August 1999 Bulletin

MedPAC urges revisions in Medicare GME payments

Change would put expenses in cost of patient care

The Medicare Payment Advisory Commission (MedPAC) will issue a report to Congress this month recommending revision of Medicare payment policies for graduate medical education and teaching hospitals that would replace the current direct and indirect costs with a single adjustment to Medicare's diagnosis related group (DRG) payments.

MedPAC also will recommend that federal health care work force policy not be pursued through Medicare payment policies.

Because the payment revision could affect both the level and distribution of Medicare's payments to teaching hospitals, MedPAC recommends that the changes be phased-in over several years. Specific recommendations on how these changes could be implemented will be made in MedPAC's March 2000 report to Congress on Medicare payment policy.

A draft of MedPAC's recommendations that will be presented to Congress in August was distributed at its July 16 meeting. Although the exact wording of the recommendations is subject to change before being submitted to Congress, the recommendations are:

MedPAC said teaching hospitals record two types of costs associated with GME: direct and indirect costs. Direct costs comprise stipends paid to medical residents, faculty salaries and other costs attributable to maintaining residence programs. Indirect costs reflect the higher costs per case observed in teaching hospitals that in other hospitals cannot be allocated to residency programs. Compared with other hospitals, MedPAC said, teaching hospitals have higher costs, they treat patients with more complex conditions, provide enhanced patient care that is more intensive and technologically sophisticated, and engaged in more clinical research and development.

"The distinction between direct and indirect costs is an accounting artifact that should not guide Medicare's payments to teaching hospitals," MedPAC said.


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