Do teaching hospitals profit from graduate medical education?

Teaching hospitals increasingly subsidize graduate medical education (GME) but the return on investment is unclear, according to Crain's Detroit Business.

For example, in 2013, Royal Oak, Michigan's Beaumont Hospital received $57 million from health insurers and state and federal agencies to cover the cost of its residencies. This figure is nearly 5 percent of the hospital's 2013 net patient revenue. Of the hospital's 395 residencies, Medicare covered only 304, leaving Beaumont to foot the bill for the remaining 91.

Most GME funding comes from Medicare payments, divided into two categories, according to the article. About 30 percent in direct funding covers resident salaries, administrative costs, malpractice premiums and benefits. The second category, which accounts for the remaining 70 percent, consists of indirect payments to offset the hospitals' care costs, which are typically higher due to sicker patients. The 1996 Balanced Budget Amendment caps the number of hospital residencies, and for the past few years this number has been significantly lower than the number of medical school graduates.

Many hospitals without enough direct funding to cover residencies are left to make up the balance through the indirect funding, such as Henry Ford Health System in Michigan, which has had to dip into these payments for more than a decade to cover its 687 residents, Eric Scher, M.D., Henry Ford's vice president of medical education and chairman of internal medicine, told Crain's.

But it's unclear whether GME programs are actually profitable for hospitals. No one has ever taken the time to crunch the numbers on federal, state and insurer payments hospitals that receive, said Patrick McGuire, CFO at St. John Providence Health System, which operates eight hospitals throughout Michigan. Tracking direct payments is relatively simple, he said, but it's much more complicated to track indirect payments, which are used throughout hospital operations.

Because of this lack of bookkeeping, many policymakers assume hospitals profit from GME, Atul Grover, chief public policy officer for the Association of American Medical Colleges, told Crain's. "They don't. We don't do a good job to show that the services residents provide, that are getting billed for, would cost more if hospitals had to replace them with someone else to do that service," he said.

Last year, the Institute of Medicine called for reforms in GME funding, including creating a two-tired "operational fund" for GME under the Medicare umbrella.

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