Medicare Graduate Medical Education Payments: An Overview

Medicare Graduate Medical Education Payments: An Overview

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Updated September 29, 2022
Medicare Graduate Medical Education Payments: An Overview
Medicare makes a significant investment in medical
Medicare payments for indirect GME costs are called
residency training (or graduate medical education, GME). It
Indirect Medical Education (IME) payments. IME
paid an estimated $16.2 billion in FY2020, primarily to
payments are intended to cover the costs of “inefficient”
hospitals. The Government Accountability Office found
care that may be provided by medical residents. However,
that Medicare is the largest federal source of GME funding,
since Medicare typically does not provide separate payment
which also includes Medicaid, the Department of Defense,
for such activities as additional testing, Medicare IME
the Department of Veterans Affairs, the Children’s Hospital
payments are provided as an adjustment or add-on to each
GME, and Teaching Health Center GME programs.
Medicare inpatient prospective payment system (IPPS) per-
discharge payment for qualifying teaching hospitals. IME
Given the prominence of Medicare in funding medical
payments are determined through a statutory formula.
residency training, policies that alter Medicare GME can
affect the future physician supply and could be used to
Both the IME and the DGME payment formulas generally
address identified health care workforce priorities. This In
are based on patient volume or the number of beds and
Focus addresses Medicare GME payments to hospitals—
number of residents. (See Figure 1 and Figure 2 for
specifically, eligibility for these payments, what and how
information about how each formula uniquely accounts for
Medicare pays for GME, how Medicare determines the
these factors.)
number of residents it pays for, and the amount per resident.
Determining Medicare GME Payment
Eligibility for Medicare GME Payments
Amounts to Qualifying Hospitals
To be eligible for Medicare GME payments, a teaching
When Medicare was enacted in 1965, GME payments—like
hospital, which is often affiliated with a medical school,
hospital inpatient services—were paid based on a hospital’s
must have an approved residency program in medicine,
reported costs, essentially an open-ended commitment by
osteopathy, dentistry, or podiatry. Medicare regulations
Medicare. Congress later capped Medicare GME payments
require that programs be accredited. For medical and
for residency programs in medicine and osteopathy through
osteopathy programs, the Accreditation Council for
limits on the number of resident full-time equivalents
Graduate Medical Education (ACGME) is the single
(FTEs) and per resident amounts (PRAs) it would support.
accreditation system. (The remainder of this In Focus
FTEs that Medicare GME payments would support are
addresses medical and osteopathy residency programs.)
capped at the number of FTE residents a hospital was
training in 1996; the amount Medicare pays for an FTE is
What Medicare GME Pays For
based on a hospital’s costs for a resident FTE in a base
Medicare GME payments cover Medicare’s share of the
year, usually FY1984 or FY1985, updated by the Consumer
costs of a hospital’s approved medical residency program.
Price Index for All Urban Consumers, as compiled by the
These costs include direct costs of operating a residency
Bureau of Labor Statistics.
program, such as resident stipends, supervisory physician
salaries, and administrative costs. Medicare GME payments
Direct Graduate Medical Education
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. A hospital’s
because of additional tests that residents may order as part
Medicare patient load is the proportion of Medicare
of their training. In neither case is Medicare’s payment
beneficiary inpatient days relative to all-patient inpatient
intended to reflect the hospital’s full cost of training.
days for the year. The Medicare Part C (Medicare
Advantage) portion of a hospital’s Medicare patient load is
How Medicare Pays For GME
reduced by a Centers for Medicare & Medicaid Services
Medicare pays separately for direct and indirect GME costs.
(CMS)-specified percentage to fund nursing and allied
Medicare payments for direct costs of GME are called
health education. The CMS-specified percentage can
Direct Graduate Medical Education (DGME) payments.
change each year. (See Figure 1.) In FY2020, Medicare
DGME payments are sometimes referred to as “pass-
paid $4.5 billion for DGME, supporting 88,247 FTEs.
through” payments in that they are not an adjustment to a
Medicare payment for an individual hospital discharge.
Rather, DGME is an aggregate payment determined by a
statutory formula. (See section on “Determining Medicare
GME Payment Amounts to Qualifying Hospitals.”)
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Medicare Graduate Medical Education Payments: An Overview
Figure 1. Medicare DGME Payment Formula
Medicare GME Payments and FTEs
CMS does not publish estimates of Medicare GME
payments and the FTEs supported by such payments. Table
1 contains estimates of payments and FTEs based on
analysis of publicly available Medicare cost report data.
Table 1. Estimated Medicare GME Payments and
FTEs, FY2020
Medicare GME
Medicare
Payments ($billions)
GME FTEs

DGME
IME
Total
DGME
IME
Source: CRS analysis of 42 U.S.C. §1395ww(h)(3) and 42 C.F.R. §413.75-88.
$4.50
$11.68
$16.18
88,247
98,542
The FTE cap and PRA amount are hospital-specific.
However, qualifying hospitals may enter into a formal
Source: CRS analysis of FY2020 Medicare hospital cost report data.
affiliate agreement in which a group of hospitals can share
and redistribute FTEs among the hospitals. This allows
Increasing Medicare-Supported
some affiliated hospitals to reduce their Medicare-supported
Residency Positions
FTEs to increase another affiliated hospital’s FTEs without
There are limited administrative options to increase the
exceeding the aggregate number of FTEs of the affiliated
number of Medicare-supported residency positions. For
group (i.e., no net increase in Medicare-supported FTEs).
example, a hospital with an existing residency program can
establish a new program; “new” is defined in regulation. A
Indirect Medical Education
hospital without a residency program can start one, though
IME payments are intended to cover the higher costs of
some of these hospitals may already have a Medicare cap
delivering health care services in teaching hospitals relative
that is smaller than the number of residents the hospitals
to non-teaching hospitals. IME payments are adjustments or
intend to train. (The Consolidated Appropriations Act, 2021
add-ons to both the operating and capital portions of the
[P.L. 116-260] allowed some of these hospitals to adjust
Medicare IPPS per-discharge payment. The IME payment
their caps.) Alternatively, an urban hospital can start a new
adjustment for each portion—operating and capital IPPS
Rural Training Track to train residents in a rural area.
payments—is calculated differently. (IME payments and
Otherwise, Congress may enact legislation to increase the
FTEs also are calculated differently from the DGME.)
number of Medicare-supported residency positions, which
was done most recently in P.L. 116-260.
The IME adjustment to the operating portion of the IPPS
payment is based on a statutory formula. The IME formula
Selected Issues for Congress
(see Figure 2) captures for each teaching hospital the ratio
Analysis by the National Academies of Science and the
of interns and residents to beds (IRB). The formula applies
Medicare Payment Advisory Commission (MedPAC),
an exponent to the IRB (0.405), which estimates the effect
among others, has identified issues that Congress may
of teaching activity on hospital costs. In addition, the
consider as part of any potential GME legislation:
formula contains a “multiplier” (1.35) that is set by
 Medicare GME payments are intended to cover the
Congress in statute. CMS states that this multiplier
higher direct and indirect costs of teaching hospitals
represents a 5.5% increase in the IME payment for every
relative to non-teaching hospitals. However, Medicare
10% increase in the IRB ratio.
GME payments are not adjusted for any cost savings or
revenue generated by the medical residents.
The IME payment adjustment for the capital portion of the
IPPS payment is based on the residents-to-average daily
 MedPAC has noted that the statutory formula for IME
census ratio (RADC) and an estimate of the effect of
results in payments that are up to twice the amount that
teaching activity on hospital costs (0.2822). (See Figure 2.)
is empirically justified. (For example, see reports to
Congress of March 2007 and March 2016.)
In FY2020, Medicare paid an estimated $11.68 billion for
 Medicare GME payments begin after a hospital’s GME
IME, supporting 98,542 FTEs.
program starts; Medicare does not cover up-front costs
to establish a new GME program.
Figure 2. Medicare IME Operating and Capital
Adjustment Formulas
 Medicare GME payments generally do not address
changing health care workforce needs, changes in
settings where care is delivered, or trends that may
necessitate changes in training.
For further information, see CRS Report R44376, Federal
Support for Graduate Medical Education: An Overview.
Marco A. Villagrana, Analyst in Health Care Financing

Source: CRS analysis of 42 U.S.C. §1395ww(d)(5)(B) and 42 C.F.R.
IF10960
§412.322(b).
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Medicare Graduate Medical Education Payments: An Overview

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