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AAIM, ACP Recommend Ways to Better Align GME Financing with Workforce Needs

AAIM and the American College of Physicians (ACP) released a new policy paper May 3 calling for changes that better align funding for GME with the nation’s health care workforce needs. The paper, Financing US Graduate Medical Education, was published in Annals of Internal Medicine July 19, 2016.

The new paper offers nine recommendations aimed at addressing the current problems with GME financing.

  • Medicare GME funds should be linked to meeting the nation’s health care workforce needs.
  • All payers, public and private, should be required to contribute to a financing pool to support residencies.
  • A thorough evaluation of the true cost of training physicians is required before any decisions are made regarding how GME funds are distributed.
  • Medicare’s direct graduate medical education (DGME) payments to hospitals and the indirect medical education (IME) adjustment should be combined into a single, per resident amount with a geographic adjustment.
  • GME funding should follow trainees across training setting, minimizing barriers to residents training in sites that would broaden their experience and expose them to a greater variety of practice settings.
  • GME caps should be lifted in order to allow for the training of an adequate number of primary care physicians, including internal medicine specialties and other specialties facing shortages.
  • The concept of a performance-based GME payment system should be explored, but it would need to be achieved without destabilizing the system of physician training.
  • Pilot projects should be used to evaluate potential changes to GME funding and to promote innovation.
  • Internal medicine and internal medicine-pediatrics residents should receive primary care training in well-functioning ambulatory settings that are financially supported for providing training. 

GME plays a major role in addressing the nation’s workforce needs, as GME is the ultimate determinant of the output of practicing physicians. The federal government is the largest explicit provider of GME funding, with the majority of support coming from Medicare, which currently provides approximately $10 billion annually. The costs of GME are recognized by Medicare under two mechanisms: direct graduate medical education payments (DGME) to hospitals for residents’ stipends, faculty salaries, administrative costs, and institutional overhead; and an indirect medical education (IME) adjustment developed to compensate teaching hospitals for the higher costs associated with teaching. The number of Medicare-supported positions at institutions is capped at 1996 levels. The existing caps on the number of Medicare-funded GME positions have been criticized as not allowing GME training positions to increase by the numbers needed to slow or reverse growing shortages of physicians in primary care and other specialties. 

Read the position paper

IOM Releases Report on Financing GME

The Institute of Medicine (IOM) formed an expert committee in 2012 to conduct an independent review of the governance and financing of the GME system. The 21-member IOM committee concludes that there is an unquestionable imperative to assess and optimize the effectiveness of the public’s investment in GME. In "Graduate Medical Education That Meets the Nation’s Health Needs," the committee recommends significant changes to GME financing and governance to address current deficiencies and better shape the physician workforce for the future.

Goals for Improved GME Financing

The IOM committee identifies six goals for an improved GME financing system. These goals guided the committee’s assessment of current GME funding and shaped its recommendations for reform.

  1. Encourage production of a physician workforce better prepared to work in, help lead, and continually improve an evolving health care delivery system that can provide better individual care, better population health,and lower cost.
  2. Encourage innovation in the structures, locations, and designs of GME programs to better achieve Goal 1.
  3. Provide transparency and accountability of GME programs, with respect to the stewardship of public funding and the achievement of GME goals.
  4. Clarify and strengthen public policy planning and oversight of GME with respect to the use of public funds and the achievement of goals for the investment of those funds.
  5. Ensure rational, efficient, and effective use of public funds for GME in order to maximize the value of this public investment.
  6. Mitigate unwanted and unintended negative effects of planned transitions in GME funding methods.


Significant reforms are needed to ensure value in the public’s sizable investment in physician education. Because the rules governing Medicare GME financing are rooted in statute, they cannot be revised without legislative action. As such, the IOM committee strongly urges Congress to amend Medicare law and regulation to allow a transition to an accountable, performance-based system. Transforming Medicare’s role in financing GME will be a complex undertaking and requires careful planning. The committee recommends a 10-year transition from the status quo to full implementation of its recommendations, followed by a reassessment of the need for continued Medicare GME funding. Every effort should be made to mitigate negative effects for the institutions involved. Specifically, the committee recommends:

  • Investing strategically: Maintain Medicare GME funding at its current level, but modernize payment methods to reward performance, ensure accountability, and incentivize innovation in the content and financing of GME. The current Medicare GME payment system should be phased out.
  • Building an infrastructure to facilitate strategic investment: Establish a two-part governance infrastructure for federal GME financing. A GME Policy Council in the Office of the Secretary of the Department of Health and Human Services should oversee policy development and decision making. A GME Center within the Centers for Medicare & Medicaid Services should function as an operations center with the capacity to administer payment reforms and manage demonstrations of new payment models.
  • Establishing a two-part Medicare GME fund: Allocate Medicare GME funds to two distinct subsidiary funds—a GME Operational Fund to finance ongoing residency training activities and a Transformation Fund to finance development of new programs, infrastructure, performance methods, payment demonstrations, and other priorities identified by the GME Policy Council.

Read the report brief

Read the AAMC response to the IOM report

Read the AMA response to the IOM report

Read the ACP response to the IOM report

Read SGIM response to the IOM report