How Medicare Calculates GME Payments, Part I. JAMA. 1999;281(20):1958A. doi:10.1001/jama.281.20.1958
Prepared by Ashish Bajaj, Department of Resident and
Fellow Services, American Medical Association.
Several groups in the federal government have been studying graduate
medical education (GME) funding with the intent of reforming the
current system. In an effort to better prepare residents for the
debates and discussions on GME funding, recent Resident Physician Forum
columns have described these groups and their deliberations and have
discussed some of the issues being raised. In this and the next column,
we will summarize the current methods used to calculate payments to
Before the Medicare program was created, GME was funded directly by the
hospital. Residents were provided with a small cash stipend, room,
board, laundry, and other services. Some of these costs were recovered
directly or indirectly from insurance payments.
When Congress created the Medicare program in 1965, it included
provisions for GME funding because it recognized a need for trained
physicians to provide health care to the nation and acknowledged that
educational activities within a hospital enhance the quality of care.
Medicare pays hospitals for GME through 2 payment streams—direct GME
payments and the Indirect Medical Education Adjustment. In this column,
we will focus on direct GME payments.
Direct payments compensate a teaching hospital for overhead costs
related to GME, as well as for the salaries and benefits of residents,
teaching physicians, and GME administrative staff. Before 1985, these
payments were uncapitated and could be increased if a hospital's
direct GME costs increased. Since then, these payments have been
capitated and are now linked to a "per-resident" amount.
The average per-resident amount (ARPA) was calculated in 1985 and
has been adjusted for inflation in all calculations since then. In
simple terms, ARPA was determined by calculating a hospital's total
direct GME costs related to Medicare and dividing that by the number of
full-time residents. In the early 1980s, hospitals
used different methods for calculating their direct GME costs. As a
consequence, the ARPA number varies widely. In 1983-1984, ARPA ranged
from $7500 to $187,500.1
A hospital's total direct GME payments can be determined by
multiplying ARPA by (1) an inflation adjuster, (2) the number of
current full-time residents, and (3) the proportion of the
hospital's inpatient days used by Medicare patients. This is just
a simple way of understanding the calculation. Over the years, Congress
has modified the formula to reduce Medicare payments. For example, the
inflation adjuster has been reduced for residents in non–primary care
specialties, so ARPA even varies within a hospital. Medicare also makes
adjustments to direct GME based on the number of years a resident has
been in training.
The AMA Department of Resident and Fellow Services will continue to
provide updates on the GME funding debate as developments occur.