GME Primer - Second Edition

Medical Education Funding

New Jersey needs to support GME to prevent the current physician shortage from getting worse as a result of our population growth, physician retirements, and other factors. It takes ten years post graduation from college to create a sub-specialist.  Many residency positions are in danger of being cut this budget cycle. There is only one possible conclusion: If we do not increase our physician capacity now, New Jersey’s citizens will have reduced access to needed clinical care in the future.

1. Why is GME Important?
GME funding is used to support two essential programs:  
  • The medical training of New Jersey’s physicians and specialists – including family practice and other primary care physicians. We are short physicians and cannot reduce our effort without paying a stiff price down the road.
  • Caring for the uninsured. That is what the residents in training do.  
 2. To What Extent Do Teaching Hospitals Care for the Uninsured?
They provide the vast majority of charity care. In fact teaching hospitals account for 82 percent of the charity care resources. Teaching hospitals are the backbone of the charity care system.
3. To What Extent Do Teaching Hospitals Meet Our Physician Manpower Needs?
They fall significantly short of meeting our needs. Part of the problem is that New Jersey – like all states except Utah and Georgia which have waivers - is subject to a federal cap on the number of residents Medicare will financially support. New Jersey hospitals can and do support hundreds of additional residents above the cap utilizing private funds but these positions are in jeopardy because of financial uncertainties.
One thing is clear: we need to support the existing programs or we will fall further behind. Of the 2802 residents we currently train, 323 positions are above the cap. Of these, according to a Council survey, 191 are in jeopardy. Absent additional funding these resident positions will be lost resulting in an annual loss of 65 physicians/year (average program is three years to completion). In ten years, that is 650 physicians we will not have.
4.  What’s the Problem?
There are two problems:
  • Money. If the state cannot increase charity care or GME funding, both programs will fail. They are inextricably tied together. Because the charity care program has nearly maxed out in terms of a federal match, another source of funding is needed. There is such a source (UPL) but it will only pay for GME and not charity care. (The charity care funding is essentially a Medicaid program that matches the state’s contribution up to a fixed cap (called the DSH cap). New Jersey has reached that cap.) Because we are capped on federal charity care dollars, the prudent course of action is to gain matchable GME dollars from the UPL fund. 
  • The Distribution Methodology.  There are 41 teaching hospitals in the state. New Jersey Medicaid employs a formula that caps UMDNJ at $9M and only funds hospitals that are above the Medicaid median in patient days. As a result, 25 received funding but 16 teaching hospitals received no funding. The institutions that contribute the most are actually harmed by the current distribution system. UMDNJ is the largest teaching enterprise with 300 residents and Atlantic Health at 205 is the third largest producer. UMDNJ receives about one-third of what it should and Atlantic Health (Morristown and Overlook Hospitals) receives zero. Because all teaching hospitals contribute to the state’s medical manpower needs, all should be reimbursed by Medicaid using the same formula.
We have consistently advocated for an equitable distribution including uncapping UMDNJ. (Exhibit 3)
5.  How Much Additional Money is Warranted and Why?
From a GME perspective (not a charity care perspective), $32M (one-half state) is warranted.
There are two reasons why $32M is justified:
  • Since 2007, notwithstanding new appropriations, GME funding has actually declined. The state has yet to completely fill the shortfall that occurred in the “Traditional to Literal” maneuver that stripped the charity care pool of $80M of GME funding. In the past two budget cycles the legislature restored a total of $48M for GME, so the fund is short $32M.
  • It will cost about $32M to save the 191 resident positions that are being lost. Our internal analysis shows that with $32M, the hospitals at risk of losing the 191 positions would receive sufficient new dollars to save 95% of the positions; $27M of the $32M would go to hospitals that train physicians above the cap (Exhibit 3).
6.  Why are the 191 Positions So Important?
Because we are falling behind in meeting our MD manpower needs. The gap will continue to grow each year reaching about 3000 short of where we need to be in ten years and these 191 positions account for 650 doctors during this period. At the very least, we need not to shrink.
7.  What is Our Physician Manpower Situation?
Current Headcount:
In 2007 New Jersey recorded 22,400 practicing physicians and DOs. Of these, 8223 are in primary care and the balance (14,177) are specialists. New Jersey currently has a shortage in several physician specialties compounded by distribution issues in the northern and southern regions of the state. (Exhibit 1)

8. How Many Physicians/DOs Do We Need in 2020 (10 years away)?
The medical manpower shortage does not happen at one point in time. It is already here and will get steadily worse over time unless corrective actions are taken. The reasons are many.
Both our population and our physician population will grow, but the population is growing faster than the physician supply. Our physicians are also two years older than the national average, so deferred retirements will impact us heavily when the recession eases.
Universal health will obviously strain the current situation as it did in Massachusetts.
Today’s graduates do not work as many hours per week as their elders do. Almost 50 percent of the emerging workforce is female and many take sabbaticals to have children.
Assuming we can maintain the same level of effort in training and funding, we will have a total of 24,698 physician/DOs in 2020, but we will be short 2835 physicians/DOs to meet the needs of our population.  Depending on the medical discipline, including 4 years of medical school, it takes a total of 7-10 years to train one physician (Exhibit 2). This is a very long pipeline. We cannot postpone dealing with the issue. 

9. How Much Does GME Cost Our Hospitals Statewide?
$765M. The average cost per resident is $283,734 which includes indirect costs. When only direct costs such as salary and benefits are calculated, the average annual cost is $116K. Self-funding is an expensive proposition. (Exhibits 3 and 4)
10. How Much Does the Federal and State Government Support GME?
$457 M. (Exhibit 4) New Jersey provides $69M or 10 percent of the total cost.
                                      TOTAL           STATE (50%)
NJ Medicaid                      $68M               $34M  
HRSF                                 22.6                11.3
Charity Care                        47.4                23.7  
Medicare (IME)                 215.7                   -      
Medicare (DME)                  85.1                   -
Medicare Outpatient             18.1                   -________ 
                                        $457M              $69M
In other words, we spend $765M on GME. The federal government pays $388M, state government pays $69M and commercial payors pay the balance or $308M.

11. What is the History of State Medicaid Funding for GME?
New Jersey has had big swings in support for GME at one point under the all-payer DRG program reaching a high of $600M but has dropped precipitously ever since. In 2007, a transformative decision was made to transfer $80M in GME funding to solely support charity care funding. The legislature subsequently added back $40M for GME in 2008, and another $8M in 2009—a total of $48M in dedicated Medicaid GME funding on top of $20M which had previously been funded. The current Medicaid total is $68M. Not withstanding the increases, the shortfall as a result of the 2008 conversion is $32M. The GME system cannot absorb such a large cut without reducing the number of residents in training.   
12. Does Washington Match GME funds?
Yes. GME funding is supported under the Upper Payment Limit (UPL) cap. New Jersey has substantial room under the cap, between $400-$500M, but the state does need to come up with the matching dollars.
13. Does This New Funding ($32M) Solve the Medical Manpower Problem?
No. It simply preserves the training of 191 MDs/DOs that are in the pipeline or 650 doctors over ten years. Even so, we will still be short an estimated 3000 physicians/DOs. To deal rationally with building an adequate physician supply will require a complete overhaul of the GME program including coordination of a multifaceted plan that emphasizes not only training but also retention and recruitment. If we do this right, we could – like Utah and Georgia- gain a federal waiver. The Physician Workforce Policy Task Force has prepared a comprehensive report. A summary of the key recommendations are cited in Exhibit 2.