After nearly two years of deliberation, the Institute of Medicine (IOM) Committee on the Governance and Financing of Graduate Medical Education (GME) has issued its report. It presents a strong case for the need for change and a strong case for its recommendations.

The members of the Committee and the IOM are to be commended for their hard work, vision, and a high quality report. The report presents a clear path to a system that would help produce a physician workforce better aligned with the nation’s needs and a framework for a rational and defensible expenditure of nearly 15 billion dollars in public funds each year on GME.

Issues related to GME financing have been contentious for many years. In 1965, Congress included GME financing under Medicare reimbursement in what was intended to be a temporary arrangement. Nearly 50 years later, we are still trying to find a permanent and more rational way to finance and pay for the training of physicians as an alternative to the current complex, arcane formula built on Medicare inpatient days. Despite the well-documented shortcomings of the current system and numerous studies, attempts to find agreement on how to change and improve GME financing have been unsuccessful.

In fact, in recent years, some of the major players have been pushing in opposing directions: each year the administration proposes to reduce GME funding; and just as consistently, academic medicine organizations and their legislative allies propose legislation to increase funding for GME. Neither proposal has come close to passing.

Into this environment comes the new report from the IOM with specific recommendations for reform. The expertise and experience of the 21 experts on the committee is quite impressive. The Committee was co-chaired by Gail Wilensky and Don Berwick, two leaders in the field representing very divergent views on health policy. While both are former directors of Centers for Medicare and Medicaid Services or its predecessor, the Health Care Financing Administration, one was under a Republican president, the other under a Democratic president. I had my doubts that such a diverse group dealing with such a difficult issue would be able to come to consensus. And I worried that if they did, the recommendations would have to be so watered down and so general as to be almost meaningless.

Thus, I was very pleased to see that the Committee did not shy away from the difficult issues and reached consensus on bold recommendations that provide a path for meaningful reform. The report is well organized and makes a very strong case why reform is needed now. Hopefully, policy makers and the leaders of the medical education community will read the report carefully and give it serious consideration.

What Does The IOM Report Recommend?

The following is my effort to briefly summarize the recommendations, which would for the most part require Congressional action.

  • Total Federal GME funding should be maintained at the current level over the next decade; the core of this Federal funding – about $10 billion – from Medicare would continue to be the primary source of Federal funds as it has been since 1965. This stability for the next decade is important as the nation transitions to the recommended new system of GME payment policy.
  • A new national GME Policy Council should be established in the Office of the Health and Human Services Secretary to provide national leadership and guidance and a new GME Center should be located in the Centers for Medicare and Medicaid Services to administer the new system.
  • The current separate funding streams for direct GME expenditures (DGME) and indirect costs (IME) would be eliminated. The total available funds would be divided into an Operational Fund to support existing GME programs, and a new GME Transformation Fund to support innovation as well as new GME programs in needed specialties and underserved areas. While this would spread existing GME dollars across more positions (the Transformation Funds could cover new GME positions and accredited positions not now funded by Medicare GME due to the cap), it would increase the amount available for actual training by combining DGME and IME.
  • The IOM report recommends ending the current system of basing GME payments on Medicare inpatient days, the resident to bed ratio, and other factors. The IOM report recommends an easy to understand, basic per-resident amount (PRA) for each resident, with geographic adjustments.
  • The new system envisioned in the report would direct the PRA funds to the institutions that are responsible for the actual educational content of GME, the GME sponsors, rather than just teaching hospitals. In most cases, this would continue to be teaching hospitals, but it could also be educational institutions, community health centers, or GME consortia.

Why The Report Deserves Support

As documented in the report, the current system of financing of GME is unsustainable. As we reform and transform the delivery system with a greater focus on efficiency, quality and outcomes, using Medicare inpatient days as the basis for GME reimbursement becomes even more illogical. The current Rube Goldberg system of financing of GME has negative consequences both for the efforts to reform health care delivery and for the education and training of physicians. Health care is moving to the community, but our GME financing and medical training is tied to inpatient care and face the danger of being left behind.

The report provides clear recommendations for future action and a road map for the nation. It doesn’t attempt to fill in every detail – many will need to be addressed as we move to a new GME payment paradigm — but it is a solid conceptual and practical framework for a far improved system of GME payment policies and oversight.

In terms of health workforce needs, the IOM Committee concludes, correctly, that we need targeted investments, not more GME slots. Having been responsible for overseeing both the original Association of American Medical Colleges (AAMC) projections and the more recent projections by the Health Resources and Services Administration on the adequacy of the future physician supply, I have a good understanding of the numbers and the factors driving physician supply and demand. Based on a review of the most recent data and developments, I believe that redesigning service delivery to increase efficiency, improve outcomes and constrain costs will reduce the number of physicians we will need in the future below the number we had anticipated just a few years ago. The current level of GME production now appears sufficient to meet our future needs.

Physicians play a unique and central role in health care, but the growing supply of nurse practitioners, physician assistants, registered nurses, pharmacists, physical therapists, occupational therapists, care coordinators and the many others working with physicians will help meet our future needs. In fact, training all of our new physicians to work in teams will have a far greater long range impact on access and quality than adding a few thousand more GME slots. As a nation, we need to address the serious problem of physician maldistribution, but training more physicians and hoping they will trickle down to high need areas is not an effective or efficient strategy for meeting our needs. There are geographical areas and specialties where expansion of GME will be appropriate, but any expansion should be targeted.

The proposed Transformation Fund would support this type of targeted investment in expansion to meet documented needs. The proposed methodology would also effectively remove the cap on slots covered by Medicare by allowing all accredited programs to apply for funding under the Transformation Fund. In effect, the cap on new residents would be replaced with a cap on total spending. This will lead to a more equitable system of financing and distribution of our GME funds. The report also recommends an expansion in data reporting and greater transparency in GME.  This is essential for a more rational system that better meets the nation’s needs.

The report and recommendations recognize and build upon the existing infrastructure overseeing medical education, training, credentialing and licensure. It is important to note that the report does not propose a change in the historic role of the organizations that oversee the content of medical education, training, credentialing, and licensure. The report recommendations assume a continued shared public–private responsibility for GME.  The Accreditation Council for Graduate Medical Education (ACGME), the American Board of Medical Specialties (ABMS), the Federation of State Medical Boards (FSMB), the AAMC, the Association of American Colleges of Osteopathic Medicine (AACOM), the American Medical Association (AMA) and other organizations have been supporting and implementing improvements in the education, training, and credentialing processes. These organizations are committed to preparing and assuring highly skilled physicians for a transformed delivery system. The recommendations of the IOM committee do not disrupt the good work of these organizations. This is appropriate.

The recommendations would encourage better alignment between the physician supply and the nation’s health care needs through guidance and incentives. The recommendations do not call for a system of central government control. This is not big government — this is holding an industry accountable for how they spend billions of tax payer dollars each year. This is good government, not big government.

The report contains extensive information and explanations for its recommendations, but there are many, many details to work out. Much work needs to be done to convert the recommendations into a legislative proposal and to implement the recommendations. This will be challenging both technically and politically. Support for this next step is critical. There will clearly be opportunities to comment on and refine the recommendations of the report.

Why The GME Community Should Support This Report

This report will make many in the hospital and academic medicine community uncomfortable, including many old friends and colleagues. I urge them to read the report carefully and not to rely on headlines and spin. I think there are two critical overarching reasons for support from the GME community.

First, there is much in the report that is positive for the GME community. This includes the recommendation to maintain stable total funding for the next decade; the explicit acceptance of the use of Medicare funds to support GME across the delivery system; elimination of the GME cap and making funding available for new, needed GME positions; a ten-year transition period and, most important, the establishment of a more rational, sound long term structure/system for GME financing that will be justifiable and defensible in the future.

Related to this, as I noted above, the current system is not sustainable. Funding GME based on Medicare inpatient days makes little sense in an era when the nation is moving care to lower cost ambulatory settings and strongly encouraging efficiency. Efforts to promote accountable care organizations, reduce hospital readmissions, and encourage delivery system reform and prevention are beginning to show positive results. The hospital and academic medicine communities are to be commended for their efforts to support delivery system transformation … so why hold on to an outdated, dysfunctional method for GME financing?

Change is essential and urgent. According to the June MedPAC report, inpatient care as a percent of Medicare spending dropped from 31 percent in 2006 to 25 percent in 2012. That is a very large decrease in just six years! Medicare Advantage enrollment went up 86 percent over the same period. And this was before the full impact of the major Affordable Care Act initiatives to promote care reorganization and reduce reliance on inpatient days. The implications of the changing delivery system for GME organization and financing are enormous. Hospital inpatient settings are not the appropriate primary focus for training physicians … and they are getting less so each year. Basing GME dollars on Medicare inpatient days is not a methodology that can be sustained much longer.

In closing, much work remains to be done. The IOM report is an important step in the right direction. I hope policy makers and the hospital and academic medicine community view this as an opportunity to build a more rational and sustainable system that better serves the nation.