Obama Budget 2014: The Most Significant Health Care Cut You Know Nothing About


President Obama recently released his 2014 budget proposal – a document which, as usual, caused more heat than light to be given off by politicians and the pundit class at large. To be clear: This budget won’t pass the House. Still, it provides an interesting look into the priorities of the Obama administration, illuminating the collective mindset of an administration that can occasionally be difficult to read. 

There’s one line item that, while it may not get much attention, is incredibly important to the future of American health care. It’s a topic that is as esoteric as it is essential to understand, and it could have a significant effect on the way our generation interacts with physicians, nurses, and the entire health care system.

Buried deep in the Summary Tables on page 196 is a line-item described in relatively-innocuous budget-ese: “Better align graduate medical education with patient care costs.” All in all, it’s a cut of $780 million in 2014 and nearly $11 billion over 10 years; this includes a cut of $177 million to the Children’s Hospital Graduate Medical Education Payment Program in 2014, which helps fund training for pediatricians and other child-focused specialties.

It’s a wonky topic but more important than it sounds. This is a cut to the Indirect Medical Education (IME) allocation, an amount provided to teaching hospitals (those that have residents) to compensate them for the higher indirect patient care costs they incur relative to non-teaching hospitals. (The formula for calculating IME is, as most congressionally mandated formulas are, quite wonky: c x (1 r/b)*.405 1), where c is a congressionally mandated constant (today: 1.35), r is the number of residents, and b is the number of beds.) 

There are many indirect costs, from a teaching hospital’s propensity to care for a slightly sicker patient population than a non-teaching hospital (known as a higher case mix in health care sector jargon) to a resident’s tendency to order more tests and to take longer to diagnosis and treat a patient. IME is paid on a per-discharge basis for each Medicare patient in the acute and outpatient setting, as well as some post-acute sites.

Functionally, this cut could significantly hamper the ability of teaching hospitals to train residents and other health care providers. Without this funding from the government, teaching hospitals could run a major loss on each resident, possibly keeping them from hiring their full allotment of residents. Hospitals that are planning to start a residency program may now balk at doing so. Fewer residents today means fewer physicians tomorrow.

It comes as researchers and pundits are increasingly expressing concern over a possible looming physician shortage. According to a 2010 update to a 2008 study published by the Association of American Medical Colleges (AAMC), by 2015 there will be a projected physician shortage of 62,900 (of which 29,800 are primary care physicians). By 2025, the number roughly doubles, to 130,600 (65,800 PCPs). To be sure, there are obvious reasons to be skeptical of this research (starting with the inherent bias the AAMC has), but the general point – if not the exact figures – is a reasonable one. A cut to IME will compound the issue, making the physician shortage loom larger.

Included in the budget are small-bore measures to stave off the shortage: The budget includes funding to “support over 8,800 health care professionals practicing in under-served areas” and “initiates investments that will help train more than 2,800 additional primary care providers estimated to enter the workforce over the next five years.” This appears to pale in comparison with the significant cuts proposed, though.

Having fewer physicians poses a critical problem for our nation, if for no other reason than that it will force existing physicians to increasingly make trade-offs in who they see and who they don’t. With Medicaid patients providing the lowest reimbursement, their access to physician time is likely to be reduced the most – something that is unfortunately already occurring, as a recent HealthAffairs study showed: 31% of physicians were unwilling to accept new Medicaid patients in 2011.

As I’ve written previously, I’m not convinced the doctor shortage is as serious an issue as it’s made out to be. For one, it assumes present-day demand for specific services that doctors are uniquely positioned to provide. But “uniquely positioned” increasingly has meant “positioned by regulation.” Nowadays, nurse practitioners, physician’s assistants, and others are more able to provide services that physicians once had a knowledge monopoly on, and expanding their scope of practice will allow more patients to be seen without needing a physician presence.

The reaction of industry groups to the proposed IME cut has been unsurprisingly cold. AMMC President and CEO Darrell Kirch said in a statement that “Cutting essential federal support for  teaching hospitals could mean up to 10,000 fewer physicians trained every year … The proposed drastic reductions in Medicare indirect medical education payments will make it increasingly difficult for teaching hospitals and their physicians to provide care for the sickest in their communities, especially seniors and the underserved.” In short: less money, more problems.

It remains to be seen whether this piece of the budget proposal, along with myriad others, makes it through the coming budget showdown between the Obama Administration and the House. One can imagine that this cut will be included in the final budget – House Republicans haven’t exactly shown a penchant for advocating for our nation’s medical students – but if it’s spun as a direct cut to seniors’ care, one could imagine a full-fledged outcry. Regardless of the politicking, it’s clear that this proposed cut to IME funding, if enacted, could have a profound effect on how health care is practiced and consumed in America.