Report Summary: Medical Education and Research Costs (MERC) Annual Report on Program Implementation and Recommendations April 1998

The following is a summary of the April 1998 MERC legislative report.  To obtain a copy of the complete report, please contact the HEP staff at

The Medical Education and Research Costs (MERC) Trust Fund was established in 1996 to provide funding for the clinical training of selected medical professions. The purpose of this funding is to compensate training sites for a portion of the costs of training provided in a clinical teaching environment. These costs have traditionally been covered by teaching facilities charging higher rates for patient care. However, in today's highly competitive market, third party payers are increasingly unwilling to pay the higher charges at teaching institutions.

The MERC Trust Fund was established in 1996 and funded in 1997, with $5 million from the General Fund and $3.5 million from the Health Care Access Fund. These dollars have been matched with approximately $9.3 million federal Medicaid funds, for a total of approximately $17.8 million to be distributed in 1998. These funds will be distributed to teaching programs on the basis of the number of eligible trainees and the average cost of clinical training (based on a statewide average for each of the provider types covered by MERC).

The legislature provided ongoing funding for MERC in the 1998 legislative session by appropriating $10 million from the general fund for distribution in fiscal year 1999 and increasing the Minnesota Department of Health's budget base by $5 million annually beginning in FY 2000. The legislature also authorized the Department of Human Services to seek a federal match on these dollars. The distribution formula for the general fund dollars and federal match is the same as for the 1998 MERC Trust Fund distribution.

In addition to the general fund appropriations, the 1997 legislature authorized removal of the medical education component of the Prepaid Medical Assistance Program (PMAP) and Prepaid General Assistance Medical Care (PGAMC) capitation rates, and a transfer of these funds to the MERC Trust Fund for distribution beginning in 1999. These dollars from the public programs are not new dollars for medical education. Rather, they are existing dollars that can be used more effectively and efficiently by distributing them through the MERC Trust Fund. The current estimate of the amount that will be transferred from PMAP/PGAMC to the MERC Trust Fund for 1999 is $22 million.

1998 MERC Trust Fund Distribution

Eligible applicants for the Trust Fund are Minnesota-based teaching institutions and programs that are accredited to train physicians, doctor of pharmacy practitioners, dentists, advanced practice nurses, and physician assistants. Applications are submitted by the sponsoring institutions, the organizations that are organizationally and/or financially responsible for one or more teaching programs. Funds are disbursed to the sponsoring institutions, with explicit requirements to pass the funds through to the training sites where clinical training takes place.

An important feature of the MERC Trust Fund is that it supports teaching activities wherever they occur. Medical education in Minnesota currently takes place in a very wide variety of settings, not just in urban hospitals. Information obtained from 1998 Trust Fund applications confirms that clinical medical education is conducted in urban and rural settings, and in small and large patient clinics; 56% of the training sites that will receive MERC funds are clinical training sites in the metropolitan area, 44% are clinical training sites in the rural area. Approximately 70% of the training sites are hospitals and 30% are non-hospital settings.

Applications for the 1998 Trust Fund were received from 16 sponsoring institutions that applied on behalf of 154 teaching programs, representing over 300 sites of training and 2,710 trainees. The largest share (87%) of the 1998 MERC Trust Fund will go to cover the cost of clinical training for medical residents. This is because medical residents make up over 65% of the trainees covered by the Trust Fund, and also because costs per trainee for medical residents are the highest at $146,765. Medical students, dental residents and dental students will each receive between 3% and 4% of the Trust Fund dollars, for a total of 11% of the Trust Fund. The remaining provider types (advanced practice nurses, physician assistants and doctor of pharmacy practitioners) will each receive approximately 1% or less of Trust Fund dollars, which reflects the fact that these provider types had relatively low training costs per trainee, small numbers of eligible trainees, or both low training costs and few trainees.


The 1997 legislature requested the Commissioner of Health provide recommendations on:

  1. an allocation formula for distribution of the medical education funds from the Prepaid Medical Assistance and General Assistance Medical Care Programs,
  2. additional broad based funding sources
  3. feasibility of including a carve out of current MinnesotaCare capitation rates allocated for medical education to the Trust Fund.

The Commissioner's recommendations to the 1998 legislature, and the action taken by the legislature are summarized below.

Recommendations on Distribution of the Medical Education Funds from the Prepaid Medical Assistance and General Assistance Medical Care Programs:

These dollars should be distributed based on a simple additive formula that weighs equally the amount of medical education at each site plus the amount of public program volume at each site. Thus each factor, the education factor and the public program volume factor, would receive 50% weight in determining the distribution of funds.

In addition to the above formula, the Commissioner also recommended:

  • "Public program volume" should be calculated based on a site's revenue from Medical Assistance, General Assistance Medical Care, Prepaid Medical Assistance and Prepaid General Assistance Medical Care.
  • Training sites that have no public program revenue should be ineligible for a grant from this fund.

The Commissioner of Health submitted this recommendation to the legislature in a separate report titled "Recommendations on Distribution of PMAP/PGAMC Funds," in February 1998.

The legislature accepted the commissioner's recommendations and codified the distribution formula and two related considerations on public program revenue.

Recommendation on Additional Broad Based Funding Sources:

The MERC Advisory Committee has consistently recommended that MERC be funded from a broad-based, stable source of revenue, specifically general fund appropriations. This recommendation is consistent with the proposal the Commissioner submitted to the 1998 legislature for ongoing MERC funding from the general fund.

In addition to this funding, the MERC Advisory Committee has expressed a commitment to pursue the inclusion of MERC as a recipient of a portion of any proceeds arising from Minnesota's litigation with the tobacco companies. The Governor has already stated his interest in having MERC share in any settlement or judgment proceeds, both for medical education activities as well as for medical research.

The 1998 legislature indicated their continuing support of medical education in Minnesota by appropriating $10 million from the general fund for distribution in FY 1999 and increasing the Minnesota Department of Health's budget base by $5 million annually beginning in FY 2000. The legislature also authorized the Department of Human Services to seek a federal match on these dollars.

Recommendation on Medical Education Carve Out from MinnesotaCare:

The Commissioner of Health, in consultation with the Commissioner of Human Services recommended that there be no transfer of an education component from the MinnesotaCare rates to the Trust Fund at this time.

MinnesotaCare is a relatively new program and the enrollment has grown rapidly over the past few years. As the population enrolled in MinnesotaCare has changed, the average cost per patient has risen dramatically. Because of this change in the population, providers and health plans have expressed concerns about the adequacy of the MinnesotaCare rates, and believe that removing a portion for medical education would result in greater difficulties for MinnesotaCare providers. While MinnesotaCare rates are based on Medical Assistance, most of the MinnesotaCare population has not previously had a payment source that included a medical education component.

The 1998 legislature made no changes, and there will be no carve-out from the Minnesota-Care rates for distribution through the MERC Trust Fund.

Future Issues

Targeting Funds in Accordance with the Purpose of MERC

The 1998 legislature took action to assure that the MERC Trust Fund continues to serve its purpose in providing needed funding for medical education in Minnesota. The legislature enacted two provisions that allow the Commissioner of Health and the MERC Advisory Committee to review the provider groups that are eligible for MERC funding. Senate File 3346, Article 2, Section 8. First, the Commissioner and the MERC Advisory Committee were given authority to review provider groups added to the statute after January 1, 1998 to evaluate whether the group should be eligible for funding. In performing this review, the Commissioner and the MERC Advisory Committee are to consider the degree to which the training of the provider group:

  1. takes place in patient care settings which are consistent with the purpose of the MERC Trust fund;
  2. is funded with patient care revenues;
  3. takes place in patient care settings which face increased financial pressure as a result of competition with nonteaching patient care entities, and
  4. emphasizes primary care or specialties which are in undersupply in Minnesota.

Second, the legislature authorized the Commissioner and the MERC Advisory Committee to review provider groups that were added to the eligible list of provider groups prior to January 1, 1998 to assure that the Trust Fund money continues to be distributed consistent with the purpose of the statute. In both cases, the review of the provider group must be reported to the Commission on Health Care Access for final action. These provisions are important tools to assure that Trust Fund dollars continue to support medical education in patient care training sites that have experienced a loss of medical education funding due to increased competition in the health care market.

The legislature directed the Commissioner of Health to determine if there are other criteria for weighting future distributions of medical education and research funds beyond the current statutory criteria, including the criteria that trainees continue to practice in Minnesota. This provision allows the Commissioner to continue to consider how to best target resources consistent with the purposes of MERC in the changing health care environment. For example, in addition to the new criteria named above, the Commissioner and MERC Advisory Committee might consider the degree to which MERC funding could assist in addressing workforce priorities.

It is important that there are opportunities to review provider eligibility and distribution criteria in light of changes in the amount of funding available for the MERC Trust Fund. The appropriation of $10 million for FY 1999 and $5 million annually thereafter is significantly less than the $17.8 million to be distributed in 1998. The Department of Human Services has been directed to seek a federal match for these dollars, but we do not expect to maintain the federal match that contributed $9.3 million to the state appropriation of $8.5 million. We will also be distributing funds from the carve-out from PMAP and PGAMC; however, these funds are not new money, but rather redistribution of existing dollars. Therefore, the MERC Trust Fund will be smaller and spread thinner among the current eligible provider groups. As new provider groups are added, the distribution and its impact will be more diffuse.

Appropriate Staffing and Support

In order to implement and maintain the MERC Trust Fund, appropriate staffing and financial support is required. The MERC Trust Fund, in 1998, will distribute $17.8 million. In 1999 the distribution amount will be approximately $30 million or higher, with two separate pools of funding and two different distribution formulas. In addition, the 1998 legislation requires the Department of Health to evaluate provider eligibility. The legislation also requires the Department of Health to conduct a study of the structure and composition of the MERC Advisory Committee, determine whether adjustments are necessary in the distribution formula for the PMAP/PGAMC medical education dollars, and determine whether additional criteria for weighting future distributions of the Trust Fund are necessary. This study might include an evaluation of workforce planning as a distribution criteria. Finally, the MERC project has also had as a part of its charge a focus on research, which has so far been largely neglected due to staff limitations. In order to execute the MERC Trust Fund responsibly, administrative dollars must be allocated.

Updated Thursday, July 03, 2014 at 11:05AM