Medicare makes graduate medical education (GME) payments to teaching hospitals to pay Medicare's share of the teaching and patient care costs associated with Medicare Advantage (MA) patients. Under the Balanced Budget Act (BBA) of 1997, Congress directed Medicare to eliminate (or carve-out) GME from Medicare Advantage capitation rates and instead pay those amounts directly to facilities providing medical education, based on the number of Medicare Advantage patients they serve.

Medicare has been making GME payments directly to teaching hospitals for MA patients that are treated at these institutions since 1998. However, Medicare did not eliminate GME from MA capitation rates until 2010, following enactment of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008. This is commonly referred to as eliminating the GME “double-payment.”

MA participation is already broad, and given increasing incentives to decrease Medicare program spending and pilot new payment models, MA plan participation is likely to become even more pervasive. Yet due to the complexities associated with GME payments for MA patients, stakeholders often have questions about how these payments work. Important concepts to understand include:

• What "no-pay" or "shadow" bills are, and how a hospital submits them for its MA patients.
• How direct graduate medical education (DGME) and indirect medical education (IME) payments for MA patients are calculated.
• The amount by which CMS reduces the MA portion of the DGME payment to fund Medicare's nursing and allied health education programs pool.

Knowing the methodologies used to determine DGME and IME payments for MA patients is an important part of understanding Medicare funding to teaching hospitals. Teaching hospitals, and those concerned with teaching hospital issues, should understand the differences associated with how bills are submitted for MA patients. The amount of funding teaching hospitals will receive for MA patients will only become more important as Medicare payment reform matures, as more patients enroll in MA plans and as hospitals increase their involvement in managing risk.