An Overview of Graduate Medical Education: Funding Streams, Policy Problems, and Options for Reform


John Young, Janet M. Coffman

May 1998

In this article, we examine the financing mechanisms for graduate medical education (GME) in the United States. In so doing, we identify Medicare as the single largest contributor to GME and the most important barrier to producing a physician workforce that is appropriately sized, balanced, and skilled. Until passage of the 1997 Budget Reconciliation Agreement, the structure of Medicare payments promoted overproduction and skewed production toward training specialists in tertiary settings. We then examine the various reform proposals put forward by major health care organizations and policy bodies. These organizations generally agree on seven policy objectives: Remove incentives that promote expanded resident production; Base the GME subsidy on actual costs and distribute it more uniformly; Focus reductions on specialty residency positions; Provide GME payments for training provided in ambulatory, community, and managed care sites; Decouple Medicare GME reimbursement from payments to health maintenance organizations for patient care; Require all health insurers to contribute to GME; and Ensure that reductions in the GME subsidy do not reduce access to care for low-income persons. A myriad of different mechanisms for achieving these objectives have been recommended, many of which could be melded together to form a comprehensive approach to GME reform. The prospects for meaningful GME reform are dim in the absence of broader Medicare reform. The costs to stake-holders are too concentrated while the benefits to the public are too diffuse for GME reform to stand alone. But the political imperative to deal with the federal budget's short-term deficit and Medicare's long-term solvency will likely create an opportunity for GME reform. An addendum has been added that shows how the 1997 Budget Reconciliation Agreement addresses most of the major reform objectives identified but that several important issues remain unresolved.