Graduate Medical Education: Yes, That’s Subsidized Too

In light of several media reports detailing grim projections of physician shortages, it is startling that just 35 years ago, the Graduate Medical Education National Advisory Committee (GMENAC) published a report that included over 100 recommendations to reduce the growing surplus of physicians. Unlike between 1970 and 1990 however, the U.S. is now experiencing a deficit in physicians, or at least a severe “misdistribution” of certain providers among specialties and regions.

Some Members of Congress have responded by introducing legislation to expand the number of doctors through increased public funding in teaching hospitals. However, given the current structure of the reimbursement system, serious overhaul regarding how taxpayer dollars finance medical education needs to be spearheaded before any meaningful change can be accomplished.

With the establishment of Medicare and Medicaid in 1965, federal lawmakers understood that investing in a competent healthcare workforce is critical in supporting a healthy population – particularly the elderly and those who lacked financial means. Consequently, Congress created a temporary program through Medicare that would cost-share Graduate Medical Education (GME) – or a specialized residency or intern program for prospective medical students who completed four years of undergraduate medical education. Although the Medicare GME program was intended to be a provisional measure, the program has swelled into a sprawling source of open-ended subsidies for teaching hospitals.

With rising costs and an escalating surplus of physicians, Congress capped the number of GME residency slots under the Balanced Budget Act (BBA) of 1997. In spite of the BBA cap, Medicare is still the largest payer of GME, spending approximately $9.5 billion annually with Medicaid ranking second at $3.9 billion. In 2012, the Direct Graduate Medical Education (DGME) program, which covers the salaries and benefits of residents and faculties of teaching hospitals, paid $2.8 billion, (29.2 percent of total Medicare GME reimbursements) and Indirect Medical Education (IME) reimbursements, which pays for Medicare’s share of additional hospital costs of teaching hospitals, paid $6.8 billion (70.8 percent).


With any aggressive investments, managers are expected to establish a clear goal to measure success. The current model has neither a clear objective nor any meaningful metrics to determine whether taxpayer money is being allocated efficaciously.

In a highly anticipated Institute of Medicine (IOM) report that was published in 2014, the IOM concluded that the current Medicare GME reimbursement system lacks a meaningful process that allocates funding according to the demand of the overall patient population with negligible statutory reporting requirements. For the nearly $15 billion in annual total spending on GME, data on how public dollars should be spent is surprisingly scarce. For instance, IME spending requirements are largely ambiguous on what Medicare can pay for in a hospital. Data on basic IME expenditures, such as costs on daily operations and management, are wanting, leaving lawmakers unable to weigh policy solutions and to exercise proper oversight.

Coupled by the fact that Medicare GME disbursements are formula-driven, institutions will receive funds no matter how they spend the money with little to no controls on cost. In fact, the only condition an institution is required to have is to be accredited, which is chiefly dependent on professional self-regulation. Yet, organizations, such as the American Association of Medical Colleges (AAMC) and the American Hospital Association (AHA), fiercely defend the idea that medical training ought to be centralized in hospitals and supplemented with increased government subsidies to support its operations. This position, however, is a progeny of a bygone accepted way of thinking dating back to the 1970’s when the American College of Surgeons and the American Surgical Association argued that medical training should be reserved strictly in hospital settings. That model does not work anymore. The majority of delivery of care is now being taken place in clinics and in non-hospital settings, but given Medicare’s preference for teaching hospitals, regions that are experiencing shortages will continue to be neglected.

Shortages and regional disparity are symptoms of an overly specialized, fragmented healthcare system, and the current Medicare GME reimbursement model does little to alleviate these concerns; if not, emboldens them. Some lawmakers have proposed legislation to expand residency slots to address the shortage of physicians, namely primary care. Despite the intuitive charm of this proposal, studies have shown that physicians tend to migrate to areas that already have a dense physician population rather than to rural regions. Expanding residency slots or removing the BBA cap would only exacerbate high-supply regions while failing to improve overall quality of care. In a study published by the New England Journal of Medicine, the number of physicians per capita was 1.6 times higher in high-supply regions compared with low-supply regions.


Increasing the residency slots or increasing public funding for GME misses the entire point:  there is not so much a shortage of physicians as there is a misdistribution. Given these deep structural complications, lawmakers are facing the daunting task of combing over multiple policy options to address this very complicated issue. Disbursement methods need to be reformed along with more stringent receipt and reporting requirements.

Medical School by University of Liverpool Faculty is licensed under CC BY-NC 2.0