BBA Impacts on Hospital Residents, Finances, and Medicare Subsidies

Concern over rapidly rising Medicare expenditures prompted Congress to pass the 1997 Balanced Budget Act (BBA) that included provisions reducing graduate medical education (GME) payments and capped the growth in residents for payment purposes. Using Medicare cost reports through 2001, we find that both actual and capped residents continued to grow post-BBA. While teaching hospital total margins declined, GME payment reductions of approximately 17 percent had minimal impact on revenue growth (-0.5 percent annually). Four years after BBA, residents remained a substantial line of business for nearly one-half of teaching hospitals with Medicare effective marginal subsidies exceeding resident stipends by nearly $50,000 on average. Coupled with an estimated replacement cost of over $100,000 per resident, it is not surprising that hospitals accepted nearly 4,000 residents beyond their allowable payment caps in just 4 years post-BBA.