Financing graduate medical education using multiple regression to set payment rates

There has been considerable public policy debate concerning the appropriate rate of adjustment to the Medicare prospective payment system for the indirect costs of graduate medical education. The model that we present in this paper represents one of the first times that the statistical technique of multiple regression has been used to establish payment rates for hospitals. We also review the alternative specifications of the model and conclude that factors other than educational programs are responsible for most of the higher costs in teaching hospitals. We conclude by making recommendations for reforming the Medicare prospective payment system.