2002 MERC Legislative Summary


During the 2002 Legislative session, several provisions passed into law that will have an impact on funds available for the MERC program in future years. These provisions have the net effect of reducing the total funds available for MERC in future fiscal years, and introducing an element of uncertainty into future estimates of the size of the MERC Fund. Attached to this memo is a spreadsheet that provides new estimates of future MERC and PMAP funding. As always, however, it is important to recognize that these numbers could change due to lower returns on tobacco endowments, issues related to the upper payment limit, or the effects of the legislative changes outlined below.

Loss of General Fund allocation and direction of new funds from AHC to MDH

As part of the budget-balancing process during the 2002 session, the Governor proposed and the Legislature passed language reducing the $5 million MERC General Fund allocation by $4.85 million. The Legislature also reduced funding for MERC administrative costs from $150,000 to $100,000.  In response to the loss of these dollars, MDH and the University of Minnesota Academic Health Center worked together to develop language that would allow for a $4.85 million loan from the AHC to MERC to replace the lost General Fund appropriation. Funds from the AHC are combined with funds from the medical education endowment and any other unmatched MERC funds and transferred to the Department of Human Services in order to draw down federal match.  The funds are required to be repaid to the AHC on the last business day of the fiscal year, along with 5% interest for the period in which the funds are held by MDH (usually roughly two months).

These changes have already gone into effect. The 2002 MERC distribution reflects these changes, with the total amount available for distribution reduced by approximately $4.9 million.

Modifications to tobacco endowments

A modification to Minnesota Statutes 62J.694 allows the Commissioner of Finance, after first looking to cash reserves of the tobacco use prevention and local public health endowment fund, to use funds from the medical education endowment fund to pay general fund expenses.

  • The establishment of this ‘cash flow’ mechanism in the medical education endowment would not begin until SFY04. This will not affect the 2003 MERC distribution.
  • Funds earmarked for distribution to MERC or for the Academic Health Center endowment in a given fiscal year will not be available for cash flow purposes, and if funds from the medical education endowment base are used for cash flow purposes, these funds will still be included in the calculation of the fair market value of the fund.
  • The intent of the new language is to hold the Academic Health Center endowment harmless to the extent possible.
  • If funds are taken from the medical education endowment to pay general fund expenses, they must be paid back before the end of the fiscal biennium. Funds are to be repaid with interest at a monthly rate comparable to the rate earned by the state on invested treasurer’s cash. As this rate is generally lower than what the endowments typically earn, and as the language aims to hold the AHC harmless, this provision means that funds may have to be borrowed from the MERC appropriation in order to make the AHC endowment whole.


Text of MERC 2002 Legislative Changes

This page contains the revisions to the MERC statute(s) enacted by the 2002 legislature.  These changes will be effective July 1, 2002.

KEY:

  • stricken = old language to be removed
  • underscored = new language to be added

Minnesota Statutes 62J.692  Medical Education

Subd. 4. Distribution of funds. (a) The commissioner shall annually distribute medical education funds to all qualifying applicants based on the following criteria:

     (1) total medical education funds available for distribution;

     (2) total number of eligible trainee FTEs in each clinical medical education program; and

     (3) the statewide average cost per trainee as determined by the application information provided in the first year of the biennium, by type of trainee, in each clinical medical education program.

     (b) Funds distributed shall not be used to displace current funding appropriations from federal or state sources.

     (c) Funds shall be distributed to the sponsoring institutions indicating the amount to be distributed to each of the sponsor's clinical medical education programs based on the criteria in this subdivision and in accordance with the commissioner's approval letter.  Each clinical medical education program must distribute funds to the training sites as specified in the commissioner's approval letter.  Sponsoring institutions, which are accredited through an organization recognized by the department of education or the health care financing administration, may contract directly with training sites to provide clinical training.  To ensure the quality of clinical training, those accredited sponsoring institutions must:

    (1) develop contracts specifying the terms, expectations, and outcomes of the clinical training conducted at sites; and

     (2) take necessary action if the contract requirements are not met.  Action may include the withholding of payments under this section or the removal of students from the site.

     (d) Any funds not distributed in accordance with the commissioner's approval letter must be returned to the medical education and research fund within 30 days of receiving notice from the commissioner.  The commissioner shall distribute returned funds to the appropriate training sites in accordance with the commissioner's approval letter.

    (e) The commissioner shall distribute by June 30 of each year an amount equal to the funds transferred under section 62J.694, subdivision 2a, paragraph (b), plus five percent interest to the University of Minnesota board of regents for the costs of the academic health center as specified under section 62J.694, subdivision 2a,  paragraph (a).

    Subd. 7. Transfers from the commissioner of human services. (a) The amount transferred according to section 256B.69, subdivision 5c, paragraph (a), clause (1), shall be distributed by the commissioner to clinical medical education programs that meet the qualifications of subdivision 3 based on a distribution formula that reflects a summation of two factors:

     (1) an education factor, which is determined by the total number of eligible trainee FTEs and the total statewide average costs per trainee, by type of trainee, in each clinical medical education program; and

     (2) a public program volume factor, which is determined by the total volume of public program revenue received by each training site as a percentage of all public program revenue received by all training sites in the fund pool created under this subdivision.

In this formula, the education factor shall be weighted at 50 percent and the public program volume factor shall be weighted at 50 percent.  Public program revenue for the distribution formula shall include revenue from medical assistance, prepaid medical assistance, general assistance medical care, and prepaid general assistance medical care.  Training sites that receive no public program revenue shall be ineligible for funds available under this paragraph.

     (b) Fifty percent of the amount transferred according to section 256B.69, subdivision 5c, paragraph (a), clause (2), shall be distributed by the commissioner to the University of Minnesota board of regents for the purposes described in sections 137.38 to 137.40.  Of the remaining amount transferred according to section 256B.69, subdivision 5c, paragraph (a), clause (2), 24 percent of the amount shall be distributed by the commissioner to the Hennepin County Medical Center for clinical medical education.  The remaining 26 percent of the amount transferred shall be distributed by the commissioner in accordance with subdivision 7a.  If the federal approval is not obtained for the matching funds under section 256B.69, subdivision 5c, paragraph (a), clause (2), 100 percent of the amount transferred under this paragraph shall be distributed by the commissioner to the University of Minnesota board of regents for the purposes described in sections 137.38 to 137.40.

    (c) The amount transferred according to section 256B.69, subdivision 5c, paragraph (a), clause (3), shall be distributed by the commissioner upon receipt to the University of Minnesota board of regents for the purposes of clinical graduate medical education.

62J.694 Medical education endowment fund

 Subdivision 1.    Creation.  (a) The medical education endowment fund is created in the state treasury.  The state board of investment shall invest the fund under section 11A.24.   All earnings of the fund must be credited to the fund.  The principal of the fund must be maintained inviolate, except that the principal may be used to make expenditures from the fund for the purposes specified in this section when the market value of the fund falls below 105 percent of the cumulative total of the tobacco settlement payments received by the state and credited to the tobacco settlement fund under section 16A.87, subdivision 2.  For purposes of this section, "principal" means an amount equal to the cumulative total of the tobacco settlement payments received by the state and credited to the tobacco settlement fund under section 16A.87, subdivision 2. 

     (b) If the commissioner of finance determines that probable receipts to the general fund will be sufficient to meet the need for expenditures from the general fund for a fiscal biennium, after using the cash reserves of the tobacco use prevention and local public health endowment fund, excluding an amount sufficient to meet the annual appropriations in section 144.395, subdivision 2, the commissioner may use cash reserves of themedical education endowment fund, excluding the amounts needed to meet the appropriations described in subdivisions 2 and 2a, to pay expenses of the general fund.  If cash reserves are transferred to the general fund to meet cash flow needs, the amount transferred, plus interest at a rate comparable to the rate earned by the state on invested treasurer's cash, as determined monthly by the commissioner, must be returned to the endowment fund as soon as sufficient cash balances are available in the general fund, but in any event before the end of the fiscal biennium.  An amount necessary to pay the interest is appropriated from the general fund.  If cash reserves of the endowment fund are used to pay expenses for the general fund, notwithstanding subdivision 2, paragraph (d), the academic health center shall be held harmless to the extent possible.  When determining the fair market value of the fund, for the purposes described in subdivisions 2 and 2a, the value of the cash reserves transferred to the general fund must be included in the determination.

     (c) The academic health center account is created as a separate account in the medical education endowment fund.  The account is invested under paragraph (a).  All earnings of the account must be credited to the account.  The principal of the account must be maintained inviolate, except that the principal may be used to make expenditures from the account for the purposes specified in subdivision 2a when the value of the account falls below an amount equal to deposits made to the account under section 16A.87, subdivision 3, paragraph (b).

 Subd. 2a.  [EXPENDITURE; ACADEMIC HEALTH CENTER ACCOUNT.]

        (a) Beginning in January 2002, up to five percent of the fair market value of the academic health center account is annually  appropriated to the board of regents for the costs of the academic health center.  Appropriations are to be transferred quarterly and may only be used for instructional costs of health professional programs at the academic health center and for interdisciplinary academic initiatives within the academic health center, except as specified in paragraph (b).

        (b) Of the amount appropriated under paragraph (a),  $4,850,000 shall be transferred annually to the commissioner of health no later than April 15 of each year for distribution under section 62J.692, subdivision 4.

     (b) For fiscal year 2000, 70 percent of the appropriation in paragraph (a) is for transfer to the board of regents for the instructional costs of health professional programs at the  academic health center and affiliated teaching institutions, and 30 percent of the appropriation is for transfer to the  commissioner of health to be distributed for medical education under section 62J.692. 

     (c) For fiscal year 2001, 49 percent of the appropriation in paragraph (a) is for transfer to the board of regents for the instructional costs of health professional programs at the  academic health center and affiliated teaching institutions, and 51 percent is for transfer to the commissioner of health to be distributed for medical education under section 62J.692.

     (d) For fiscal year 2002, and each year thereafter, 42 percent of the appropriation in paragraph (a) is appropriated for the instructional costs of health professional programs at  the University of Minnesota academic health center, and 58 percent is for transfer to the commissioner of health to be distributed for medical education under section 62J.692.

     (e) A maximum of $150,000 of each annual appropriation to the commissioner of health in paragraph (d) may be used by the commissioner for administrative expenses associated with implementing section 62J.692.

     Subd. 2a.    Expenditure; academic health center account. Beginning in January 2002, up to five percent of the fair market value of the academic health center account is annually appropriated to the board of regents for the costs of the academic health center.  Appropriations are to be transferred quarterly and may only be used for instructional costs of health professional programs at the academic health center and for interdisciplinary academic initiatives within the academic health center.

     Subd. 3.    Audits required.  The legislative auditor shall audit endowment fund expenditures to ensure that the money is spent for the purposes set out in this section.

     Subd. 4.    Sunset.  The medical education endowment fund expires June 30, 2015.  Upon expiration, the commissioner of finance shall transfer the principal and any remaining interest to the general fund.

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