Proposed Cutoff of Medicaid Funds

U.S. plan would strip teaching hospitals and medical schools of $1.8 billion in federal matching money for graduate medical education.
May 24, 2007

Following through on an idea raised in President Bush's 2008 budget proposal, the Department of Health and Human Services issued proposed regulations Wednesday that would end federal matching funds paid to states for graduate medical education under the Medicaid program. The change, if carried out, would cost teaching hospitals and medical institutions about $1.8 billion over five years in federal reimbursements and possible even more, if states shift their own Medicaid spending away from graduate medical education because of the loss of the federal matching funds.

The Association of American Medical Colleges vigorously opposes the proposed change and is working on several fronts to fight it. Sen. Richard Durbin (D-Ill.) is pushing legislation that would bar the human services department's Centers for Medicare & Medicaid Services from carrying out the change for one year; a provision to that effect could be passed in a supplemental appropriations bill that Congress is considering this week.

For several decades, the federal government has, through its Medicare and Medicaid health insurance programs (for the elderly and the needy, respectively) provided funds to teaching hospitals and medical schools to help cover the costs of educating and training doctors. The funds are meant to pay for some of what it costs the hospitals for medical interns and residents to treat elderly and indigent patients.

In Medicare, hospitals and schools are automatically reimbursed through a clear formula for their graduate medical education costs. The reimbursement system through Medicaid is optional, but 47 of the 50 states, plus the District of Columbia, provide some reimbursement to teaching hospitals and/or medical schools for graduate medical education, according to a 2006 survey prepared for the medical college association (Illinois, North Dakota and Texas are the exceptions). The report found that states provided about $3 billion in such support in 2005, and the federal government provides funds to match some of state-expended money, which the states use to encourage doctors to train in medically underserved areas, among other purposes.

But in a notice published in Wednesday's Federal Register, HHS's Centers for Medicare and Medicaid Services said its officials had concluded that "we do not believe that it is consistent with the Medicaid statute to pay for GME activities." As a result, the agency said it was proposing to declare that "GME is not an allowable cost or payment for medical assistance under the approved Medicaid State Plan," making such funds ineligible for federal reimbursement within a year after a final rule is enacted. The notice estimates that the change would save the U.S. treasury $1.78 billion from 2008 to 20012.

Lynne Davis Boyle, assistant vice president for government relations at the Association of American Medical Colleges, said the group's officials found it "kind of curious" that the federal agency -- having recognized graduate medical education as a reimbursable expense for more than 40 years -- is "now saying that the statute does not allow these payments."

But Tim M. Henderson, a health-care researcher at George Mason University's Center for Health Policy Research & Ethics and author of the 2006 Medicaid report for the medical college group, said it was clear that the Health and Human Services agency was looking for ways to reduce spending under Medicaid. "I think they found this as a good target, and only recently became aware that this was a pot of money that they could conceivably tap."

Henderson said the state and federal funds for graduate medical education amount to only about 7 percent of all Medicaid in-patient hospital expenditures nationwide. But the proportion is significantly higher -- at least double that -- in some states, including Minnesota, New York, Utah and Virginia. Henderson and Boyle both said it was possible if not likely that if the federal government were to eliminate its matching funds, some states would reconsider whether to continue to provide their own Medicaid money for graduate medical education. States are most inclined, of course, to spend their own money on uses that will draw additional funds from other sources, they said.

Stacey Cyphert, the University of Iowa's senior assistant director and special adviser to the president for health sciences government relations, said in an e-mail message that upon an early review of the HHS plan, the university's hospitals and clinics would lose at least 23 percent of their Medicaid GME funding, or $3.9 million annually. Cyphert said it was too early to say how Iowa would consider replacing those funds.

AAMC officials said they hoped Durbin's amendment would stop the Health and Human Services proposal in its tracks, at least for the time being. But they plan to oppose the proposed regulation in multiple other ways, as well.


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