AAMC Reporter: February 2008

Teaching Hospital Community Fighting Massive Proposed Federal Cuts

The AAMC and the nation's teaching hospitals are working to head off proposed reductions in federal health care spending that could potentially erode their ability to provide crucial health care services, train physicians, or provide an environment for clinical research.

The Bush administration's proposed budget for fiscal year 2009, released Feb. 4, recommends that the Medicare Indirect Medical Education (IME) add-on payment to teaching hospitals be reduced from 5.5 percent to 2.2 percent for every 10 percent increase in teaching intensity, which is measured as a ratio of residents to occupied hospital beds. If enacted, this cut, which would be phased in over three years, would result in an estimated IME payment reduction of more than 60 percent and billions of dollars for the nation's teaching hospitals.

At the same time, a proposed regulatory "clarification" from the Centers for Medicare and Medicaid Services (CMS) would prohibit the federal government's longstanding practice of matching state Medicaid funds for their graduate medical education (GME) support. Federal legislation, passed shortly after CMS proposed the clarification, established a moratorium on implementing this rule change until May 25 of this year.

Separate bills currently in the House and Senate could extend the moratorium until 2009. The moratorium also delays until May 25 of this year the implementation of a final rule known as the IGT rule that limits Medicaid payments to government providers (e.g., public hospitals) and narrows the definition establishing which entities qualify as government providers under Medicaid. The bills proposing to extend the moratorium on the GME rule would also extend the IGT moratorium for the same time period.

The AAMC and the nation's hospital community are advocating in support of the bills and are also urging CMS not to implement the Medicaid GME and IGT rules. The association is also leading an exploration of all options, including legal action, to delay or withdraw the proposed Medicaid GME rule.

"These proposals taken in aggregate would be devastating for teaching hospitals," said AAMC President and CEO Darrell G. Kirch, M.D. "We are working with both executive and legislative branch policymakers to educate them on the profound effects that these changes would have on teaching hospitals, and how the Medicaid proposal in particular will affect our members' ability to act as a safety net for many patients in their communities. Every option is bring considered in order to prevent this weakening of the nation's health care."

AAMC officials said the proposed rules and budget reductions are part of a range of cost-cutting measures being explored as national deficits continue to rise. Given that federal Medicare and Medicaid payments and programs in fiscal year 2008 accounted for an estimated $657 billion in spending, the programs are perceived as ripe for cuts. However, advocates said that teaching hospitals are bearing the brunt of the changes proposed so far.

While Congress begins to consider Bush's budget proposals and stakeholders gather more information and develop advocacy strategies, hospitals and hospital organizations devoted much of the past year advocating against implementation of the Medicaid IGT rule and the GME proposal, the latter of which is viewed as the most immediate threat to teaching hospitals. To date, scores of teaching hospital leaders have sent letters to CMS urging that the Medicaid GME rule not be finalized.

CMS officials declined to comment directly on the Medicaid GME change, but did refer to the original rule "clarification" published in the Federal Register May 23, which stated that "we do not believe that it is consistent with the Medicaid statute to pay for GME activities either as a component of hospital services or separately. GME is not a health service that is included in the authorized coverage package. Nor is GME recognized under the Medicaid statute as a component of the cost of Medicaid inpatient and outpatient hospital services."

According to CMS impact analyses, the Medicaid GME rule would reduce federal Medicaid outlays by $290 million in fiscal year 2009, $460 million in fiscal year 2010, by $450 million in fiscal year 2011, and $460 million in fiscal year 2012, for a total of $1.78 billion over five years.

Scores of hospital leaders have argued that the Medicaid GME cut would gravely hamper their ability to treat patients—particularly in vulnerable regions of the country—and improve or maintain certain hospital facilities and services.

"The proposed cut affects hospitals and medical schools directly, especially in safety net areas," said Virginia Commonwealth University Health Systems CEO Sheldon Retchin, M.D., M.S.P.H., who testified Nov. 1 before the House Oversight and Government Reform Committee on the Medicaid GME rule. "While the overall cuts may seem modest to some, they disproportionately affect many academic medical centers, particularly those in urban areas that serve vulnerable populations."

James Taylor, president and CEO of University of Louisville Health Care and Louisville's University Hospital, said that if the Medicaid GME change takes effect, his hospital would lose about $19.5 million annually.

"We're an urban hospital," Taylor said. "This would be a simply devastating hit to us. We would be going from a relatively viable organization to one that would be in financial distress."

Taken in aggregate, the Medicare and Medicaid cuts may be so deep that it would be difficult to recoup the funds from other sources.

"If they are successful in making all the cuts they've proposed, it would be so challenging that we would not have a contingency plan," Retchin said. "We would have to close services, probably pharmacies and certain portals of entry. Right now, all our portals are wide open. But we might have to change that."

—By Scott Harris

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