Direct graduate medical education payments to teaching hospitals by Medicare: unexplained variation and public policy contradictions.

PURPOSE: To comprehensively examine both inter- and intrastate variations in Medicare's cost-rate structure for teaching hospitals and to assess the Medicare payment system for graduate medical education (GME), as presently configured, as an instrument to promote physician workforce reform, specifically sufficient public access to primary care physician services.
METHOD: Using Public Use Files of hospital cost reports from the Health Care Financing Administration for fiscal year 1997, 648 hospitals that met inclusion criteria for moderate GME volume were identified. The average and range of direct costs of resident training were computed for these teaching hospitals to illustrate differences within and between the 45 states that had at least two teaching hospitals that qualified for comparison. The cost rate upon which direct medical education (DME) payments are based was then correlated with the percentage of a state's counties that were wholly designated primary care health personnel shortage areas (PCHPSAs) in 1997 and with its primary care physician-to-population ratio, as determined from the Area Resource FILE:
RESULTS: Variations in inter- and intrastate DME costs exist. In some states, the range in DME rates substantially exceeded the mean cost. DME funding policies are more generous toward teaching hospitals in states with greater primary care physician-to-population ratios and smaller proportions of counties wholly designated PCHPSAS:
CONCLUSION: Inherent inequities in DME funding seriously undermine the current Medicare GME payment system's capacity to contribute to U.S. physician workforce reform and to improve access to care. There is actually a financial incentive to train residents in areas in which there is relatively less need for their services.