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Updated February 19, 2019
Medicare Graduate Medical Education Payments: An Overview
The federal government makes significant investments in
DGME payments are sometimes referred to as “pass-
graduate medical education (GME) funding through various
through” payments in that they are not an adjustment to a
programs that support medical residency training; it
Medicare payment for an individual hospital discharge.
invested an estimated $16 billion in 2015. A Government
Rather, DGME is an aggregate payment determined by a
Accountability Office (GAO) analysis released in 2018
statutory formula. (See section on “Determining Medicare
found that federal GME programs are the largest source of
GME Payment Amounts to Qualifying Hospitals.”)
health workforce spending, and approximately three-
quarters of federal GME spending was from Medicare.
Medicare payments for indirect GME costs are called
Medicare GME payments are made primarily to hospitals.
Indirect Medical Education (IME) payments. IME
payments are intended to cover the costs of “inefficient”
Given the prominence of Medicare in funding medical
care that may be provided by medical residents. However,
education, policies that alter Medicare GME can affect the
since Medicare typically does not provide separate payment
future physician supply and could be used to address
for such activities as additional testing, Medicare IME
identified health care workforce priorities. This In Focus
payments are provided as an adjustment or add-on to each
addresses Medicare GME payments to hospitals—
Medicare inpatient prospective payment system (IPPS) per-
specifically, hospital eligibility for these payments, what
discharge payment. IME payments are determined through
Medicare GME pays for, how Medicare pays for GME, and
a statutory formula. Both the IME and the DGME payment
how Medicare GME payment amounts to qualifying
formulas generally are based on patient volume or the
hospitals are determined.
number of beds and number of residents. (Refer to Figure 1
and Figure 2 for information about how each formula
Eligibility for Medicare GME Payments
uniquely accounts for these factors.)
To be eligible for Medicare GME payments, a teaching
hospital must have an approved residency program in
Determining Medicare GME Payment
medicine, osteopathy, dentistry, or podiatry. Teaching
Amounts to Qualifying Hospitals
hospitals often are affiliated with a medical school.
When Medicare was enacted in 1965, GME payments—like
Medicare regulations state that an approved medical
hospital inpatient services—were paid based on a hospital’s
residency program is one that is accredited by the
reported costs, essentially an open-ended commitment by
Accreditation Council for Graduate Medical Education
Medicare. Congress later capped Medicare GME payments
(ACGME), American Osteopathic Association (AoA),
for residency programs in medicine and osteopathy through
Commission on Dental Accreditation of the American
limits on the number of resident full-time equivalents
Dental Association, or Council on Podiatric Medical
(FTEs) and per-resident amounts (referred to as PRAs).
Education of the American Podiatric Medical Association.
FTEs that Medicare GME payments would support were
The ACGME and AoA are transitioning to a single
capped at the number of FTE residents that a hospital was
accreditation system for medical and osteopathy residency
training in 1996; the amount Medicare pays for an FTE is
programs. (The remainder of this In Focus addresses
based on a hospital’s costs for a resident FTE in a base
medical and osteopathy residency programs.)
year, usually FY1984 or FY1985, updated by the Consumer
Price Index for All Urban Consumers, as compiled by the
What Medicare GME Pays For
Bureau of Labor Statistics.
Medicare GME payments cover Medicare’s share of the
costs of a hospital’s approved medical residency program.
Direct Graduate Medical Education
These costs include direct costs of operating a residency
Medicare DGME does not pay for a teaching hospital’s
program, such as resident stipends, supervisory physician
actual costs incurred by the residency program; rather, it
salaries, and administrative costs. Medicare GME payments
pays for only Medicare’s share of direct GME costs.
also cover indirect costs associated with residency
DGME payments are the product of a hospital’s total
programs that may result in higher patient care costs in
approved DGME costs (i.e., a three-year rolling average of
teaching hospitals relative to non-teaching hospitals. For
FTEs, subject to the FTE cap, multiplied by the PRA) and a
example, resident-provided care may be more expensive
hospital’s Medicare patient load percentage (i.e., a
due to additional testing that residents may order as part of
hospital’s Medicare volume). (See Figure 1.) In FY2015,
their training.
Medicare made $3.68 billion in DGME payments to
teaching hospitals, supporting 85,712 FTEs.
How Medicare Pays For GME
Medicare pays separately for direct and indirect GME costs.
Medicare payments for direct costs of GME are called
Direct Graduate Medical Education (DGME) payments.
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Medicare Graduate Medical Education Payments: An Overview
Figure 1. Medicare DGME Payment Formula
cost report data, but the results differ. (See examples in
table below.)
Table 1. Different Estimates of Medicare GME
Payments and FTEs, FY2015
Medicare GME
Medicare
Payments ($bn)
GME FTEs
Source
DGME
IME
Total
DGME
IME
CRS
$3.68
$7.38
$11.06 85,712
85,578
Source: CRS analysis of Title XVIII of the Social Security Act and
GAO
$3.71
$6.62
$10.33 87,980
88,416
relevant regulations.
Graham $3.72
$8.74
$12.46 111,160 (only
Center
presented as a
Indirect Medical Education
GME total)
IME payments are intended to cover the higher costs of
Source: CRS analysis of Medicare hospital cost report data;
delivering health care services in teaching hospitals relative
Government Accountability Office (GAO), Physician Workforce: HHS
to non-teaching hospitals. IME payments are adjustments or
Needs Better Information to Comprehensively Evaluate Graduate Medical
add-ons to both the operating and capital portions of the
Education Funding GAO-18-240, 2018; and CRS-calculated estimates
Medicare IPPS per-discharge payment. The IME payment
using Medicare GME data published by The Robert Graham Center—
adjustment for each portion—operating and capital IPPS
a policy research center that provides analysis for the American
payments—is calculated differently. (IME also is calculated
Academy of Family Physicians on workforce, medical education, and
differently from the DGME payment.)
other topics, at https://www.graham-center.org/rgc/maps-data-tools/
data-tables/gme.html.
The IME adjustment to the operating portion of the IPPS
Notes: See “Different Estimates of Medicare GME Payments and
payment is based on a statutory formula. The IME formula
FTEs” in the “Medicare” section of CRS Report R44376, Federal
(see Figure 2) captures for each teaching hospital the ratio
Support for Graduate Medical Education: An Overview.
of interns and residents to beds (IRB). The formula applies
an exponent to the IRB (0.405), which estimates the effect
Selected Issues for Congress
of teaching activity on hospital costs. In addition, the
formula contains a “multiplier” (1.35) that is set by
Analysis by the National Academies of Science and the
Congress in statute. The Centers for Medicare & Medicaid
Medicare Payment Advisory Commission (MedPAC),
Services (CMS) states that this multiplier represents a 5.5%
among others, has identified some issues that Congress may
increase in the IME payment for every 10% increase in the
consider as part of any potential GME legislation:
IRB ratio.
Medicare GME payments are intended to cover Medicare’s
share of the costs of operating a GME program and the
The IME payment adjustment for the capital portion of the
higher costs of teaching hospitals relative to non-teaching
IPPS payment is based on the residents-to-average daily
hospitals. However, Medicare GME payments do not
census ratio (RADC) and an estimate of the effect of
account for any potential cost savings or revenue generated
teaching activity on hospital costs (0.2822). (See Figure 2.)
by the hospitals’ use of medical resident labor.
Analysis by MedPAC and other federal agencies has
In FY2015, Medicare paid $7.38 billion in IME payments
determined that the statutory formula for IME results in IME
to teaching hospitals, supporting 85,578 FTEs.
payments that are up to twice the amount that is empirically
justified.
Figure 2. Medicare IME Operating and Capital
Medicare GME payments begin after a program is
Adjustment Formulas
established. Therefore, a hospital’s up-front investment to
establish a new GME program may not be recovered until
sometime after Medicare GME payments begin.
With few exceptions, Medicare GME payments do not
address changing health care workforce needs or trends
(e.g., type of practitioners, settings, or geographic
distribution). The President’s FY2019 budget, among others,
proposed to consolidate and target federal GME spending.
Source: CRS analysis of Title XVIII and relevant regulations.
For further information about Medicare and other federal
sources of GME, see CRS Report R44376, Federal Support
Estimates of GME Payments and FTEs
for Graduate Medical Education: An Overview.
CMS does not publish estimates of Medicare GME
payments and the FTEs supported by such payments. CRS
Marco A. Villagrana, Analyst in Health Care Financing
calculated the estimates in this In Focus using CMS’s
publicly available Medicare cost report data. Other sources
IF10960
also publish GME estimates and information using CMS
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Medicare Graduate Medical Education Payments: An Overview
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