OSR Legislative Affairs Update

1. OSR Legislative Affairs Update SOSR / COSR Joint Regional Meeting – Clearwater Beach, FL Matthew Shick – AAMC Senior Legislative Analyst Anne Porter – Southern Region Chair ReemNubani – Central Region Chair ArunIyer – Southern Region Legislative Affairs Delegate Thomas Selby – Central Region Legislative Affairs Delegate

2. Agenda • Update from the Hill – Matthew Shick • GME Funding Overview • How is GME currently funded? • Impact of 2012 Budget/Debt Reduction Legislation • How does the SGR affect Medicare payments? • What does (or doesn’t) the health care reform of 2010 do for Medicare? • GME and the Affordable Care Act • GME and the workforce pipeline • Future Changes • What is the future outlook for medical students? • What are alternate proposals for GME Funding?

3. Updates from Capitol Hill

4. GME Funding

5. GME Funding Overview • How is GME currently funded? • Impact of 2012 Budget/Debt Reduction Legislation • How does the SGR affect Medicare payments?

6. Financing of Resident Education and the Special Missions of Teaching Hospitals Comes from Multiple Sources Medicare (largest explicit payer) Medicaid Children’s GME program Private patient care revenues VA/DoD Other Federal and state programs

7. Medicare Makes Two Specific Payments with an “Education” Label • Direct GME Payments (DGME) • Partially compensates for residency education costs • $3.0 billion annually • Indirect Medical Education (IME) Payments • Partially compensates for higher patient care costs due to presence of teaching programs • $6.5 billion annually • TOTAL: $9.5 billion annually Source: CMS Office of the Actuary

8. Medicare Covers 23% of Direct Costs • DGME Cost per trainee (Medicare cost reports) • $145,000 per trainee, per year on average • Medicare uses PRA of about $94,000 a year • Direct costs of training in US teaching hospitals • $13 billion per year • Current Medicare DGME payments • $3 billion per year • $2 billion per year underpayment for Medicare’s share

9. Medicare’s Investment in GME

10. Just What Happened in 2011?

11. “Super Committee” Progress? Super Committee Must Submit Legislation Identifying $1.2 Trillion in Deficit Reduction by November 23 and Congress and President Must Approve Legislation by December 23 Yes, saves at least $1.2 trillion Yes, but does not save all $1.2 trillion No Agreement Process Ends Achieve Balance of Savings via Across-the-Board Cuts FYs 2013-2021 50% Defense/50% Non-Defense Excl. Medicaid, Social Security; limits Medicare cuts to 2% Process Ends Automatic budget cuts, aka “Sequestration” are triggered for FYs 2013-2021 Excl. Medicaid, Social Security; limits Medicare cuts to 2% Process Ends

12. Under Sequestration • Sequestration reductions up to: • $720 million/yr payments to teaching hospitals (i.e. members of the Council of Teaching Hospitals, or COTH) for inpatient services • $250+ million/yr practice plan payments • $1.5 billion/yr to NIH funding to institutions • Up to 14% reduction in other discretionary spending • The good news: • Sequestration limits Medicare cuts to 2% for services rendered (other government agencies will take a bigger hit, Medicare is partially protected) • Special payments—DGME, IME, DSH, Outlier, EHR? “ [T]he percentage reduction for the Medicare programs specified in section 256(d) shall not be more than 2 percent for a fiscal year.” Section 256 of Balanced Budget and Emergency Deficit Control Act of 1985.

13. “We still do not expect that [we will reach] the debt limit until quite late in the year, significantly after the end of the fiscal year but before the end of the calendar year….” • Treasury Secretary Timothy Geithner testimony before Senate Budget Committee, 2/16/12

14. Sustainable Growth Rate Formula(SGR) The issue that won’t go away (yet)

15. What is SGR? • A cost control measure implemented by Congress in 1997 • In short, the Sustainable Growth Rate Formula calculated Medicare physician reimbursement to keep payments in line with national economic growth • When expected GDP growth > physician payments  physician payments increased [this actually happened in 2002] • When payments > GDP growth  SGR reins things in by cutting reimbursement • Sounds unpalatable? It has been. Cuts called for by the SGR formula are frowned upon by voters, so congress grants on a reprieve, but the cuts don’t disappear. They keep compounding. • Unless SGR is repealed (or Congress votes again to delay cuts), current estimated cuts of 29% will go into effect in Dec. 2012 • These payment cuts affect all physician services, including payments to Teaching Hospitals

18. Major Teaching Hospitals & Faculty Clinical • Council of Teaching Hospitals (COTH) includes only six percent of all hospitals, but accounts for1: • 41% of charity care • 23% of all discharges • 28% of all Medicaid discharges • 19% of all Medicare discharges • 79,529 full-time MDs work in clinical departments at medical schools2. Education • More than 75% of residents train at a COTH hospital3 Research • Nearly 2/3rds of NIH Extramural Research Training Awards go to a COTH hospital or AAMC member medical school4 • About $68 million in AHRQ grant dollars received by COTH hospitals or AAMC member medical school5 Notes: 1Source: AAMC analysis of American Hospital Association Survey Database, FY2008. Data reflect short-term, general, nonfederal hospitals. COTH hospitals reflect integrated and independent COTH members. 2Source: AAMC Faculty Roster Full-Time Faculty, December 2009. This number excludes part-time and volunteer faculty. It also excludes PhDs and MD/PhDs. 3Source: AAMC analysis of Medicare Cost Report Data, June 30, 2010 Release. 4Source: AAMC analysis of 2006 National Institutes of Health awards data (accessed at: http://report.nih.gov/award/trends/AggregateData.cfm?Year=2006) 5Source: Agency for Health Care Research and Quality, Federal Fiscal Year 2006 data

19. GME &ACA

20. Health Care Reform in 2010 included the following provisions: • 65% redistribution of unused positions - majority will go to primary care, general surgery • $230 million over five years for teaching health centers via HRSA - authorized, not funded • No increase in Medicare GME funding • No increase in Medicare GME caps

21. GME & Physician Workforce

22. AAMC Position on GME Funding • The U.S. must make a greater national investment in residency training through GME while at the same time looking for more efficient, effective ways for teams of health professionals to deliver high-quality care to all patients. • Congress and the administration must do their part and allow Medicare to resume paying its share of the costs by creating additional residency training positions at teaching hospitals.  • AAMC urges Congress and the administration to do their part and increase funding for Medicare-supported residency positions.  Cutting the deficit is important, but sustained investment in doctor training is critical to the health of all Americans. Match Day Statement – AAMC President and CEO Dr. Darrell G. Kirch

23. Worsening Physicians Shortage

24. Medicare Funding in the Future • Fiscal Commission Recommendation (Simpson Bowles Commission) • 2/3 Reduction = 10-year $60 billion cut in GME support • Even a small reduction in GME financing has a significant impact • 1% change in IME payment calculation (5.5%  4.5%) eliminates over $1.2 billion in annual teaching hospital support

25. Examples of One-Year Impact of IME Cuts:State’s Largest Teaching Hospitals

26. Medicare Funding in the Future • ACGME survey • If funding stayed at 2011 levels • majority of responding sponsors (61%) would sponsor the same number of core and subspecialty positions • 17% would increase number of residency programs, and 30.1% would increase number of residency positions • No programs reported they would close core residency programs

27. 2011 ACGME Survey • Attempt to estimate impact of reductions in GME funding of the magnitude under discussion on the education of physicians • 680 programs filled out survey • Survey asked programs to indicate how future federal funding would affect their institutions’ programs and positions • 3 funding scenarios: stable at 2011 levels, funding reduced by 33%, and funding reduced by 50% • Asked to identify potential impact on programs and positions in each scenario • Slight reductions = 10% decrease • Significant reductions = 33% decrease • Complete closure of program / position = 100% decrease

28. ACGME Survey Results Effect on Residency Positions The Potential Impact of Reduction in Federal GME Funding in the United States: A Study of the Estimates of Designated Institutional Officials.Thomas J. Nasca, M.D., MACP, Rebecca S. Miller, M.S., Kathleen D. Holt, Ph.D. The Accreditation Council for Graduate Medical Education. Chicago, IL.

29. ACGME Survey Results Effect on Residency Programs The Potential Impact of Reduction in Federal GME Funding in the United States: A Study of the Estimates of Designated Institutional Officials.Thomas J. Nasca, M.D., MACP, Rebecca S. Miller, M.S., Kathleen D. Holt, Ph.D. The Accreditation Council for Graduate Medical Education. Chicago, IL

30. ACGME Survey Results http://www.acgme.org/acwebsite/home/ImpactReductionFederalGMEFundingTJN.pdf

31. Best Case Scenario • Stable funding is needed • Increased funding is ideal, and necessary to support growing demand for medical care

32. Goals for the future • Increase number of training positions • AAMC advocates for an increase in Medicare-funded GME positions by 15% 115,000 • Research needed ensure that supply matches improvements in health care delivery • - assessment of needs • Must confront the two major issues of allocation of spots for US graduates and how to fund those positions

33. Alternative funding proposals for GME

34. Proposal #1: Free Medical Education • Premise: Cost of medical education and amount of medical student debt are deterring strong candidates from choosing medicine as a career and primary care specialties • Solution: Redistribute GME funds from non-primary care specialties and fellowships towards medical school education. Trainees would pay for specialty and fellowship training. System similar to other countries. • Barriers to Implementation: Politics, set up of current system, quality of medical education, cost of medical education, payment system to hospitals and medical schools

35. Proposal #2: • Premise: Long-standing problems of GME funding based on substantial differences in per-resident costs and no re-calibration of payment since 1983, formulas are outdated • Solution: • Reanalysis of true direct costs of resident training • Separation of hospital operating revenue and resident training funds • Separate budgets per hospital per GME program • Tie funding to annually assessable GME standards • Would ultimately reveal lack of alternate funding sources for GME training

36. Proposal #3: Three-Fold Approach • Three competing proposal revolving around either market-based, incentive-based, or regulatory-based model. • Each of these three models would pose different difficulties and likely could not be implemented individually • Rational policy goals include: Broad-based stable funding of DME, direct federal support to program sponsors, target funds at specific market dysfunction or innovations, and strengthen federal workforce goals