The U.S. healthcare environment is continually changing—from the activity levels of patients, rollbacks in retirement age, and an aging society burdened with chronic diseases, to the implementation of innovative, quality-focused models of healthcare delivery—and the country is facing physician shortages in both primary and specialty care. Meanwhile, federal funding for academic medical centers continues to decrease with new cuts directed at graduate medical education (GME).
Understanding how GME is funded and what the needs for healthcare services are is important to ensure proper distribution of these limited but vital funds, especially among specialty fellowships and primary care residencies. The demand for orthopaedic services is on the rise, but the training for the next generation of orthopaedic surgeons is at risk.
Funding physician training
Physician training is funded by teaching hospitals with some federal support from Medicare, Medicaid, and, to a lesser extent, agencies such as the Department of Defense, the Department of Veterans Affairs, and the Health Resources and Services Administration. Some states also provide limited funding for GME.
Medicare reimburses teaching hospitals for a portion of the costs they incur through direct graduate medical education (DGME) payments.
DGME payments are calculated based on the institution’s Medicare patient load, the hospital-specific per resident amount, and the number of full-time equivalent (FTE) trainees under the hospital’s cap (established under the Budget Control Act of 1997). DGME is intended to offset the direct costs of GME, which include resident stipends and benefits, supervising faculty salaries and benefits, and allocated institutional overhead costs.
Medicare also makes indirect medical education (IME) payments that, despite their ‘education’ label, are patient care payments intended by Congress to help compensate teaching hospitals for “factors such as severity of illness of patients requiring the specialized services and treatment programs provided by teaching institutions.” IME offset payments are made because the Medicare Severity Diagnosis Related Groups (MS-DRG) system does not adequately capture the higher complexity of patients treated at teaching hospitals or the costs of standby specialty units such as burn units and trauma centers. The key characteristic of the IME payment is that it is an add-on payment for patient care services provided on a per discharge basis.
In fiscal year 2011, Medicare paid teaching hospitals roughly one fifth of total direct training costs. Consequently, teaching hospitals increasingly have been supplementing their training and research missions with revenue from net patient care. Under the current across-the-board budget cuts imposed by the Budget Control Act of 2011, the average medical school and teaching hospital faces an estimated loss of $20 million to $30 million each year, in addition to cuts already imposed by the Affordable Care Act and subsequent health-related legislation. These cuts will likely reduce revenues that are used to support residency training.
Alternative proposals have also put GME at risk. For example, the Simpson-Bowles proposal included a 60 percent cut to Medicare payments for GME. In today’s political environment, physician training centers face substantial losses in the tens of millions of dollars.
Recently, President Obama submitted his proposed budget for fiscal year 2014, which also puts GME at risk. As a way to “better align graduate medical education payments with patient care costs,” the budget calls for modifying (ie, reducing) IME payments to teaching hospitals, which it says will save approximately $11 billion over 10 years. Although it is unlikely that all sections of the president’s budget will be adopted as proposed, the fact that cuts to IME are included is a matter of concern.
Orthopaedic supply and demand
Experts have projected a shortage of more than 91,000 physicians by the end of the decade, including a deficit of 46,000 specialists. By 2020, the United States is predicted to need an additional 6,000-plus orthopaedic surgeons over current levels.
According to a workforce study by Thomas K. Fehring, MD, and colleagues, by 2016, the increases in the demand for orthopaedic procedures and the decreases in the number of orthopaedic surgeons available to perform those procedures will result in a procedural shortfall ranging from 19 percent to 70 percent, depending on an assumed surgeon retirement age baseline of 65 and 59, respectively.
The orthopaedic workforce (supply side) is influenced by changing practice patterns and the numbers of current residents, retiring orthopaedic surgeons, and subspecialists, as well as the increasing interest of orthopaedic surgeons in working part-time. Orthopaedic residency remains one of the most competitive training programs. In 2013, 1,038 medical students applied for the 693 orthopaedic surgery positions offered through the “all in” match, and 692 individuals were selected.
The demand for orthopaedic services is more difficult to determine. Demand for services is influenced by societal activity levels, an aging population, the number of physician visits by the elderly, and even technology. In general, workforce projections are calculated through either a demand-based model (existing utilization patterns) or a needs-based analysis (ideal utilization).
For example, in 1998, a RAND workforce study using demand-based modeling projected a surplus of 4,383 FTE orthopaedic surgeons by 2010. This estimate assumed constant practice hours per physician and the continuation of then-current utilization patterns.
In response, a group at Dartmouth argued that regional variations in the number of orthopaedists available demonstrated that the number of orthopaedic surgeons in a community cannot be predicted from the demand-based, illness utilization model. Although they concluded that the adequacy of the supply side cannot be accurately predicted, a benchmark of 5 orthopaedic surgeons per 100,000 population was suggested (needs-based analysis). At the time, there were 7.1 orthopaedic surgeons per 100,000 population.
In 2007, an AAOS Orthopaedic Workforce Taskforce argued that these predictions likely underestimate the need for orthopaedic surgeons, in part due to the projected increases in those older than age 65.
In fact, the demand for orthopaedic services has been increasing. Since 1991, annual primary total knee arthroplasty (TKA) volume has more than doubled, which is likely secondary to a surge in the number of Medicare enrollees and per capita utilization. Similar trends are occurring internationally in both TKA and total hip arthroplasty. Despite the reported differences in the capacity to deliver and pay for these procedures among countries belonging to the Organization for Economic Cooperation and Development, research shows the number of knee and hip replacements increased universally over the last decade.
Policy impact on orthopaedic surgery
In response to projected shortages, the number of medical graduates is on track to increase by 30 percent in 2016. But due to the 1997 cap, federal GME support has not kept pace with this increase. Unless the cap is raised, the number of medical graduates likely will exceed the number of available residency positions by 2016.
Consistent with recommendations from the Association of American Medical Colleges, legislators in both the House and Senate have introduced legislation to raise the GME caps to address physician shortages across the full spectrum of specialties. As the nation ages and the need increases for specialty care of many age-related illnesses and disabilities, it will be essential for Congress to approve legislation expanding Medicare support for physician training.
Other funding options?
Recently, alternative mechanisms have been used to provide funding. For example, the Orthopaedic Research and Education Foundation Clinician Development Program, OMeGA Medical Grants Association, and the Center for Orthopaedic Trauma Advancement together have helped to fund the following:
- 50 fellowships for the 2009–2010 academic year
- 25 fellowships in spine care for the 2010–2011 academic year
- 17 trauma fellowships for the 2012–2013 academic year
- 64 fellowships for the upcoming 2014–2015 year
GME must prepare a workforce capable of meeting the needs of an aging society. GME is funded primarily by teaching hospitals with critical support from the federal government, and, at a time of increasing physician demand and increasing financial pressures on teaching hospitals, federal cuts will be counterproductive. The AAOS is committed to taking an active role in assessing orthopaedic workforce needs in response to the changing practice environment. To meet the demands of growing numbers of patients, AAOS members must understand how GME is funded.
Julie Balch Samora, MD, PhD, MPH, is a fourth-year orthopaedic surgery resident at Ohio State University and an AAOS Washington Health Policy Fellow. Atul Grover, MD, PhD, is the chief public policy officer for the Association of American Medical Colleges.
Editor’s Note: Policy Timeout is a series on advocacy issues written by AAOS Washington Health Policy Fellows.
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