August 1998 Bulletin

Medical education needs private funds

Public funding of residency programs leads to government intrusion

By

Thomas A. Einhom, MD

Scott Gottlieb

Three decades ago, when the nation appeared to face a shortage of physicians, the federal government stepped in with a plan. It would pay hospitals for each medical resident they trained. The money flowed through Medicare by way of so-called direct medical subsidies and it paid for everything-salaries and benefits of residents, program administration costs and hospital overhead. Washington guaranteed on-the-job medical education for new doctors at a time when insurers, hospitals or doctors were believed to have little direct economic incentive in funding residency programs themselves.

The government's plan was, arguably, an enlightened notion. In practice, however, the program struggled. Like other federal subsidies, this one soon outgrew its original mandate and failed to change with the times. In 1983, the Health Care Financing Administration (HCFA), which oversees both Medicare and the resident incentives, sought to ensure care for the poor by adding a premium-based on each hospital's number of residents-to the amount it reimbursed for care of Medicare patients. Because residents were providing the bulk of care to the indigent, HCFA reasoned that hospitals with more residents would care for more poor people. One result was that the program soon became too expensive to manage. By 1997, payments to teaching hospitals totaled $7. 1 billion a year.

A number of challenges now calls this funding into question. For example, the rising cost of Medicare and the spread of managed care require costly changes in the way graduate medical education (GME) is organized and funded. Managed care plans, such as HMOs, have been less concerned with the impressive reputations of teaching hospitals than with their costs-which typically are high. As a result, they have steered patients away from the facilities, channeling them instead to community hospitals, where the cost may be 20 to 30 percent lower.

Last year's balanced budget act cut $5.6 billion over five years for medical education and stopped funneling payments for Medicare education through managed care plans amid complaints that the dollars were not reaching the hospitals. Another part of that budget plan was an unorthodox agreement with hospitals whereby the government would pay academic medical centers hundreds of millions of dollars not to train doctors. This plan is intended to alleviate a predicted oversupply of specialists, including orthopaedic surgeons , notwithstanding doubts as to whether or not this surplus will even occur. Clinton Administration health officials and leading Republicans say that the initiative will give hospitals a powerful incentive to train fewer doctors and Medicare will save money in the long run. After five years, the payments will cease and the program will have fewer residents to underwrite.

Academic medicine and orthopaedic training programs face a choice. If we continue to rely on government programs, funding for residency training will continue to bend to shifting political winds. Instead, we can seize the moment by seeking more partnerships with industry and new sources of private, rather than public funding. For example, a plan backed by several prominent house Republicans as well as the American Association of Medical Colleges would establish a national all-payer trust fund which would be financed by levies on parties said to benefit from the residency training programs, presumably health insurance and managed care companies. Under this plan, Medicare would pay its share of GME support for all its beneficiaries, but other funding would address the non-Medicare share proportionately through private sector payments.

An alternative approach would be for medicine to borrow a page from other academic enterprises and fund more of its training through philanthropy and collaborations with private industry. For example, the Menninger Clinic, a famed psychiatric hospital in Topeka, Kan., freed its education enterprise from government intrusion by raising a private endowment. It finances its residency training program through investment income from its private trust fund.

Private sources of money may help plug funding gaps as public support is slowly withdrawn by the federal government. Eventually, private funding could carry most of the burden. Over the last 30 years, public support for medical education helped to build vast and sophisticated teaching hospitals that were the pinnacle of our health care system and the envy of many nations. No doubt, the government funding helped to get us to this point. It will be up to us to find new ways to sustain it.


Thomas A. Einhorn, MD, is professor and chairman, Department of Orthopaedic Surgery and director of the Orthopaedic Residency Training Program, Boston University School of Medicine. Scott Gottlieb is a medical student at Mount Sinai School of Medicine and a former Wall Street healthcare analyst


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