This paper examines current Medicaid policies on the reimbursement of hospitals' medical education expenses. These policies are of interest because of the pressure on Medicaid programs to reduce expenditures. Data for the paper come mainly from two sources: a survey of Medicaid programs and a survey of teaching hospitals.

Teaching hospitals receive a disproportionate share, nearly 70 percent in 1978, of Medicaid short-term hospital payments. Nevertheless, most Medicaid programs either have no explicit policies in this area or have not acted aggressively to limit reimbursement of hospitals' teaching expenses. Revenues from Medicaid are most important to public teaching hospitals. Thus, across-the-board reductions in Medicaid's reimbursement of teaching expenses would most severely affect public institutions, many of which already face cuts in their local government appropriations. Savings to Medicaid would also be short-lived, since teaching hospitals would have the incentive to reduce teaching program size and substitute reimbursable personnel (nurses and staff physicians) for residents.

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