Editor’s note: This is the fourth in a series of five articles examining who pays for medical education and economic changes in Minnesota’s medical community that impact the University’s Medical School. Friday’s article will look at how the school prepares students for a changing medical marketplace.

Facing multimillion dollar losses and the possibility of further reductions in University Medical School residency programs, Dr. Robert Howe offered this to sum up school administrators’ emotions: “Panic,” he said.
“No, we’re not there yet,” the associate dean for faculty and graduate affairs in the Medical School added, laughing.
The University has known for years that 1998 would bring a wave of funding changes for medical education. What is less certain for Medical School administrators is how they will make up for the losses.
The Medical School stands to lose valuable funding dollars and the relationships with hospitals and clinics where residents train could be severed.
Within one or two years, the University could face tough negotiations with the hospitals where residents train, said Pete Mitsch, director of finance for the Medical School.
Cornered by the loss of federal money as a cushion for educational expenses, hospitals might stop reimbursing the University for the residents.
During the next few years, state and national lawmakers will refine legislation, swinging the economic balance for medical schools across the nation.
This year marks the first full year of limits — imposed by the federal insurance program Medicare — on the amount of money they give hospitals to train residents. The University expects to lose $90 million during the next five years.
Previous belt-tightening moves, such as downsizing the University residency programs by 30 percent, can’t completely buffer the school against federal funding cuts, said Howe.
An average of $85,000 per year is spent for each Minnesota resident. As it stands, the University trains more than 800 residents with support from local hospitals and money from several sources. The complex system by which University residents get paid is in jeopardy.
Medical students wrap up four years of school with a residency — an additional three to seven years of training in a hospital or clinic.
The University works with 16 hospitals that host the residents. Medicare has compensated the hospitals for training medical residents since 1964.
But Medicare was never intended to pay for medical education, said Dr. Mark Moskowitz, director of the Health Care Research Unit at Boston University’s School of Medicine.
Hiring residents is a less expensive alternative to a staff physician. On average, a resident makes $50,000 to $60,000 less than a seasoned doctor.
“The rationale was not to be generous, it was to be pragmatic,” he said.
Medicare did not limit the amount of money given to hospitals. As a result, training programs across the nation mushroomed. Seeking to curb a surplus of physicians and curtail the federal government’s role in paying for medical education, Congress limited the payments under the 1997 Balanced Budget Amendment.
Medicare pays hospitals, not the University, a stipend to support residents; but the University actually cuts the checks for the post-graduate medical students. Hospitals then pay back the University for the resident’s salaries.
In 1997, changes to Medicare dealt the hospitals a double blow. It limited the number of residents it would support while trimming an additional stipend to cover the “indirect costs” of education, such as the additional tests or time a resident requires as part of their education.
State aid, such as the Medical Education and Research Costs trust fund will help, but cannot cover all the losses, Mitsch said.
Established in 1996, the trust fund divides state money to 800 clinics and hospitals throughout Minnesota to pay for physician training, as well as nurses, dentists, pharmacists and physician assistants.
No one is sure how the cuts will ultimately affect the residents in the University’s residency program, said Howard Shur, the Medical School’s administrative director for graduate medical education programs.
“As the resources dry up, we are all forced to come to the table,” he said.
The University must wait in limbo until further legislation is passed supporting medical education, Howe said. Until then, the medical school will absorb the costs of training residents no matter what happens to funding, he said.