Since FY 2000, the Health Resources and Services Administration in the Department of Health and Human Services has administered a Children's Hospital Graduate Medical Education (CHGME) program to support graduate medical education in children's hospitals. The program provides funding for both the direct and indirect medical education costs associated with operating approved GME programs. Funding for the indirect medical education costs is based on the indirect expenses associated with the treatment of more severely ill patients and the additional patient care costs related to residency training programs. This report details the analyses that RAND performed to support HRSA's review of potential methodologies to allocate the funds for indirect medical education costs. It describes RAND's analysis of issues related to estimating indirect medical education costs specific to pediatric discharges. The report presents the results of multivariate regression analyses to investigate the effect of residency training programs on pediatric costs per discharge using different measures of teaching intensity and illustrates the impact of using the regression coefficients to establish alternative policies for allocating the indirect medical education funds to eligible children's hospitals.