Medicaid Support for Graduate Medical Education: Policy Implications for Primary Care Training

[The following policy paper is from Tim Henderson, MSPH, MAMC, a fellow of the Coastal Research Group, from George Mason University. Mr Henderson recently completed a study on the Medicaid financing of medical education for the Association of American Medical Colleges (referenced in the footnotes below).]

Tim M. Henderson, MSPH, MAMC

Department of Health Administration and Policy, George Mason University, Fairfax VA


Thomas (Tim) Henderson, MSPH George Mason University

States provide important support for the education of physicians in primary care and other specialties.  State and local governments appropriate funds for medical school training ($5 billion in FY2009 [FN1]).  Moreover, Medicaid programs in most states historically have made graduate medical education (GME) payments in teaching hospitals and other settings under their fee-for-service and capitated managed care programs (just under $3.8 billion in 2009 [FN2]), although they are not obligated to do so [FN 3,4].  This represents a total of nearly $9.8 billion annually for physician training.  In fact, Medicaid is the second largest explicit payer (behind Medicare) of GME and the other special missions and services of teaching hospitals.

However, the recent troubled economy and its strain on state budgets and Medicaid spending has begun to have a noticeable impact on Medicaid payments for GME and many other services.  For the first time in recent memory, the number of states making Medicaid GME payments in 2009 declined significantly.  According to the recent study for the Association of American Medical Colleges, eight (8) states reported not making GME payments under their Medicaid programs in 2009—an almost tripling of the number of states not making such payments in 2005.  Three (3) of these states—Illinois, Massachusetts and Texas—are among the top ten states with the largest number of graduate medical education programs.  An additional 11 states reported in 2009 and early 2010 that they have recently considered ending Medicaid GME payments [FN5].

Despite these troubling trends, the study found that Medicaid programs in 10 states require that some or all GME payments be directly linked to state policy goals intended to vary the distribution of the health care workforce.  The number of states with this requirement has remained largely constant over the past several years.  The goal of encouraging training of physicians in certain specialties that are short supply (e.g., primary care) is applied to GME payments by 9 of the states. Six of the states use these payments to encourage training of physicians in non-hospital and certain other settings such as rural locations and medically underserved communities. Seven states link payments to efforts to increase the supply of health professionals trained to serve Medicaid beneficiaries [FN6].

Policy Implications and Opportunities for Primary Care Training

Amidst economic downturn and insufficient numbers of primary care physicians to serve booming Medicaid enrollments in many states, Medicaid programs in collaboration with medical schools and primary care residency programs may be able to offer new incentives for expanding GME of primary care physicians who are more likely to serve in nearby needy communities.

Use of Special Financing to Establish or Expand Medicaid GME Payments

Because of competing demands for public services, especially with recent budget shortfalls, many states exceed their fiscal capability that gives their Medicaid programs the incentive to substitute federal funds for state funds.  The Medicaid program’s Federal-State matching payment structure for covered services provides the mechanism for this substitution.  In general, this process of “Medicaid maximization” allows states to cover services that have traditionally been state or local responsibilities and to receive federal matching funds for the costs of furnishing these services to Medicaid beneficiaries.  The higher the state’s matching rate, the greater the replacement potential.

In particular, states have the flexibility to import federal Medicaid dollars into state-funded university teaching hospitals through the GME reimbursement methodology.  The Medicaid maximization strategy most applicable to employ in this way is intergovernmental transfers (IGTs).  IGTs are fund exchanges between different levels of government and are a common feature in State finance. Many states use IGTs as a way to leverage federal Medicaid dollars to pay higher reimbursement rates to providers or to continue or expand coverage of optional services (e.g., GME).  States can use state (or county) expenditures, such as state appropriations to public medical schools and residency training programs, to generate a federal match to support Medicaid services.  As a mechanism to initiate or expand support for GME, IGTs are now being used by several state Medicaid programs.

States might use such Medicaid funds to support an increase in the number or size of in-state primary care residency programs, as well as provide incentives to:

a) medical school graduates to select in-state primary care residencies as their top GME choices, and

b) primary care residencies to recruit more in-state medical school graduates.

To this end, public medical schools could be encouraged to further expose students to the values and opportunities of in-state residencies, particularly ones located in high Medicaid and medically underserved settings.



1 Such funds are non-Medicaid appropriations and include support from parent universities of medical schools. Association of American Medical Colleges. 2008-2009 Financial Tables on U.S. Medical Schools, Table 1.

2 T. Henderson. “Medicaid Direct and Indirect Graduate Medical Education Payments: A 50 State Survey,” for the Association of American Medical Colleges. (Washington, DC: 2010).  The report is available online at Financing for Medicaid (including payment for GME costs) is shared by the states and federal government.

3 Beyond the services that state Medicaid programs are required to cover, states have the option to support additional services such as DGME and IME and receive matching federal funds for them.

4 Contrary to Medicare, the federal government has no explicit guidelines for states on whether and how their Medicaid programs should or could make DGME and IME payments.  However, a provision included in health reform legislation passed by the U.S. House of Representatives in 2009, but not part of the final law enacted in 2010, clarified that state Medicaid programs may receive federal matching payments for the costs of graduate medical education, and directed the Secretary of the U.S. Department of Health and Human Services to specify program goals for the use of such funds based on workforce needs in the states (Section 1744 of the Affordable Health Care for America Act of 2009, H.R. 3962).

5 T. Henderson. “Medicaid Direct and Indirect Graduate Medical Education Payments: A 50 State Survey,” for the Association of American Medical Colleges. (Washington, DC: 2010).

6 T. Henderson. “Medicaid Direct and Indirect Graduate Medical Education Payments: A 50 State Survey,” for the Association of American Medical Colleges. (Washington, DC: 2010).