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Minimum Instructional and Program-Specific Administrative Costs of Educating Residents in Internal Medicine
Thomas J. Nasca, MD;
J. Jon Veloski, MS;
John A. Monnier, MBA, CPA;
Joseph P. Cunningham, CPA;
Stephen Valerio, MBA;
Thomas J. Lewis, MHA;
Joseph S. Gonnella, MD
Arch Intern Med. 2001;161:760-766.
ABSTRACT
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Background The cost associated with education of residents is of interest from
an educational as well as a political perspective. Most studies report a single
institution's actual incurred costs, based on traditional cost accounting
methods. We quantified the minimum instructional and program-specific administrative
costs for residency training in internal medicine.
Methods Using the Accreditation Council for Graduate Medical Education program
requirements for internal medicine as minimum standards for teaching and administrative
effort, we quantified the minimum instructional and administrative costs for
sponsorship of an accredited residency program in internal medicine. We also
analyzed the impact of resident complement and program curricular emphasis
(outpatient, inpatient, or traditional) on the per-resident cost. The main
outcome measure was the minimum annual per-resident cost of instruction and
program-specific administration.
Results Using the assumptions in this model, we estimated the annual cost per
resident of implementing the program requirements to be $50 648, $35 477,
$28 517, and $26 197 for inpatient intensive residency programs
with resident complements of 21, 42, 84, and 126, respectively. For outpatient
intensive residency programs of identical resident complements, we estimated
the annual per-resident cost to be $58 025, $42 853, $35 894,
and $33 574 for similar resident complements. Fixed costs mandated by
the program requirements, which did not vary across program size or configuration,
were estimated to be $640 737.
Conclusions There are fixed and variable costs associated with sponsorship of accredited
internal medicine residency programs. The minimum cost per resident of education
and departmental administration varies inversely with program size within
the sizes examined.
INTRODUCTION
THE PAYMENT for costs associated with graduate medical education (GME)
has historically been linked to payment for patient care. During the era of
cost-based reimbursement, the allowable direct costs of GME were paid to institutions
that sponsored GME programs. Methods for the identification and itemized reimbursement
of direct costs of GME by Medicare were refined in the prospective payment
system implemented in 1984. Reimbursement for the higher costs associated
with care provided in teaching hospitals was provided in cost-based reimbursement
systems, as well as in the prospective payment system, with the implementation
of the indirect medical education payment method. This method, often interpreted
as reimbursement for the inefficiencies of care provided in the teaching setting,
reflects the higher technology mix, higher level of severity of illness, and
higher level of uncompensated care seen in most major teaching institutions.1 During the past 10 years, teaching hospitals have
seen erosion of the support for GME from all payers. In 1999, most explicit
GME reimbursement for teaching hospitals was derived from the federal government,
and the single largest component of that support derived from the traditional
Medicare system.1 The Balanced Budget Act placed
substantial limitations on expansion of resident numbers through funding caps
and mandated a phased reduction in indirect medical education reimbursement
over 5 years.1
Despite these and other changes in reimbursement, the Medicare program
faces long-term challenges in the control of growth of expenditures.2 While the rate of growth of Medicare expenditures
has diminished, pressure to redefine the Medicare program has included reexamination
of the role of Medicare in the payment of GME costs.1
Concern for the long-term viability of the Medicare trust fund has resulted
in exploration of removal of direct costs of GME reimbursement from the Medicare
program by the Bipartisan Commission on the Future of Medicare. Although a
final recommendation was not forthcoming from this commission, the range of
options examined by both the commission and MedPac include major restructuring
of GME reimbursement.
This and other threats to stable and secure funding have raised questions
concerning the stability of the GME enterprise. These factors, coupled with
the proposal to fund resident salaries and fringe benefits through an appropriations
process, motivated us to reexplore a commonly asked, but as yet unanswered,
question. How much should it cost to educate a physician at the residency
level?
The institution-specific direct costs of educating residents have been
studied.3-6
Authors of these studies attempted to quantify components of the total cost
of education of residents in individual programs or components of programs,
usually in single institutions. Extrapolation of these findings to project
a national figure or a range of cost per resident has been problematic for
many reasons. These reasons include variation in (1) the structure of programs
within a given specialty among institutions; (2) the elements and methods
of education in different specialties; (3) the payment mechanisms for faculty
and other participants; (4) assumptions regarding the allocation of faculty
effort; (5) administrative overhead and allocated institutional overhead;
(6) the costs of the noninstructional components of support of educational
programs (for example, financial support of clinics); and (7) the expense
of medical malpractice insurance.7
Further evidence of the difficulty in comparing existing incurred costs
may be inferred by the range of direct costs of GME provided by Medicare to
teaching hospitals. The range is very wide,8
suggesting the likelihood of substantial accounting differences in the base
year across the country, as well as a wide range of expenditures incurred
by institutions9 in direct support of GME.
We attempted to construct a theoretical standard annual minimum cost
for components of the total direct costs of educating residents. Rather than
using existing cost report data or surveys of faculty effort, we approached
this question by using an external standard for the structure of educational
programs. This standard is used both by GME-sponsoring institutions as acceptable
definitions of minimum standards for offering an accredited residency program,
and by the Health Care Financing Administration as minimal standards for reimbursement
of educational costs by Medicare. These minimal standards are the program
requirements promulgated by the Accreditation Council for Graduate Medical
Education (ACGME) and the respective residency review committees. The standards
should provide information that would permit deduction of the minimal resources
required to achieve accreditation of educational programs. If these standards
are considered a threshold for reimbursement by Medicare, then it appears
reasonable to assume that costs required for their satisfaction should establish
a base for compensation. These costs should inform the debate regarding the
appropriate level of support to be provided to institutions sponsoring GME
programs, should the direct costs of GME be moved to an appropriations process
by Congress. Finally, were an all-payer pool to be considered for GME programs,
a base payment for instructional costs that is standardized would be helpful
in establishment of equitable payment.
In light of the limitations of a standardized assessment of the components
of GME costs, which vary widely across institutions (eg, overhead allocation,
infrastructure and nonfaculty costs associated with ambulatory clinics, and
opportunity costs born of the inefficiencies of residents), we chose to assess
the annual economic commitment required to satisfy the direct costs of organization
and instruction (called the minimum instructional and program-specific
administrative costs [MIPSACs]) mandated by accreditation standards.
We analyzed the MIPSACs in internal medicine residency training for the following
reasons. First, the cohort enrolled in general internal medicine residency
training is the largest single cohort of residents, with 21 130 (21.7%)
of the 97 383 residents and fellows on duty in the United States.10 Second, the program requirements in internal medicine
are explicit in many dimensions (eg, numbers and types of rotations, mandatory
minimum teaching requirements, and specific ratios of faculty to trainees),
permitting the estimation of cost per unit of educational function per trainee.11
On the basis of the program requirements and the assumptions outlined
in the Methods, we calculated an annual MIPSAC per resident and examined the
impact of number of trainees and ranges of program design on these costs.
Finally, we projected the cost per trainee for instruction and resident salary
and fringe benefits by means of mean salary figures from a national sample.
MATERIALS AND METHODS
We used the current program requirements for residency programs in internal
medicine11 (effective July 1998) to design
a spreadsheet that modeled the fixed and variable direct costs of a residency
program of 3 years' duration. The model contained the following categories
of rotations or services: (1) inpatient internal medicine rotations (ward
or floor rotations); (2) inpatient critical care rotations (coronary care
and intensive care); (3) inpatient consultation rotations; (4) emergency medicine
rotations; (5) ambulatory block rotations in a physician's office (this rotation
may be with a generalist or subspecialist); and (6) ambulatory continuity
clinic (this function is integrated into all rotations other than emergency
medicine and critical care).
For each rotation category, the number of house officers and the ratio
of faculty to resident was assigned. Formal teaching time (time defined as instructional time with no other source of compensation,
ie, patient care revenue) was established by reference to the program requirements.
In the few instances where the program requirements are not explicit, we made
assumptions on the basis of our experience. For example, during critical care
rotations, teaching rounds were budgeted to occur daily rather than the minimal
standard of 3 days per week. The specifics of these assumptions are enumerated
in Table 1.
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Table 1. Basic Rotational Assumptions
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The unit faculty cost of provision of each educational service was calculated
with a blended medicine faculty rate (Table
2), on the basis of a faculty mix of grade and salary for the United
States.12 A fringe benefit rate of 25% was
used for estimation of fully absorbed faculty salary costs for all faculty-related
expenses.
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Table 2. Mean Faculty Salary Assumptions
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Fixed direct costs of program-specific administration of the educational
program were calculated with the assumptions contained in Table 3. Of note, no attempt was made to calculate overhead costs,
such as rent for administrative offices, allocated institutional administrative
overhead, or administrative costs associated with the operation of resident
clinics or office practices.
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Table 3. Fixed Cost Assumptions
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The cost of faculty instruction in continuity clinics and other ambulatory
settings was included in this calculation of instructional costs. For example,
in the continuity clinic, a resident-faculty ratio of 4:1 was used under the
assumption that the faculty members do not see their own patients independently
during sessions involving residents. Therefore, all faculty time spent in
clinic is considered instructional time. However, in an office setting during
an ambulatory block rotation where the faculty and residents provide service
to patients, the faculty receive compensation for these clinical services.
Therefore, only specific, mandated instruction time, rather than total contact
time, is considered teaching time. In this fashion, patient care services
provided by the educational team (patient–trainee–faculty member)
are compensated through billing for physician services in the teaching setting,
and only mandated instructional time is compensated as a direct instructional
cost of GME. No attempt was made to quantify the complex balance between the
opportunity cost of faculty time devoted to teaching residents in the office
setting and the benefit to the faculty physicians of having residents assist
with the care of their patients.
The program requirements stipulate an affiliation with a medical school
accredited by the Liaison Committee on Medical Education or demonstration
of equivalent facilities and programs. Whether for a university-based or community-based
program, this level of linkage usually involves the education of third- and
fourth-year medical students. In modeling the teaching faculty units of service,
the teaching team on the inpatient internal medicine teams were assumed to
include 1 supervising resident, 2 postgraduate year 1 house officers (interns),
2 third-year medical students (1 per intern), and a fourth-year medical student
(subintern or acting intern). No faculty time or expense has been added to
the model for exclusive support of undergraduate medical education.
Variable instructional costs were established through calculation of
the number of units of each type of faculty service (general internal medicine
teaching rounds, critical care unit rounds, continuity clinic supervision,
etc) required on the basis of the assumed distribution of rotations. Three
models of program structure are presented. The first, called inpatient intensive, has the minimum amount of ambulatory clinic exposure
(total, 33% of time; equal to 1 year of training), with the maximum inpatient
and critical care unit rotations permitted. A single half-day continuity clinic
per week is present in this model. The second, called ambulatory
intensive, has the minimum amount of inpatient experience (33% of time;
equal to 1 year of training), coupled with the maximum allowable number of
ambulatory rotations. This includes 2 half-days per week of continuity clinic
and the maximum of 2 years (total, 67% of time) of outpatient educational
experience. A minimum of 3 months of critical care was used in this model.
The third is called a traditional model. In this
model, approximately 40% of the resident's time is spent in the outpatient
setting and 60% in the inpatient environment. Allocation of time in each rotation
category is contained in Table 4.
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Table 4. Rotational Assignments in 3 Models of Program Design
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The rotational schedule is defined in 13 four-week blocks per year,
to standardize the number of weeks per month (4) and teaching hours per rotation.
Vacation time was allocated as 1 month (4 weeks) per year. Thus, each trainee
is allocated 12 four-week rotations per year, 4 weeks of vacation per year,
for 36 four-week "months" of actual training during the 3 years of residency.
Resident research rotations were not separately identified. The models were
examined for the impact of program size by examining the per-resident costs
in programs with total resident complements of 21, 42, 84, and 126 (7, 14,
28, and 42 residents at each level). These are multiples of the number of
rotations per year (plus 1 for vacation) and approximate the range of minimal
size (the minimum size permitted by the program requirements is 6 residents
per year, or 18 total residents11) and small,
moderate, and large program size.
RESULTS
Faculty salary assumptions are presented in Table 2. Of note is the slightly higher salary for "ambulatory"
rotation preceptors. This figure is derived from the mean salary for practicing
internists, which includes generalists and subspecialists.13
Since our ambulatory rotations (noncontinuity clinic) are assumed to be a
mix of electives and mandatory rotations in both general internal medicine
and the subspecialties, this figure provides an estimate of average salary.
Critical care and inpatient subspecialty rotations were assigned the mean
of the procedure-oriented specialties available in the 1999 AAMC Databook.12 The inpatient teaching
rounds (ward rounds) salary was assigned the mean salary of all 4 faculty
grades (instructor, assistant, associate, and professor).
The MIPSACs of residency programs in internal medicine as estimated
in this model is presented in Table 5.
The fixed costs for a residency of any size are in excess of $640 000
per year under the assumptions included in this model in implementation of
the internal medicine program requirements. Variable costs, the costs that
are incurred on the basis of the number of trainees and the faculty time required
to provide instruction, increase slightly with increasing numbers of residents.
This is because of the allocation of additional administrative expense of
program director and associate program director costs to support the increased
number of trainees.
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Table 5. Summary, Minimal Instructional and Program-Specific Administrative
Costs (MIPSAC) by Program Resident Complement and Structure
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The annual per-resident fixed costs decrease dramatically as resident
numbers increase, while variable costs per resident vary only slightly as
the number of residents increases. Thus, the MIPSAC per resident varied inversely
with the number of residents in the program. The annual MIPSAC per resident
in a traditional model with a resident complement of 21 (7 residents per year)
is $51 061. This decreases to $35 890, $28 930, and $26 610
for program complements of 42, 84, and 126 residents, respectively. The fixed,
variable, and total annual MIPSAC for each model are graphically displayed
in Figure 1,
Figure 2, and
Figure 3.
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Figure 1. Annual per-resident minimum instructional
and administrative costs, inpatient intensive model.
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Figure 2. Annual per-resident minimum instructional
and administrative costs, outpatient intensive model.
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Figure 3. Annual per-resident minimum instructional
and administrative costs, traditional model.
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The differences calculated between inpatient intensive, outpatient intensive,
and traditional models are less striking. The major factor influencing the
differences in instructional component of costs is the assumption that ambulatory
rotations (other than continuity clinic) have a resident-faculty ratio of
1:1. In contrast, the model assumed an inpatient consultation resident-faculty
ratio of 2:1, decreasing the instructional component of cost per resident
on inpatient rotations (more prevalent in the inpatient and traditional models)
in comparison with outpatient rotations (more prevalent in the ambulatory
model). In addition, a second continuity clinic is assumed in the outpatient
intensive model, increasing faculty costs beyond those of the inpatient intensive
model.
Also of note in Table 5
is the specific cost per resident when resident salary and fringe benefits
are included. The range of cost per resident for programs based on a traditional
model is $95 143, $79 972, $73 012, and $70 692 for resident
complements of 21, 42, 84, and 126, respectively. The per-resident costs for
MIPSACs plus resident salary and fringe benefit costs for an outpatient intensive
residency program are $102 107, $86 935, $79 976, and $77 656
for resident complements of 21, 42, 84, and 126, respectively. Costs per resident
in a traditional model are intermediate, approximately $400 more per year
than the inpatient intensive structure at comparable program sizes. The ratio
of the highest to lowest per-resident MIPSAC plus resident salaries and fringe
benefits, based on program size, is 135%, 131%, and 135% for the inpatient
intensive, outpatient intensive, and traditional models, respectively.
COMMENT
The federal Balanced Budget Act of 1997 imposed new limits on the amount
of public financial support that will be provided in the future for residency
programs under Medicare.8 Regulations based
on the Act place caps on reimbursement for GME; they move away from full cost
reimbursement and lead the way toward uniform reimbursement across all programs.
These restrictions, combined with the growing resistance of private insurers
to compensate teaching hospitals for their higher costs, are forcing leaders
in academic medicine to confront the real cost of GME. The present study was
designed to inform policymakers of the challenges that will be faced by many
residency programs as they implement the current Accreditation Council for
Graduate Medical Education program requirements for residencies in internal
medicine in the context of restricted financial support for GME.
We modeled the minimal budget that would be needed to implement the
Accreditation Council for Graduate Medical Education program requirements
for residencies in internal medicine based on cost estimates of the requisite
program administration staffing, educational time mandated for faculty, typical
payroll costs of residents' salaries, and fringe benefits. Because the program
requirements included dedicated core resources for every accredited program
regardless of resident complement, the cost model distinguished the fixed
cost of these core resources from the variable costs that are tied only to
the number of residents in a particular program. Examples of the fixed costs
that were included in the model for every program include the required time
commitments of the program director, department chair, assistant directors,
program administrator, secretary, and faculty participation at mandated conferences.
On the other hand, variable costs included not only the resident payroll cost
but also the faculty time required for supervision and direct education of
every resident.
The total annual fixed cost for a typical program was estimated at about
$641 000. This cost is fixed, regardless of the number of trainees. The
variable cost per resident, including salary and benefits, ranged between
$65 000 and $72 000 per year depending on the balance of inpatient
and ambulatory teaching. Thus, the cost of a program with 21 residents is
set at about $2 million per year. However, this analysis projected only what
was referred to as the minimal instructional and program-specific
administration costs (MIPSAC). In addition to residents' payroll costs,
these minimal costs included program administration tasks and mandated instructional
activities taken directly from the program requirements. However, true excellence
in GME demands a vast array of other resources and professional activities
that were not incorporated in the model presented herein. The potential cost
of these resources cannot be ignored.
Figure 4 outlines 6 major
components of the cost of GME. The MIPSAC developed in the present study includes
only payroll costs and the cost of the absolute minimum program activity at
the departmental level. However, overall institutional educational and administrative
support for GME was excluded. Similarly, no provision was made for the cost
of space allocated to departmental libraries, call room space, office space,
and other facilities dedicated to resident teaching. Finally, no attempt was
made to estimate the value of volunteer faculty time in situations where faculty
effort exceeds the value of the patient care services provided by residents
to their patients.
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Figure 4. Components of the cost of graduate
medical education. Shaded components were examined in this study (not drawn
to scale).
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If one accepts the important distinction between a residency program's
fixed and variable costs, then this model raises troubling questions about
the cost-effectiveness of smaller residency programs in relation to larger
programs. A program director will minimize the average fixed cost per resident
by spreading a program's fixed costs over the largest possible number of trainees.
If the variable cost per resident is similar across programs of different
size, it is easy to see that the larger residency programs will be the most
cost-effective. Their average fixed cost per resident will be lower. On the
other hand, it is possible that there are other fixed costs that might be
expected at some thresholds of increasing program size in certain settings,
or some inefficiencies that are unique to extremely large programs. For example,
very large programs may require additional staff costs for scheduling or more
elaborate physical teaching facilities that are unnecessary in small programs.
Large programs are more likely to be located in urban areas with higher payroll
costs than programs in small cities. Large programs may require travel time
for commuting or rotating among sites that reduces the productivity of faculty
and residents. The resources required by programs of different size are not
addressed directly by the program requirements and, therefore, were not examined
in this model. While it appears that large programs are theoretically more
cost-effective, further empirical analysis will be needed to confirm this.
Although the results of this study underscore the high cost of training
residents, one cannot assume that every teaching hospital offering an internal
medicine residency program must receive full public support for all instructional
and administrative costs. The GME-related teaching and program administrative
services provided by faculty are funded through multiple sources. Other funds
for faculty teaching flow from the patient care revenue of faculty practice
plans, Veterans Affairs hospital support for faculty, federal awards such
as Title VII training grants, and private philanthropy. Furthermore, the hidden
teaching time of faculty supported directly by research grants and the substantial
efforts contributed by volunteer faculty are exceedingly difficult to quantify.
The issues of who should reimburse the different costs of training, which
organizations should receive which funds to offset which costs, how funds
should be distributed among the units and individuals actually incurring the
costs within the organization, and related concerns are beyond the scope of
this analysis.
It is possible to debate some of the specific assumptions in this cost
model. However, the overall analysis clarifies the consequences of instituting
formal requirements across all programs of varying size. The goal of these
requirements is to ensure the quality of GME by mandating that a minimum level
of resources be allocated to teaching. However, the annual fixed costs involved
in satisfying these requirements will place a greater burden on smaller programs
because reimbursement for GME traditionally has been budgeted on a per-capita
basis. It is essential that program directors, leaders in academic medicine,
and policymakers understand the implications of this cost structure as they
develop models for financing GME and negotiate reimbursement for their own
residency programs.
AUTHOR INFORMATION
Accepted for publication September 14, 2000.
Corresponding author and reprints: Thomas J. Nasca, MD, Room 108,
College Bldg, 1025 Walnut St, Philadelphia, PA 19107 (e-mail: thomas.nasca{at}mail.tju.edu).
From the Department of Medicine (Drs Nasca and Gonnella) and Center
for Research in Medical Education and Health Care (Drs Nasca and Gonnella
and Messrs Veloski and Monnier), Jefferson Medical College; Thomas Jefferson
University Hospital (Dr Nasca and Messrs Cunningham and Lewis); and Jefferson
University Physicians (Drs Nasca and Gonnella and Mr Valerio), Philadelphia,
Pa.
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