This report presents specific recommendations to the Department of Health and Human Services and Congress from the Council on Graduate Medical Education that address Medicare's direct and indirect graduate medical education (GME) payments and the monies allocated by the Public Health Service that is targeted toward physician education and primary care research. These include: continued funding of Medicare GME for U.S. medical school graduates, but reduced payments for international medical residents; targeted incentives for generalist physician training; transition programs to assist international medical graduate-dependent institutions; specifying Medicare capitation rates specifically for GME; demonstration projects to foster consortia to manage education policy and financing; reauthorization of the National Health Service Corps, Title VII, and primary care research at 1995 appropriation levels; consolidating Title VII programs; funding Title VII educational programs that have demonstrated their effectiveness; and reauthorizing the Council on Graduate Medical Education. The report text is supported by several figures and data tables. (Contains 25 footnotes.) (CH)