Medicare Support of Nursing Education

Linda Aiken, Ph.D., R.N. LDI Senior Fellow, Trustee Professor of Nursing; Director, Center for Health Services and Policy Research, University of Pennsylvania School of Nursing

Marni Gwyther, Research Assistant, Center for Health Services and Policy Research, University of Pennsylvania School of Nursing


Amidst the current debate about Medicare support of graduate medical education, the substantial amount of funds devoted to nursing education has received scant attention. This Issue Brief describes the magnitude and distribution of Medicare funding for nursing education and the extent to which this funding contributes to meeting national priorities for the health care workforce.

Medicare is the largest source of federal support for nursing education

Fifteen percent of Medicare's direct graduate medical education funding goes to hospitals for the training of nurses and paramedical personnel. About 70% of these funds goes to hospitals for nursing education costs. This makes Medicare a powerful vehicle for shaping the nurse workforce.

In 1994, hospitals received about $248 million in Medicare support for nursing education. Title VII Public Health Service funds constitute most of the other federal support for nursing education, totalling about $60 million in 1994.

Medicare funding has been a stable source of income for nursing programs, increasing from year to year because it is an entitlement; in contrast, Title VII funds are subject to the congressional appropriations process each year.

Title VII monies go directly to educational programs, while Medicare funds accrue to hospitals' general revenue and are not earmarked for education.

The organization and financing of nursing education differs from that of medical education

Recent legislative proposals to modify Medicare funding for graduate medical education have not included nursing education. Because nursing education differs in important ways from physician education, an appraisal of this aspect of Medicare funding is long overdue. Three different kinds of programs prepare registered nurses: 3-year hospital diploma, 2-year associate degree, and 4-year baccalaureate degree programs.

Nursing schools depend more on tuition than do medical schools; tuition constitutes between 17% and 40% of revenues, as opposed to about 4% for medical schools.

Unlike graduate medical education, Medicare supports primarily preprofessional education in nursing. Graduate education, including the preparation of nurse practitioners, does not generally qualify for reimbursement.

Service revenues from practice plans (including Medicare payments for graduate medical education) are the most important source of financing for medical schools. In contrast, patient care revenues are an important source of nurse education funding only in hospital-based nursing programs.

Medicare reimbursement regulations have not kept up with changes in nurse training and employment

The original intent of Medicare funding for educating health professionals was the promotion of high-quality inpatient care for Medicare beneficiaries. In 1965, it made sense to target hospital-based diploma programs for nurses, which produced 83% of the nation's nurses. But the regulations do not match current patterns of nursing education and employment.

Most nursing education programs are now conducted under the aegis of 2- and 4-year colleges and universities, where 90% of nurses currently receive their education.

The number of hospital-based diploma programs dropped from more than 900 in 1960 to 145 in 1991 and produce less than 10% of all nurse graduates.

Between 1988 and 1992, the employment of nurses in outpatient settings increased more than 60%, as compared to just 6% in hospital inpatient settings.

Medicare reimbursement policies favor nursing education programs that are hospital-based

Medicare reimbursement for nursing education programs principally goes to hospitals for preprofessional programs preparing registered nurses.

Medicare reimburses hospitals that operate approved nurse education programs for a share of their classroom and clinical costs, based on the proportion of the hospital's patients who are Medicare beneficiaries.

Strict provisions govern the reimbursement of hospitals with nonprovider-operated nursing education programs. These provisions include: hospitals must have been reimbursed for clinical training costs in the last reporting period, and must show the benefits of the program through the provision of clinical services by nursing students.

Study shows that most of the nation's teaching hospitals and nursing programs receive no reimbursement from Medicare for the clinical training of nurses

An analysis of 1991 data by Aiken and Gwyther revealed that only 25% of all nursing education programs receive Medicare support. Of 1484 nursing education programs, 372 programs received Medicare support through their affiliated hospitals.

Hospitals with diploma nursing programs received 66% of total Medicare funds for nursing education. These programs had enrollments of less than 23,000 out of a total enrolled student population of 237,598.

Despite this favorable reimbursement status, the number of hospital-based diploma schools has declined from 303 in 1981 to 145 in 1991.

In 1991, 145 hospitals associated with 144 nursing programs received $114 million in Medicare funding, more than twice the amount for all nursing programs supported by Title VIII funds.

The majority of Medicare funding goes to hospitals with an increasingly smaller, idiosyncratic subset of nursing programs

Although 372 hospitals received some Medicare payment for nursing education, the amount of reimbursement varied considerably. One-third of hospitals averaged $32,400 (a quite small amount compared to their operating budgets) while 54 hospitals received more than $1 million each.

More than 90% of Medicare funding for nursing education went to private, nonprofit hospitals; most were not affiliated with university-based nursing schools, which are generally ineligible for funding.

Hospitals with more than 300 beds garnered 70% of nursing education reimbursement. Among the 145 hospitals receiving funds, only 13 were located in rural areas.

Three states--Pennsylvania, New Jersey and Ohio--account for one-half of total Medicare payments for diploma nursing education. This is due to the fact that almost half of the 144 funded diploma programs are located in these three states. Overall, Pennsylvania gets $1 of every $5 Medicare spends on nursing education.

Policy implications

Medicare payments constitute the largest source of federal support for nursing education.

Medicare payments are too large to be treated with the benign neglect that has characterized policies to date.

By biasing funding eligibility to hospital-operated programs, Medicare has become a source of unrestricted support for an increasingly smaller set of hospital-based programs that lie outside the mainstream of health professions education.

Medicare's funding policies are at odds with national health care workforce priorities. Medicare funds go entirely to hospitals--a questionable setting for educating nurses for ambulatory care.

Medicare reimbursement policies for nursing education should be changed to target programs that train baccalaureate and graduate level nurses, where there is a projected shortage.

This brief is based upon the following article: L.H. Aiken and M.E. Gwyther, Medicare Funding of Nursing Education--The Case for Policy Change. JAMA 1995;273:1528-1532.