Summary of 2003 Regular and Special Legislative Sessions

Date:       6/10/2003

To:          MERC Advisory Committee and Interested Parties

From:      Diane Rydrych, Health Economics Program

RE:          Summary of 2003 Regular and Special Legislative Sessions

As you are aware, the House and the Senate have now passed legislation that makes several changes to how the MERC and PMAP/PGAMC Carveout funds will be distributed.  This memo outlines the main provisions of the final health and human services and tax bills as they relate to MERC.  Where possible, their impact on the distribution of dollars for graduate health professions education through the MERC and PMAP distributions is also included.  While an estimated distribution that incorporates these changes is not yet available, I will be calculating and distributing such an estimate within the next week.

Statutory changes that impact MERC/PMAP distributions:

· Elimination of the medical education endowment.  The medical education endowment, which was created out of Minnesota's tobacco settlement and provides the majority of MERC’s funding, has been eliminated and replaced with revenues from the existing cigarette tax.  Under the revised legislation, two and a half cents per pack from the existing cigarette tax is dedicated to MERC.  This would direct $8.67 million per fiscal year to MERC in FY04 and FY05, resulting in a decrease in MERC funding of approximately $625,000 in FY04 and $14,000 in FY05. 

· Health Care Access Fund reduction.  Currently, the University of Minnesota's Academic Health Center (AHC) transfers $2.537 million to MERC each year, and a portion of the federal financial participation received on these dollars is dedicated to the dental innovations pool.  Funds in the dental innovations pool are distributed competitively based on an RFP that is published each spring. Under the revised language, the amount transferred by the AHC to MERC is reduced to $2.157 million, reducing the amount available for dental innovations grants from $1.32 million to $1.12 million.  This change only affects the Academic Health Center, Hennepin County Medical Center and potential future dental innovations grant recipients.

· MA/GAMC/MNCare modifications.  Funds from the PGAMC medical education carveout, currently directed to the PMAP/PGAMC carveout fund, will be redirected to the General Fund beginning in FY04. This change will reduce the funds available for the PMAP/PGAMC carveout by approximately $4.3 million in FY04 and $4.8 million in FY05.  Additionally, while the PMAP carveout will remain and will continue to be directed to MERC, changes to MA and MnCare eligibility will lead to a reduction in the size of the PMAP carveout.  At this point, it is unclear what the overall financial impact of these changes will be for MERC and for PMAP/PGAMC.

· Establishment of a 0.5 FTE cutoff for eligible MERC training sites.  This cutoff is to be applied at the point of application; when submitting an application for MERC funding, training programs would only include data on training sites that hosted 0.5 eligible FTE’s or more for that training program.   As a training site can host trainees from multiple programs, this change could affect training sites with more than 0.5 FTE’s overall if no one program was responsible for 0.5 FTEs or more at the site.  This proposal would eliminate approximately half of all sites from the MERC and PMAP distributions.

· Revision of eligibility criteria for Advanced Practice Nursing programs.  Under the revised statute, only programs sponsored by the Academic Health Center or the Mayo Foundation, or institutions that are part of the Minnesota State Colleges and Universities system or members of the Minnesota Private College Council are eligible for MERC and PMAP funding.

· Consolidation of MERC and PMAP funding pools.  As you recall, funds from the tobacco endowment are currently distributed annually, while funds from the PMAP/PGAMC carveout are distributed twice per year.  With this change, MERC funds would be combined with funds from the PMAP/PGAMC carveout to form one distribution that will replace the current three annual distributions.  This will not change the application process for MERC, but it may change distribution timing.            

· Establishment of a new distribution formula to govern the combined MERC/PMAP pool.  As you recall, the MERC distribution formula is based solely on relative education volume at each clinical training site, while the PMAP distribution formula is a 50/50 formula that equally weights both relative education volume and relative public program volume at each clinical training site.  With this revision, the combined MERC/PMAP pool will be distributed using a formula that weights relative education volume at 67% and relative public program volume at 33%.  This new formula results in a distribution that is very similar to that obtained using the previous separate formulas.

· Revision of average cost per FTE calculation methods.  The MERC distribution formula is currently calculated based on average costs per FTE for each provider type.  Submitted cost data from all eligible programs within each provider type is included in this calculation.  Under the revised statute, average costs per FTE for medical residents would be calculated using only the cost data from primary care programs (Family Practice, general Internal Medicine, general Pediatrics), in effect capping allowable costs for medical residencies at the average primary care rate.  In the most recent MERC distribution, this change would have lowered the average cost per FTE for medical residents from $161,622 to $150,672 and reduced the grant per medical resident FTE from $9,809 to $9,693.  Were this the only proposed change to the MERC formula, other eligible provider types would receive slightly higher funding relative to medical residents than they did in previous distributions.  However, the establishment of a 0.5 FTE threshold for site eligibility serves to largely offset this effect.

· Establishment of 10% discretionary funding pool.  Finally, the legislature established a 10% ‘holdback’ for the combined MERC/PMAP funds to allow sponsoring institutions some flexibility in the use of funds.  Under this system, 90% of the combined pool will be distributed based on the new distribution formula and other changes described above.  The remaining 10% of funds will be distributed to sponsoring institutions based on the percentage of the ‘90% pool’ they received.  For example, if a sponsoring institution received 25% of the ‘90% pool’ based on the new statutory formula, that sponsoring institution would also receive 25% of the ‘10% holdback pool’.  Sponsoring institutions can choose to distribute these funds to training sites as they normally would, based on costs and public program revenue at each site, or alternatively, they could choose to develop their own criteria for awarding funds to clinical training sites, including those with less than 0.5 FTEs.  Whichever distribution method is chosen, sponsoring institutions would be required to submit a report to MDH outlining the rationale used to determine funding priorities and the amount forwarded to each training site.    

Estimated Distributions

The attached tables provide a comparison of how MERC and PMAP/PGAMC funds would be distributed using the old and new statutory guidelines, by sponsoring institution and by site.  As the total amount of funds available for FY04 is currently unknown, the tables use data from the 2002 MERC distribution and the two FY2003 PMAP/PGAMC distributions, which were awarded in October 2002 and February 2003.  The total amount awarded in these three distributions was roughly $54 million.  The first table compares the actual distribution of this $54 million by sponsoring institution to how the funds would have been distributed had the new language been in effect.  The ‘new’ distribution to each sponsoring institution is broken into two parts; the ‘90% pool’ that is distributed via the statutory distribution, and the ‘10% holdback’ pool for discretionary use by sponsoring institutions. 

The second table compares the actual distribution to the largest training sites to what these sites would have received had the new language been in effect during this period.  As it is impossible to know how sponsoring institutions will choose to distribute their 10% discretionary funds, these funds are not included in the site estimates.  In other words, the dollar amounts shown in this table for the ‘new’ distribution include only 90% of available funds, so most sites will show a decline in dollar terms.  Percentages of the ‘new’ distribution are also based on the 90% pool and do not include what a site may or may not receive from the ‘10% holdback’ pool.  Some training sites will receive additional funds based on decisions made by sponsoring institutions, but those decisions are not reflected here. 

Updated Thursday, July 03, 2014 at 11:07AM