History of Medical Education and Research Costs (MERC)

In 1993, recognizing that medical education and research are vital activities affecting not only the health care community but also the health of every citizen and the economy of the entire state, the Minnesota Legislature directed the Commissioner of Health to examine medical education and research costs in order to assess how health care reform and health care market changes had affected the financing of these important activities. The Department's study of medical education and research continued for three years, and culminated in the report, Medical Education and Research Costs (MERC): A Final Report to the Legislature (February 1996). A key recommendation in the report was the creation and funding of a Medical Education Trust Fund in Minnesota.

Largely as a result of this report, the Medical Education and Research Costs (MERC) Fund was established in 1996. The purpose of the fund was and is to compensate hospitals and clinics for a portion of the costs of clinical training. These costs had traditionally been covered by teaching facilities charging higher rates for patient care; however, in a highly competitive market, third party payers had become less willing to pay the higher charges at teaching institutions, leaving teaching facilities at a competitive disadvantage. The MERC Fund was funded for the first time in 1997, with $5 million from the General Fund, $3.5 million from the Health Care Access Fund, and $9.3 million in federal Medicaid funds, for a total of approximately $17.8 million distributed to teaching facilities in 1998.

Since 1997, the financing for MERC has shifted several times, first to the medical education endowment established by the 1999 legislature with funds from the one-time tobacco settlement, and later to a 2.5 cents per pack cigarette tax, which was shifted to MDH in 2003. Currently, funds for the MERC distribution come from cigarette tax revenues, a carveout of medical education funds from the Prepaid Medical Assistance Program/Prepaid General Assistance Medical Care program, and federal Medicaid matching funds obtained by the Department of Human Services.

The formula governing the MERC distribution has also changed over the years. Beginning in 2004, when funds from the PMAP/PGAMC carveout were combined with MERC funds in a single annual distribution, the formula changed to reflect the combination of the two programs; the formula used from 2004 to 2007 was based 67% on relative teaching costs at each facility and 33% on relative public program volume at each facility.

In 2004 and 2005, training sites that hosted fewer than 0.5 FTE trainees from an eligible clinical training program were eliminated from the distribution, as were any advanced practice nursing programs sponsored by organizations not part of the Minnesota State Colleges and Universities (MnSCU) system, the University of Minnesota Academic Health Center, the Mayo Clinic, or the Private College Council. At the same time, the formula was also altered so that 90% of available funds were distributed on a formula basis and 10% went directly to sponsoring institutions to be distributed at their discretion to eligible training sites or to small sites. The 10% discretionary fund continued through 2007.

New legislation in 2007 changed the distribution formula which begins in 2008. Instead of the 67% education/33% relative public program revenue formula, the formula will be based 100% on relative public program revenue after $5.35M is distributed directly to the following sites ($1.475 million to the University of Minnesota Medical Center, Fairview; $2.075 million to the University of Minnesota Dental School; and $1.8 million to the Academic Health Center. Those sites with 0.98% relative public program revenue or higher will receive a supplemental grant of 20% on top of their original grant. The cost of this supplemental grant is borne by those with less than 0.98% relative public program revenue. The discretionary fund is no longer available. Nursing Facilities are no longer eligible.

For detailed information on MERC's history, look at the Legislative Summary page for the appropriate year.


Updated Tuesday, November 16, 2010 at 12:25PM