Despite a looming physician shortage, Mayo School of Graduate Medical Education has seen its state funding cut sharply over the past decade.

At its peak, Mayo Clinic and Mayo Health Systems received more than $18 million annually to help with the costs of training medical professionals. But major changes to how those dollars are doled out have led to major funding cuts for the school. In 2013, Mayo Clinic and Mayo Health Systems received $2.3 million.

"Mayo is firmly committed to medical education as part of who we are and what we do. We know it's an important investment in our future, but it is strained by the fact that the financial support from government is less than what it was, and it's constrained by the fact of all the changes across health care," said Dr. Steven Rose, dean of Mayo School of Graduate Medical Education.

This past legislative session, the clinic did get a welcome respite from the cuts. Lawmakers restored a 50 percent funding cut made to the state's Medical Education and Research Costs program made in 2011 at a time when the state faced a $5 billion budget deficit. The increase was pushed by DFL Gov. Mark Dayton, who included it in his budget proposal.

The funding boost pales in comparison to the amount of money Mayo used to get for training the doctors of tomorrow. At the same time, the need for additional graduate programs has skyrocketed. By 2020, the United States is expected to face a shortage of 91,500 doctors, according to the American Association of Medical Colleges.

While enrollment in medical school has jumped significantly in the United States in anticipation of this shortage, the number of entry-level residency positions has only grown at a rate of 1 1/2 percent per year, Rose said. That means a lot of graduating medical students are faced with being unable to get into a residency program so they can become licensed to practice.

"This is a serious imbalance that is markedly different than it has been really anytime in the history of medical education," he said.

The Minnesota Legislature created the MERC program in 1997 to help institutions defray the cost of educating medical students. Originally, those dollars were based on the number of students a hospital or clinic trained. Funding came from a hodgepodge of sources, including the state's general fund, one-time tobacco endowment, a dedicated cigarette tax and Medicaid dollars.

In 2004, lawmakers decided to change how those dollars were divvied up, with two-thirds of the money following the students and the remaining third based on the amount of Medicaid patients these institutions serve. In 2007, the formula was changed again to be entirely based on the volume of Medicaid patients. That's when the amount of dollars Mayo received dropped sharply, according to Kathy Meyerle, vice chairwoman of the MERC advisory board and Mayo Clinic legal counsel.

While one-third of MERC trainees did their residencies in Rochester in 2013, less than 6 percent of the funding went to Olmsted County institutions. The bulk of the funding went to institutions in Hennepin and Ramsey counties.

House Health and Human Services Policy Committee Chairwoman Tina Liebling, DFL-Rochester, said there has long been a disagreement whether MERC dollars should be used to care for low-income residents or to make up for the cost of educating medical students. Liebling said she believes the project should be focused on the latter.

"We know we've got an aging population. We've got more people that are going to be covered (under the Affordable Care Act), and that's a great thing. We need to make sure there are providers to care for them, so it just makes sense to increase our training capacity in the state," she said.

Rochester GOP Sen. Carla Nelson, who serves on the Senate Health, Human Services and House Committee, agreed.

"MERC better served its purpose of augmenting medical education funding when the funding followed the student or trainee to the training institution," she said. "Now, it is simply another way to redistribute Medicaid dollars."

The funding cuts mean Mayo has had to try to make up the lost funding on its own, said Ken Kurth, administrator of Mayo Education. Mayo's program has more than 1,500 residents across 271 programs.

In a statement, Gov. Dayton said he's a strong supporter of the MERC program. "MERC is a terrific program that helps train doctors for work in rural and other underserved areas," he said.

One of those residents is Dr. Tania Gonzalez Santiago, who is a third-year dermatology resident from Puerto Rico. She said she wanted to do her residency at Mayo because of the institution's focus on putting the patient first and support for students.

"This is a great place to train. They support you in research and we have many, many providers, many consultants supervising us all the time," she said. "Whatever question we have, we can go to them and ask them and they are very, very well trained and they receive you with a big smile and they don't mind helping you out."

As for the future of graduate medical education funding, Meyerle said there doesn't appear to be any appetite to restore the old funding method that takes into account number of trainees. One idea would be for insurance companies to include in their reimbursements to hospitals and clinic some funding for medical education.

She added, "We need to figure out and have a major public policy discussion to take the burden out of the government, and try to figure out how the general public can support this medical and education training function."