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.

MERC trust fund established

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 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, 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.

MERC legislative revisions 2007

During the 2007 legislative session, the MERC statute was again modified. The distribution formula was revised to take into account only relative Medicaid volume rather than a combination of Medicaid volume and clinical training costs. The new formula was implemented with the 2008 MERC application and included a supplemental grant to eligible clinical training sites whose Medicaid revenue accounted for more than 0.98 percent of the total overall Medicaid revenue for eligible sites. These sites would receive a supplemental grant equal to 20 percent of their original grant, with those funds coming from sites whose Medicaid revenue accounted for less than 0.98 percent of the total pool. Nursing homes became ineligible. Several direct payments to large providers were added to the distribution formula, with these direct payments taken out of the overall pool of available MERC funding prior to the application of the distribution formula.

MERC legislative revisions 2011

Revisions during the 2011 legislative session resulted in the elimination of the direct payments beginning in fiscal year 2012 to the University of Minnesota Academic Health Center ($1.8 million), the University of Minnesota Medical Center – Fairview ($1.475 million), and the University of Minnesota School of Dentistry ($2.075 million), while a one-time payment of $300,000 to Gillette Children’s Hospital was added. The 2011 legislature also included funding cuts to PMAP in FY12 and FY13, leaving roughly $24M. Half of the PMAP cuts would be returned to MERC in FY14 and FY15 bringing PMAP funding to roughly $36M. The legislation also added a new minimum grant amount. Training facilities with a total grant less than $1,000 were eliminated from the distribution.

The PMAP cuts made during the 2011 legislative session were set to be restored to $36M beginning with FY14 funding. The legislature increased this funding to $49.5M during the 2013 legislative session. The minimum facility grant was increased to $5,000 and a training facility FTE minimum of 0.1 was implemented. The supplemental grant to facilities whose relative Medicaid volume met or exceed .98 percent was decreased from 20 percent to 10 percent and grants to facilities were capped at the 95th percentile per FTE. A provision that grants could not exceed a clinical training facility’s expenditures was also added. Besides the formula change, the MERC grant was opened to six additional types of training programs:

Clinical Social Workers
Community Health Workers
Community Paramedics
Dental Therapists
Advanced Dental Therapists
Psychologists

MERC legislative revisions 2013

The 2013 legislative changes required approval by the Center for Medicare and Medicaid Services (CMS). Approval of the legislation pertaining to PMAP funds was secured prior to the 2014 grant payment; however, approval of the 2013 legislation concerning cigarette tax funds was not finalized before the April 30, 2014, grant release deadline. As the legislation stated, if federal approval was not received for the formula in the 2013 legislation, the distribution would be based on the previously approved distribution formula. Since the formula was approved for PMAP funds but pending for cigarette tax funds, fiscal year 2014 funding was based on two formulas:

PMAP funding: The grant formula for this funding was based on a minimum 0.1 FTE (full–time equivalent) per facility, with a minimum facility grant of $5,000 and a 10 percent supplemental grant to a facility whose relative revenue met or exceeded 0.98 percent. Grants could not exceed clinical training expenses and were capped at the 95th percentile per FTE. The provider types added during the 2013 legislative session were eligible for this portion of the distribution.
Cigarette tax funding: The grant formula for this funding had no FTE minimum, the minimum facility grant was $1,000, and facilities whose relative revenue met or exceeded 0.98 percent were eligible for a 20 percent supplemental grant. Grants could not exceed clinical training expenses. The new provider types were not included in this portion of the distribution.

What is the PMAP Fund?

It is important to understand how Medicaid funds graduate medical education. Under the fee–for–service system, payments to teaching facilities are higher than those to non–teaching facilities. This is done in an effort to offset a portion of the higher costs faced by facilities that provide clinical medical education.

Under managed care Medicaid (the Prepaid Medical Assistance Program and Prepaid General Assistance Medical Care), a medical education add-on payment was added to rates for the same reason. Under managed care, however, payments were made to health plans rather than to the providers themselves. Because of the difference in how payments were made, there were concerns that these medical education payments may not have been fully passed on by health plans to teaching facilities. To address this, Minnesota began to remove the medical education add-on payments from the PMAP/PGAMC rates that were paid to health plans through a process known as the PMAP carveout (PGAMC ended in March 2010).

These funds are now paid directly to MDH for distribution to medical education training facilities. We refer to this pool of money as the PMAP Medical Education Fund or the PMAP Fund. Historically, these funds were distributed using a different distribution formula and timeline than MERC grants; however, beginning in 2004 they were combined into one distribution.

PMAP distribution

Note: Due to a change in the MERC statute (62J.692), as of July 1, 2003, all PMAP medical education funds received by MDH are being combined with MERC funds into a single annual distribution. We will no longer separately report on the distribution of PMAP funds on this page. The first combined MERC/PMAP distribution took place in July 2004 and included PMAP carveout funds received between July 1, 2003 and June 30, 2004.

PMAP legislative revisions

In 1998, the Minnesota Legislature authorized removal of the 'medical education component' of Prepaid Medical Assistance Program (PMAP) and Prepaid General Assistance Medical Care (PGAMC) capitation rates and a transfer of these funds to the Minnesota Department of Health (MDH) for distribution through the MERC Trust Fund. The 1998 Minnesota Legislature directed the Commissioner of Health to work with stakeholders to develop a distribution process that would "recognize those teaching programs which serve higher numbers or high proportions of public program recipients and.report to the legislative commission on health care access by January 15, 1998, on an allocation formula to implement this system."

That report, released in February 1998, recommended the use of a formula that would equally weight public program volume and teaching volume in the distribution of funds, and outlined the process through which the committee arrived at their recommendation. This "50/50" formula was put in statute during the 1998 legislative session.

2000

Although a distribution formula for PMAP/PGAMC carveout funds was put in place by the 1998 legislature, the carveout itself could not commence until three months after the Minnesota Department of Human Services received a waiver from the federal Health Care Financing Administration (HCFA). The Department of Human Services received a waiver in August 2000, and carveout of medical education funds from capitated PMAP rates began in October, 2000.

Given ongoing debate about the appropriateness and impact of the current distribution formula for carved–out PMAP funds, which equally weighted public program volume and medical education volume, the 2000 Minnesota Legislature directed the Department of Health to establish a committee to evaluate the current distribution formula. On the advice of the MERC Advisory Committee, the MDH, during the fall of 2000, convened an Ad Hoc Committee on Medicaid Financing of Medical Education to reexamine the current formula.

2001

The first distribution of funds generated by the carveout took place in June, 2001. This initial distribution, totaling $4,441,818, was comprised of funds that had been removed from capitated PMAP/PGAMC rates between October and December, 2001.

2003

The 2003 Minnesota Legislature enacted new language that combines funds obtained from the PMAP/PGAMC carveout with funds received from the cigarette tax and from the University of Minnesota Academic Health Center, creating a combined MERC/PMAP Fund. Under the new legislation, funds from the combined pool will be distributed once a year using a combined distribution formula that weights relative education volume at 67% and relative public program volume at 33%. At the same time, the Legislature redirected funds from the PGAMC carveout to the General Fund, reducing the amount of funding available for the MERC/PMAP Fund.

As a result of these changes, beginning in CY2004, PMAP funds will no longer be distributed separately from MERC funds but will be combined with MERC funds in a single annual distribution.

Medical Education and Research Costs (MERC)

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