How Medicare Calculates GME Payments, Part 2. JAMA. 1999;281(22):2156. doi:10.1001/jama.281.22.2156
Prepared by Ashish Bajaj, Department of Resident and
Fellow Services, American Medical Association.
Because graduate medical education (GME) funding is being
discussed as part of the effort to reform Medicare, the AMA Resident
and Fellow Section (RFS) is working to educate residents on how that
funding currently operates. The May 26 Resident Physician Forum
explained the method used by the Health Care Financing Administration
to calculate direct payments from the Medicare program to hospitals for
GME. We now provide an overview of the method used to calculate the
Indirect Medical Education Adjustment (IMEA).
The IMEA compensates teaching hospitals for higher operating costs
associated with the presence of a residency program, costs incurred by
having more complicated cases, additional tests ordered by residents in
their learning process, and reduced patient care productivity by all
staff members. The formulas for IMEA are based on statistical estimates
since indirect costs cannot be accurately quantified. For example, it
is difficult to quantify how much patient care productivity is lost
while hospital staff are engaged in supporting the training program.
The method explained below is only used for hospital departments
that receive Medicare payments. If a hospital or hospital department
with a residency program is exempt from the Medicare program (eg,
pediatric, rehabilitation, psychiatric hospitals, or hospital
departments), the method for calculating IME payments is done
separately from the Medicare program.
The amount of the IMEA is a percentage add-on to Medicare
payments for patient care. Medicare classifies patients into
diagnosis-related groups (DRGs) and sets a standard payment
for all patients in a particular DRG. The standard DRG payment is then
adjusted or each hospital by considering how overhead,
wages, and types of cases vary based on the hospital's location (urban
hospitals tend to have higher costs and more complicated cases). These
calculations are done for both teaching and nonteaching hospitals.
The first step in calculating the percentage of the IMEA add-on is to
determine the hospital's ratio of individual residents to beds (IRB).
When counting the number of residents, a hospital can only count its
full-time equivalent residents who are working in the hospital's
inpatient or outpatient department. In some cases, residents assigned
to physicians' clinics can be counted in this ratio. When counting the
number of beds, a hospital must exclude beds in Medicare-exempt
departments but include neonatal intensive care and intermediate care
Once the IRB is determined, the add-on percentage can be calculated.
Then the IMEA for each case can be calculated by multiplying this
percentage by the DRG payment. In 1996, the formula was 1.89
formula gave hospitals an average add-on of 7.65% for every 10%
increase in the IRB. In the Balanced Budget Act of 1997, Congress
modified the formula to cut Medicare spending. The current average
add-on is 6.5% for every 10% increase in the IRB; by 2001, it will be
5.5%. A Senate bill has been introduced that calls for the IMEA
formula to be frozen at the 1999 level. Hospitals fear the consequences
of still further reductions in reimbursements.