The 2019-20 Budget: Assessing the Governor’s Primary Care Physician Residency Proposals

The 2019-20 Budget: Assessing the Governor’s Primary Care Physician Residency Proposals GABRIEL PETEK LEGISLATIVE ANALYST MAY 2019 Summary Governor Proposes $73 Million Ongoing General Fund for Two Programs That Support Physician Residents. The programs—one administered by the Office of Statewide Health Planning and Development (OSHPD) and one administered by the University of California—provide grant funding to support physician residency programs. Both grant programs focus on supporting hospitals and clinics that train physician residents and serve regions with relatively few physicians and/or underserved populations. Understanding of Shortages and Policy Responses to Them Could Be Improved. While there are documented disparities in the supply of primary care physicians across regions, further analysis is needed as to the underlying causes of these disparities. More analysis also is needed as to whether supporting residency programs is the most cost-effective policy option for addressing regional disparities. Even if supporting residency programs were found to be the most effective strategy, we believe the state’s two existing programs focus too heavily on supporting existing residency slots. Providing limited-term funding for the development of new resident programs could be a more effective way to increase the supply of residents. This is because most hospitals rely on federal Medicare subsidies to cover a substantial portion of ongoing resident training costs, and most hospitals have reached their federal funding caps. New programs, by contrast, have a five-year window to access new federal funding and expand the number of residents they train before reaching their funding cap. The state also can channel grant funding toward hospitals located in shortage areas of the state that do not yet have residency programs. We are also concerned about the inefficiency of the state operating two very similar grant programs. Two programs makes planning and accountability more difficult, increases administrative costs, and reduces the share of funding allocated directly to residency programs. Recommend Providing Limited-Term Funding and Considering Programmatic Improvements. To address these concerns, we recommend the Legislature continue to provide limited-term funding (extending three to five years) for residency programs rather than making the funding ongoing, as proposed by the Governor. Under a limited-term approach, the Legislature can periodically reassess workforce issues and realign its policy responses accordingly. We also recommend the Legislature consolidate grant funding into one program to better target and maximize state funding. Furthermore, we recommend the Legislature prioritize any limited-term funding for the development of new residency programs that could qualify for federal Medicare subsides to help cover ongoing costs. To this end, we recommend the Legislature direct OSHPD to study which hospitals would qualify to receive these subsidies. The Legislature could prioritize any remaining funding for existing residency programs that add slots and have documented financial need. analysis full gutter 2019-20 BUDGET INTRODUCTION train students to practice within a specific area of medicine. Medical areas can be thought To obtain a license to practice medicine, of comprising two broad categories: primary California law requires all medical school graduates care and specialty care. Within primary care, to complete three years of postgraduate training. residents can focus on family medicine (patients Most physician-trainees fulfill this requirement of all ages), internal medicine (adult health), by completing a residency program. The state pediatrics (child health), and obstetrics/gynecology currently funds two initiatives to support residency (female reproductive health). Within specialty programs for primary care physicians. The first care, residents can focus on one of more initiative is named after its legislative authors, than 20 specialty areas, including emergency Song-Brown, and is administered by the Office care, surgery, or psychiatry. Most primary of Statewide Health Planning and Development care residency programs are three years long. (OSHPD). The second initiative is authorized by Obstetrics/gynecology and most specialty Proposition 56 and is administered by the University programs last longer than three years. Though of California (UC). The Governor proposes making not required by state law, most residents seek certain limited-term funding for these initiatives sector-recognized certification in their medical ongoing. In this brief, we provide background area upon completing their respective programs. on residency programs, describe the Governor’s Nearly 80 percent of active physicians (primary and two associated budget proposals, assess those specialty care) in the United States are certified. proposals, and make associated recommendations. Federal Funding BACKGROUND Medicare Is Primary Source of Public Funding for Residency Programs. Medicare is a federal In this section, we first provide some basic program that provides health care coverage for information about residency training programs. We adults ages 65 and older. In acknowledgement of then provide an overview of federal Medicare and the medical staff needed to serve this population, other subsidized health programs, which provide Medicare provides payments to hospitals to cover the vast majority of public funding for residency a portion of their resident training costs. Hospitals’ programs in California. We next describe the state’s residency payments are largely determined by Song-Brown and UC-administered residency grant two key factors. First, hospitals generally qualify programs. for payments by providing inpatient services to Overview of Residency Programs Medicare patients, with a hospital’s payment increasing as the share of its inpatient hours Residency Typically Is the Final Training Step devoted to Medicare patients increases. This to Becoming a Doctor. As the final step in their factor is intended to recognize Medicare’s share medical training, residents provide supervised of the cost to train residents, with private payers clinical care (traditionally in a hospital setting) and expected to cover the remaining portion of training participate in various educational activities. In costs. Second, hospitals’ Medicare’s payments 2018-19, an estimated 116,500 physician residents generally increases with the number of residents trained in the United States, of which 10,350 they train until they reach a cap. For most residency (8.9 percent) trained in California. Though California programs, the subsidy is capped at the number has the largest number of physician residents of residents they trained in 1997. This cap was among the states, it ranks 31st for the number of established during a time when policymakers physician residents per population. Health care believed the nation had a surplus of physicians. providers operate residency programs, often in In 2016, Medicare provided a total of $12 billion affiliation with a medical school. in residency payments to hospitals, of which Residents Choose to Pursue Primary Care $744 million (6 percent) went to California hospitals. or Specialty Care. All residency programs 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Medi-Cal Also Traditionally Has Helped Fund support for residency programs. Since this initial Residency Programs but the Rules Have Been legislation, Song-Brown has expanded to support Changing. Medicaid is a federal program that residency programs in all four primary care areas provides health care coverage for low-income (family medicine, internal medicine, pediatrics, individuals. In California, the program is called and obstetrics and gynecology) as well as certain Medi-Cal. Prior to 2005, Medi-Cal had an explicit advanced nursing practice and physician assistant subsidy for residency costs at public hospitals that postgraduate training programs. Song-Brown is a was similar in design to the Medicare payments. competitive grant program that covers a portion of As part of numerous changes to the way California the cost to train a residency cohort at an eligible allocates Medi-Cal funds to public hospitals, in hospital. A 15-member commission representing 2005 the state consolidated these payments and medical schools, physician residents, and primary removed the requirement that they be spent on care providers decides how to allocate funds residency programs, instead allowing the payments among hospitals. The Governor, the Speaker of to cover any medical cost. In conversations with the Assembly, and the Chairperson of the Senate our office, the Department of Health Care Services Committee on Rules each appoint certain members indicated that it is not able to estimate how much to the commission. of these consolidated (or supplemental) payments Grants Targeted for Geographic Areas With hospitals currently spend on residency programs. Relatively Few Physicians or Underrepresented Beginning in 2018-19, the state intends to enter Populations. To allocate grant funding among into an agreement with the federal Center for hospitals’ residency programs, OHSPD staff assess Medicare and Medicaid Services that would each application on a point-based system. The increase the amount of federal supplemental system awards points primarily based on whether Medicaid payments for residency programs. The the residency program serves areas of the state administration estimates the agreement will result that OSHPD considers primary care shortage areas. in an estimated $230 million annually in additional OSHPD determines these areas based on the share federal funding for public hospitals with residency of their population living at or below the federal programs in California. Whether these hospitals will poverty level and their physician-to-population use the additional funds to sustain or expand their ratio. In 2017, OSHPD identified 303 primary existing residency programs is not yet known. care shortage areas, collectively containing Smaller Federal Grant Programs Have 17 million people (45 percent of the state’s Helped Support Residency Programs in Certain population). OSHPD also awards points for (1) the High-Priority Areas. In addition to Medicare and share of residency program graduates who are Medicaid, the federal government over the years from underrepresented groups; (2) the share of has developed other programs intended to support Medicare, Medi-Cal, and uninsured patients treated specific residency programs that may not qualify by the sponsoring hospital; and (3) various other for a subsidy from Medicare. For example, in recent factors (such as the share and number of graduates years the federal Health Resources and Services working in primary care ambulatory settings). Administration has provided grants to certain Song-Brown Has Been Funded in Various outpatient health clinics and children’s hospitals Ways. Prior to 2008-09, the program was primarily to help support residency costs. These program supported by state General Fund. Then, from grants have been limited term. 2008-09 through 2016-17, the state provided no General Fund for the program, with the program Song-Brown Funding instead supported by a small amount of funding Song-Brown Supports Primary Care from fees enacted on health facilities. In the latter Residency Programs. Originally established part of this period—between 2013 and 2016— by Chapter 1175 of 1973 (SB 1224, Song), Song-Brown also received a one-time grant totaling the program was created to address perceived $21 million from the California Endowment, a shortages of family physicians by increasing nonprofit organization. www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET State Recently Resumed Figure 1 General Fund Support for Legislature Adopted Three-Year Plan for Song-Brown. The 2017-18 budget Song-Brown Funding package included $100 million General Fund for Song-Brown, 2017-18 Through 2019-20, General Fund (In Millions) with the funds spread evenly over Annual Three-Year three years ($33 million each year Funding Funding through 2019-20). Figure 1 shows Grants for residency programs how the state allotted the funding Existing slots at existing programsa $24 $73 among new and existing residency Added slots at existing programs 3 10 programs. The bulk of the funds Start-up costs at new programs 3 10 ($73 million) was to support Subtotal ($31) ($93) existing residency slots. The Loan repayments — $1 State administration $2 6 remaining funds were for adding Totals $33 $100 slots at existing programs, funding a Includes two types of grants. One grant funds hospital-based residency programs and the other start-up costs for new programs, grant funds residency programs at community-based outpatient centers. funding loan repayment programs, and funding associated state operations. The infusion of state Figure 2 funds was intended to backfill Song-Brown Grants Primarily Are foregone California Endowment Awarded to Family Medicine Programs funds and increase overall public Awards in 2017-18 and 2018-19 Combined funding for residency programs. (At the time the 2017-18 budget Pediatrics was enacted, some decision Obstetrics/Gynecology makers also expected that certain existing slots at outpatient teaching health centers would lose one-time federal funding. These federal grants, however, have since been extended.) Internal Medicine Grants in Recent Years Have Focused on Family Physicians. Across 2017-18 and 2018-19, about three-fourths of grant funding has been awarded to Family Medicine residency programs training family physicians, with the remainder spread across the other primary care areas (Figure 2). About 30 percent of grant funding has been awarded to UC-sponsored residency programs, with the remaining 70 percent awarded to other hospital-sponsored residency programs. 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Proposition 56 Funding five-member governing board and a 15-member advisory council to develop a plan to allocate Proposition 56 Earmarks Some Funding funding. As Figure 3 shows, the members of the for Residency Programs. Proposition 56 board and council each represent different groups (2016) imposed a tax on tobacco products and of health care provider associations. designated the associated revenue for several Grants Focused on All Primary Care Areas. programs. Among these allocations, the measure In 2018-19, the governing board approved a designates $40 million annually to UC to “sustain, plan to allocate $38 million in grants, with the retain, and expand” primary care and emergency remaining $2 million earmarked for administrative care physician residency programs in California. In costs (Figure 4, see next page). The grants were addition, the measure allows UC to provide funding allocated to hospitals throughout California. for specialty care areas where demonstrated Of the grant funding, the largest share was statewide and regional shortages exist. While the allocated to family medicine programs, same as measure does not formally establish a competitive the Song-Brown grants, but each of the three grant program for the funding, the measure states other primary care areas received somewhat that all accredited physician residency programs in higher shares of the Proposition 56 grant funding California shall be eligible to apply for funding. compared to the Song-Brown grants. According State’s Approach to Using Proposition 56 to UC, the Proposition 56 grant funds supported Residency Funds Has Changed. Though 156 residents, of which UC indicated 82 were Proposition 56 states intent to address physician “new” slots and 74 were “existing” slots. (At the shortages, the measure does not contain a clause time of this analysis, the university was unable prohibiting the additional tobacco revenue from supplanting existing state support for residency programs. (By Figure 3 contrast, the measure prohibits UC Physician Residency Grant Program supplanting for many other Is Overseen by Board and Advisory Council programs.) In 2017-18, the state Associations Participating in Each Board used the new Proposition 56 funds to supplant rather than supplement General Fund that Five-Member Governing Board UC stated it had been using Physicians for a Healthy California for its residency programs. In California Medical Association 2018-19, the state reversed University of California course, using the Proposition 56 California Hospital Association funds to supplement residency Service Employees International Union programs and providing a one-time 15-Member Advisory Council General Fund backfill undoing the American Academy of Pediatrics 2017-18 budget action (thereby American College of Emergency Room Physicians making UC’s General Fund whole). American College of Obstetricians and Gynecologists American College of Physicians One-Time Program California Association of Public Hospitals and Health Systems Administered by Nonprofit California Children’s Hospital Association Entity. To administer the additional California Hospital Association residency funds in 2018-19, California Medical Association UC contracted with a nonprofit California Primary Care Association organization called Physicians for California private medical schools Network of Ethnic Physician Organizations Health California that is affiliated Osteopathic Physicians of California with the California Medical Service Employees International Union Association. Physicians for Health University of California California in turn organized a www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET to address it. Were state support for residency Figure 4 programs found to be a promising policy response UC Allocates Funding Among Medical to a physician shortage, the Legislature then faces Areas More Evenly Than Song-Brown the issue of how to fund grant programs effectively 2018-19 (In Millions) and efficiently. In this section, we discuss both sets Funding of issues. Grants for residency programs Understanding and Addressing Family medicine $9.5 Workforce Shortages Emergency medicine 7.6 Internal medicine 7.6 Strongest Evidence of Possible Regional Pediatrics 7.6 Shortages, Though Further Analysis Is Needed. Obstetrics/gynecology 5.7 Based on our review of existing workforce analyses, Subtotal ($38.0) certain regions in the state—the Central Valley, State administration $2.0 Inland Empire, and Northern California—have lower Total $40.0 primary care physician-to-population ratios than other areas of the state. The disparities are likely to confirm whether funding went only to existing most acute in these regions’ rural communities. residency programs or if grants were also allocated While disparities in the supply of primary care to new residency programs.) providers are well documented, additional analysis is needed to determine how demand for services GOVERNOR’S PROPOSALS differs among the regions. Little Comparative Analysis of Which Policy Proposes to Make Song-Brown General Fund Options for Addressing Shortages Are Most Augmentation Ongoing. In The Governor’s Budget Effective. Many policy options exist that have the Summary, the Governor signals his intent to make potential to affect the physician pipeline. Potential $33 million annual General Fund ongoing beginning options include outreach and increasing the in 2020-21 (as the previously enacted budget number of applicants from rural communities who appropriation extends through 2019-20). apply to medical schools, increasing medical school Proposes to Make UC General Fund enrollment, or expanding physician residency Augmentation Ongoing. The Governor proposes programs. In addition, the state has funded certain providing UC with $40 million ongoing General programs, such as loan-repayment programs, Fund beginning in 2019-20 for residency programs. that incentivize physicians to practice medicine in This ongoing funding would enable UC to use its shortage areas after completing their residency. Proposition 56 money to fund grants to California Policy options also include expanding the education residency programs on an ongoing basis. (In a pipeline for nurse practitioners and physician separate action, the Governor proposes to reduce assistants, both of whom can provide some primary Proposition 56 funding for residency programs from care services under the supervision of a physician. $40 million to $37 million in 2019-20. This proposal In our preliminary review of all these options, we is further described in our webpost Proposition 56 could not find evidence indicating which of these Revenues: Reductions in Fixed Allocations.) policy options is most effective in addressing primary care physician shortages in rural regions. ASSESSMENT Experts Debate Extent to Which Physician When considering the Governor’s proposals to Residents Are a Net Cost to Hospitals. On the fund these two residency grant programs on an one hand, some experts argue that residency ongoing basis, the Legislature has many issues to programs can fully cover their costs from clinical consider. First-order issues entail understanding revenues generated by the residents providing whether a primary care physician shortage exists patient services. Largely in recognition of the net and, if so, its underlying causes and how best value of these services, residents are paid an 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET annual stipend (on average $56,100 for first-year programs since 1996. Experts we spoke with, residents). On the other hand, some experts argue however, indicated that many of these hospitals that hospitals incur residency training costs that are likely would not wish to start residency programs. not fully covered by clinical revenues or Medicare In addition, the federal government can disqualify subsidies. (Furthermore, health field experts a new program from receiving Medicare funding typically point out that certain areas of medicine are if a hospital had historically hosted a residency more financially lucrative than others, with primary program. Given these limitations, additional care programs considered to be among the least research is needed to determine how many revenue-generating areas.) In our preliminary review potential new programs could be launched. Some of the available research on this issue, we could not risk also is associated with programs being able to find conclusive empirical evidence supporting either launch successfully, as starting up such programs of these competing theories. entails many steps. Funding Existing Programs May Have a Improving Impact and Coordination Positive Impact but Could Result in Some Assisting New Programs May Have Biggest Supplanting. While state funding for existing Return on Funding . . . Though existing research residency programs in some cases could help provides no clear path forward regarding the sustain slots that have relied on limited-term federal most cost-effective way to address primary care and private funding, new state funds in other cases physician shortages in rural areas, the Legislature could supplant existing fund resources. This is may want to consider how to make its existing because neither of the state’s two grant programs efforts to address these shortages more effective. award points based on a residency program’s Though comprising the smallest portion of existing existing financial resources when allocating funding. state residency grant funding, the state could Our office was informed of one instance where a refocus its efforts moving forward on developing program used a Song-Brown grant to supplant new primary care residency programs. This existing funding for its primary care program approach has a couple of key benefits, First, it and used freed-up funds to create new specialty accesses more federal funding. As additional care programs. In this instance, the Song-Brown hospitals begin training residents, these hospitals program had the overall effect of growing specialty would qualify for additional federal Medicare programs slots instead of primary care slots, funding to cover their residency costs on an contradicting a longstanding goal of the program. ongoing basis. This approach would be a more Operating Two Similar Programs Is an effective way to grow residency slots on an ongoing Inefficient Way to Fund Residency Programs. basis than by funding growth at existing residency As Figure 5 (see next page) shows, the programs that have already reached their federal Song-Brown and UC Proposition 56 programs Medicare funding caps. In addition, the state have substantial crossover in their missions and could work with hospitals to launch new residency governance structures. Both programs focus on programs in shortage areas that to date have primary care physicians, with the main difference not had such programs. (Though shortage areas that Song-Brown funds some nursing and loan already receive priority for state grant funding, not repayment programs whereas the UC program all of these areas have residency programs.) funds some emergency care and potentially other . . . But Expansion Strategy Has Uncertainty specialty physician areas. Providing grants through and Risk. The primary uncertainty is that the two very similar programs is inefficient for two potential number of hospitals that could host new reasons. First, having two programs fragments programs is unknown at this time. According to the efforts to address regional physician shortages— Robert Graham Center, a nonprofit organization making planning, funding, and monitoring all the focused on the health care workforce, there more difficult. For example, in 2018-19, some are around 260 hospitals in California that have residency programs received funding from both the not received Medicare payments for residency Song-Brown and UC programs, but the resulting www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET limited-term funding also would give the state Figure 5 more opportunity to study the comparative State’s Grant Programs Share cost-effectiveness of physician workforce policy Notable Similarities strategies and adjust those strategies accordingly a Song-Brown UC Proposition 56 few years from now. Program Program Consider Consolidating Two Programs Into Areas of Medicine One. Given the drawbacks of supporting two Family Medicine   programs with very similar goals, we recommend the Legislature consolidate the Song-Brown and Internal Medicine   UC residency grant programs into one program. In Pediatrics   consolidating the programs, the Legislature would Obstetrics/Gynecology   have to decide (1) how the consolidated program Emergency Medicine  should be administered, (2) what fund sources Certain other areas  should support it, (3) which programs (including emergency care and nurse practitioners) should be Geographic Areas eligible for funding, (4) how much total funding to Areas with shortages   provide annually, (5) what requirements should be linked to the grant funding, and (6) how to monitor Institutions Public and private   outcomes of grant recipients. The Legislature institutions in California could build the consolidated program by taking Health Providers the most promising components of the two Physicians   existing programs. Were the Legislature to desire supporting residency programs at current levels, Physician assistants  it could allocate $73 million one time in 2019-20 Nurse practitioners  for the consolidated program, allowing funds to be spent over several years. grant amounts do not seem to have been the result Give Highest Priority for Limited-Term Funding of a purposeful, coordinated effort between OSHPD to New Residency Programs for Start-Up Costs. and UC to address regional workforce issues. Regardless of whether the Legislature chooses to Second, having two programs is resulting in higher fund one new consolidated program or the two administrative costs (around $2 million in each existing residency grant programs, it would have to program). A portion of these administrative funds decide how to allocate any new funds. We believe could instead be used to support more grants for funding the development of new programs would residency programs. be a more effective use of limited-term funding than supporting existing programs, since Medicare could RECOMMENDATIONS fund the ongoing operations of the new programs. To this end, we recommend the Legislature direct Focus on Limited-Term Activities. We OSHPD to work with federal and local stakeholders recommend the Legislature provide limited-term to identify hospitals interested and eligible to funding (funding stretched over three to five develop Medicare-funded residency programs. years) rather than ongoing funding, as proposed We recommend the Legislature require OSHPD to by the Governor. State workforce issues tend report on its findings by January 1, 2020—in time to be dynamic, with the demand for physician to inform next-year’s budget decisions. In 2019-20, services and the supply of physicians changing the Legislature could set aside funds for this future and adjusting over time. Providing funding on a purpose. (To the extent OHSPD believes more time limited-term basis would allow the Legislature is needed to complete this analysis, the Legislature to periodically revisit evidence of shortages and could work with the agency to develop a feasible adjust goals and funding accordingly. Providing time line.) 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Were Legislature to Fund Grants for Existing increase the number of residents across the Programs, Establish Two Additional Parameters. state. Second, we recommend any funding for As OSHPD studies potential new programs, the existing programs be allocated based on their Legislature may be interested in providing funding financial need. In its grant application, a program for existing residency programs. In this case, could submit its (1) revenues by source (including we recommend the Legislature establish two the clinical revenues generated by residents), parameters for the funding. First, we recommend (2) specific revenue sources that are set to expire, the Legislature prioritize funding for added slots and (3) spending. Prioritizing based on financial (rather than existing slots) at existing programs. need would help ensure additional state grant funds This prioritization would help ensure the funds are not supplanting a program’s existing resources. www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET LAO PUBLICATIONS This report was prepared by Jason Constantouros and reviewed by Jennifer Kuhn Pacella. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 10 LEGISLATIVE ANALYST’S OFFICE