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PEDIATRICS Vol. 112 No. 1 July 2003, pp. 40-48

A Model of Determining a Fair Market Value for Teaching Residents: Who Profits?

Edward J. Cullen, Jr, DO*,§, Stephen T. Lawless, MD, MBA, FCCM*,{ddagger},§, James H. Hertzog, MD*,§, Scott Penfil, MD*,§, Kathleen K. Bradford, MD*,§, Vinay M. Nadkarni, MD*,§, David H. Corddry, MD*,§ and Andrew T. Costarino, Jr, MD*,§

* Department of Anesthesiology and Critical Care Medicine
{ddagger} Nemours Office of Operational Assessment, Nemours Children’s Clinic, Alfred I. duPont Hospital for Children, Wilmington, Delaware
§ Thomas Jefferson University School of Medicine, Philadelphia, Pennsylvania

Context. Centers for Medicare & Medicaid Services (CMS) Health Resources and Services Administration Children’s Hospitals Graduate Medical Education (GME) Payment Program now supports freestanding children’s teaching hospitals.

Objective. To analyze the fair market value impact of GME payment on resident teaching efforts in our pediatric intensive care unit (PICU).

Design. Cost-accounting model, developed from a 1-year retrospective, descriptive, single-institution, longitudinal study, applied to physician teachers, residents, and CMS.

Setting. Sixteen-bed PICU in a freestanding, university-affiliated children’s teaching hospital.

Participants. Pediatric critical care physicians, second-year residents.

Main Outcome Measures. Cost of physician opportunity time; CMS investment return; the teaching physicians’ investment return; residents’ investment return; service balance between CMS and teaching service investment margins; economic balance points; fair market value.

Results. GME payments to our hospital increased 4.8-fold from $577 886 to $2 772 606 during a 1-year period. Critical care physicians’ teaching opportunity cost rose from $250 097 to $262 215 to provide 1523 educational hours (6853 relative value units). Residents’ net financial value for service provided to the PICU rose from $245 964 to $317 299. There is an uneven return on investment in resident education for CMS, critical care physicians, and residents. Economic balance points are achievable for the present educational efforts of the CMS, critical care physicians, and residents if the present direct medical education payment increases from 29.38% to 36%.

Conclusions. The current CMS Health Resources and Services Administration Children’s Hospitals GME Payment Program produces uneven investment returns for CMS, critical care physicians, and residents. We propose a cost-accounting model, based on perceived production capability measured in relative value units and available GME funds, that would allow a clinical service to balance and obtain a fair market value for the resident education efforts of CMS, physician teachers, and residents.

Key Words: economic balance point • fair market value • opportunity cost • relative value unit • return on investment for resident education

Abbreviations: CMS, Centers for Medicare & Medicaid Services • DME, direct medical education • GME, graduate medical education • HRSA, Health Resources and Services Administration • IME, indirect medical education • PGY-2, postgraduate second year • PICU, pediatric intensive care unit • ROEI, critical care physicians’ investment return on teaching residents in the PICU for the service that residents provide in the PICU • RORI, CMS investment return on GME reimbursement for PICU resident education that occurs in our freestanding children’s teaching hospital • RROS, resident investment return for service provided in our PICU for both clinical teaching by critical care physicians and salary from DME funds • RVU, relative value unit

Received for publication Jul 8, 2002; Accepted .