American Osteopathic Association

Advancing the distinctive philosophy and practice of osteopathic medicine

What Funding Is Available?

Medicare pays teaching hospitals its share of the direct and indirect costs of operating a GME program. Medicare payments are calculated using formulas and factors established by statute multiplied by certain hospital-specific data such as bed size, number of residents and hospital revenues.

Direct graduate medical education (DGME) payment is payment for Medicare’s share of the costs of training interns and residents, including resident salaries and benefits, teaching physician compensation and program administration and overhead costs. DGME payment is based on a hospital-specific per resident amount, the hospital’s Medicare utilization rate and the number of full time equivalent (FTE) residents in its GME program. The per-resident amount for a new teaching hospital is set at the lower of program costs or the regionally-adjusted national average.

The indirect medical education (IME) adjustment recognizes that teaching hospitals have higher patient care costs than nonteaching hospitals. These costs are the result of treating sicker patients, utilizing more services and technology and training residents who tend to order more tests and are less efficient in providing patient care. IME payment is a product of the following:

  • The hospital’s teaching intensity (the ratio of residents to beds)
  • DRG payments
  • The statutory IME adjustment factor for the current year

Under Medicare rules, new urban teaching hospitals have five years to establish their full time equivalent (FTE) resident “caps.” The cap is the number of residents for which Medicare will provide its share of payment.  For a new teaching hospital, the cap is set at the highest number of residents in any program year all specialty programs as of the end of the training program’s fifth training year. Once the cap is established, the hospital may add as many residents or new specialty programs as it wants, subject to accrediting body approval. Despite these additions, however, Medicare will pay only for the number of residents within the hospital’s cap.  

In contrast, rural hospitals are allowed to add specialty programs but may not add residents to existing programs. Because the period for establishing the cap is short, hospitals need to employ a strategic approach to program development, the approach used by the OGME Development Initiative.    

Other Sources of Funding 

Funding also may be available from other sources. For example, teaching hospitals provide care and expand access to Medicaid beneficiaries in hospital emergency departments, outpatient facilities, continuity clinics, and other inpatient and ambulatory settings. In recognition of the connection between medical education and care for beneficiaries, the vast majority of states include graduate medical education as a component of Medicaid payment for inpatient and outpatient services.

In response to concerns about shortages of physicians, some states have passed statutes on funding or state-wide planning for graduate medical education. Others are considering similar legislation. A number of these bills focus on primary care residencies or GME in rural or underserved areas. View state graduate medical education programs.

Payment also may be available from the Department of Veterans Affairs (VA) for resident rotations in VA hospitals and outpatient facilities. Through VA partnerships with medical schools and universities, more than 28,000 residents and 16,000 students receive some of their training in VA facilities each year. Payment for training in these facilities is separate from Medicare GME and is not subject to Medicare’s resident caps.   

In late 2010, the Health Resources and Services Administration (HRSA) began implementing the new Teaching Health Center GME (THCGME) program. Established by the Affordable Care Act (ACA), the THCGME is a $230 million 5-year funding opportunity intended to support an increased number of primary care residents and dentists trained in community-based ambulatory patient care settings. These settings include federally-qualified health centers (FQHCs), community mental health centers, rural health clinics, health centers operated by the Indian Health Service or an Indian tribe or tribal organization and entities that receive funds under title X of the Public Health Service Act. For THCGME purposes, primary care includes family medicine, internal medicine, pediatrics, internal medicine-pediatrics, OB-GYN, psychiatry, general dentistry, pediatric dentistry and geriatrics.   

To be eligible for funding, a teaching health center must be listed as the program sponsor by the appropriate accrediting body or be a central component of a consortium listed as the sponsor. Corporate entities such as GME consortia that collaborate with a health center and hospital(s) to operate one or more primary care programs also are eligible to apply for grant funds. Grant funding can supplement but not duplicate GME payments from other sources such as Medicare, Medicaid and the Children’s Hospital GME program. Therefore, if a THC-affiliated hospital claims THC resident time spent training in the hospital, the THC may not claim that time from HRSA under the THCGME program. 

In response to member interest in THCs, FQHCs and other ambulatory patient care sites, particularly when engaged in training, the AOA Bureau of Hospitals produced a series of three webcasts on Hospital-FQHC Arrangements in collaboration with the Healthcare Facilities Accreditation Program and the Association of Osteopathic Directors and Medical Educators.