A longitudinal study of the effects of graduate medical education on hospital operating costs

Objective. To examine the effect of graduate medical education sponsorship on hospital operating costs over a seven-year period, to test for a longitu dinal association between teaching intensity and cost, and to determine whe ther the indirect medical education (IME) payment adjustments made under Me dicare's Prospective Payment System are appropriate. Data Sources. Medicare cost and payment data from the Hospital Cost Report Information System and other related HCFA files, from FFY 1989 through 1995 . The study population consists of all short-stay hospitals (approximate to 5,000) participating in Medicare and receiving case payments by diagnosis-r elated groups. Study Design. The original cost functions used to develop indirect medical education payment adjustments under PPS are re-estimated with panel data. S pecification changes are included based on findings from critiques of the o riginal hospital cost model. Additional variations on the model are explore d to test for differences by hospital status, to control for the effect of additional disproportionate share and outlier payments, and to isolate the effects of improved case-mix measurement on model results. Principal Findings. Fixed effects regression produces no evidence of a sign ificant within-hospital association between increased sponsorship of medica l residents and increased cost per case. In models designed to capture a cr oss-sectional association, operating costs are positively related to teachi ng activity, but the association shows a decline in strength over time. In all years, the strength of the association is significantly greater among h ospitals eligible for disproportionate share adjustments and among major te aching hospitals. Controlling for secular trends of increased teaching inte nsity results in a pattern of declining cross-sectional teaching coefficien ts that supports a theory that observed teaching effects are the result of unmeasured case severity. Conclusions. A significant but declining cost differential is observed betw een teaching and nonteaching hospitals. The association appears to be relat ed to hospital and patient characteristics that cannot be controlled using currently available case-mix and wage indices. Longitudinal models do not p rovide evidence to support a payment adjustment formula that allows individ ual hospitals to recompute their IME adjustment rates as their teaching rat ios rise or fall from year to year. Cross-sectional findings suggest that r e-estimations of the teaching effect may be appropriate when significant im provements occur in Medicare case-mix measurement.