce but do they really? Obviously, GME funding has been a hotly debated topic for the past 50 years so there are no simple solutions and everyone has their own biased opinion. Even though I have some health policy and advocacy training from my MPH and grassroots organizing background, I don’t profess to be a health policy wonk by any means so I encourage you to become more informed and decide your own opinion. And if so inclined, become more involved in health policy advocacy with the political action committees (PAC) of your affiliated academic medical organizations to lobby for your beliefs.

You can read or download an electronic copy of the report free online at:

1. Institute on Medicine (IOM). Graduate Medical Education that Meets the Nation’s Health Needs. July 29, 2014. 256 pages.

2. American Association of Medical Colleges (AAMC). Medicare Direct Graduate Medical Education (DGME) Payments; accessed on 8/8/14 at

3. T Johnson and TW Coons. Recent Developments in DGME and IME Payments. American Health Lawyers Association. Updated by Laurie Garvey on 3/16/10; accessed on 8/9/14 at

4. E. Salsberg. IOM Graduate Medical Education Report: Better Aligning GME Funding with Healthcare Workforce Needs. Health Affairs Blog. July 31, 2014; accessed on 8/10/14 at



-Betty Chung, DO, MPH, MA is a third year resident physician at Rutgers – Robert Wood Johnson University Hospital in New Brunswick, NJ.

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