The Institute of Medicine (IOM) released on July 29, 2014, the conclusions of its long-anticipated report regarding Medicare’s graduate medical education (GME) payment system. Recognizing that “withdraw[ing] Medicare funding altogether would risk serious unintended consequences,” the 21-member IOM committee instead recommended “significant changes to GME financing and governance to address current deficiencies and better shape the physician workforce for the future.” The IOM noted, in particular, an increased need for transparency as well as a need to update the GME system to focus more on outpatient care. The IOM’s five specific recommendations are discussed below. As the IOM itself recognized, implementation of its recommendations would require Congressional action. Since, however, “[e]leven U.S. senators, from both sides of the aisle, encouraged the IOM to undertake the study,” it is safe to assume that Congress will take note of the IOM’s recommendations.

In a split ruling, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit held that the ACA authorizes subsidies only for the purchase of products listed on State-sponsored insurance exchanges and not those listed on Federal exchanges.  Many States opposed to ACA implementation have refused to develop State-based exchanges, prompting HHS to manage exchanges in their place.  The Court held that the ACA is clear in authorizing subsidies only for those products purchased on State-based exchanges.  The Court surmised that Congress drafted the law in this way to incentivize States to establish exchanges. The Administration has stated that it will seek a rehearing of its case before the entire D.C. Circuit.

Although the IOM recommends maintaining Medicare GME “support at the current aggregate amount,” its first recommendation is to “phase-out” the “current Medicare GME payment system” and replace it with “modernize[d] GME payment methods based on performance . . . to incentivize innovation in the content and financing of GME.” For example, the IOM recommends “[d]elink[ing] Medicare GME payments from teaching institutions’ Medicare patient volume.”

The IOM’s second recommendation is to build a GME “policy and financing infrastructure” by creating two different advisory bodies: a “GME Policy Council” and a “GME Center.” The GME Policy Council would, as its name suggests, focus on policy issues such as a “strategic plan for Medicare GME financing,” ensuring “the sufficiency, geographic distribution, and specialty configuration of the physician workforce,” and “promoting collaboration between and among federal agencies and private accreditation and certification organizations.” The GME Center would focus on the “[m]anagement of the operational aspects of GME Medicare funding.” In addition to managing the funding, it would have “oversight of demonstrations” as well as “data collection and detailed reporting to ensure transparency in the distribution and use of Medicare GME funds.”

The IOM’s third recommendation is to create a “GME Operational Fund to distribute ongoing support for residency training positions that are currently approved and funded,” and a “GME Transformation Fund to finance initiatives to develop and evaluate innovative GME programs, to determine and validate appropriate GME performance measures, to pilot alternative GME payment methods, and to award new Medicare-funded GME training positions in priority disciplines and geographic areas.”

The IOM’s fourth recommendation is to modernize GME payments by: 1) consolidating indirect medical education (IME) and direct GME funding (DGME) funding into one payment “based on a national per-resident amount (PRA) (with a geographic adjustment);” 2) establishing a standard PRA for all programs by dividing the total available funding by “the current number of full-time equivalent Medicare-funded training slots;” 3) “redirect[ing] the funding stream so that GME operational funds are distributed directly to GME sponsoring organizations;” and 4) “[i]mplement[ing] performance-based payments using information from Transformation Fund pilots.”

The IOM’s fifth and final recommendation is to reform Medicaid GME funding to ensure greater transparency and accountability while maintaining state discretion over the distribution of funds.

The IOM’s general summary of its report is available here and its summary of its recommendations here. The report itself can be downloaded here.

Reporter(s), Daniel (Dan) J. Hettich, Washington D.C., +1 202 626 9128, dhettich@kslaw.com.