The advocacy group Public Citizen, for example, held up the ruling as evidence in its long-running effort to convince the Occupational Safety and Health Administration to impose regulations limiting all residents' working hours to a maximum of 16 hours per shift.
“It just adds more confirmation to the notion that these people needed to be treated as workers, first and foremost,” said Dr. Sidney Wolfe, president of Public Citizen's Health Research Group.
More than 100,000 resident physicians work in teaching hospitals across the country, commonly putting in work weeks between 50 and 80 hours, according to the American Medical Student Association.
The American Hospital Association estimates that the FICA taxes paid by or on behalf of residents amounts to about $700 million a year—money that the hospitals argued could be put to better use providing charity care.
For more than a decade, teaching hospitals have been litigating the question of whether residents should be classified as students under tax law, which would qualify them for an exemption from Social Security and Medicare taxes under FICA.
In 2004, the Internal Revenue Service finally published a rule that categorically excluded medical residents from the student tax exemption, but then in 2008 the IRS granted refunds to hospitals and residents who had filed timely appeals of taxes paid up until the rule change took effect in 2005. (March 8, 2010, p. 16)
The Mayo Clinic and the University of Minnesota, which had found mixed success in federal district and circuit courts in the past, sued again in 2006, urging the IRS to go back to its former “facts and circumstances” analysis that amounts to a case-by-case decision-making process. Among other arguments, Mayo has said it pays more to train and supervise its medical residents than it receives in payments for the patient care they provide.
Residents at Mayo earn stipends of up to $56,000 a year, plus benefits and malpractice coverage, for working up to 80 hours a week, according to court records.
However, the 2004 IRS rules said residents who work more than 40 hours a week categorically could not qualify as students, regardless of their individual circumstances.
Writing last week for a unanimous court, Supreme Court Chief Justice John Roberts agreed with the IRS and said it was “perfectly sensible” to use the number of working hours as an objective yardstick for whether a resident is more of a worker or a student.
“We are disappointed,” said Mayo's private attorney Theodore Olson, who is also a former U.S. solicitor general. “As the court itself acknowledged, medical residents are engaged in a formal and structured educational program that is an indispensable component of their medical training.”
Officials with the AHA agreed, saying the IRS' focus on the number of work hours was misplaced.
“We believe the court ignored the important fact that the educational aspects of a resident's service predominate and relied merely on an arbitrary and immaterial fact—the number of hours worked—as the determining factor for applying the student exemption,” AHA Assistant General Counsel Lawrence Hughes said in a written statement.
Elizabeth Wiley—a third-year medical student at George Washington University School of Medicine and secretary of the AMSA—praised the Supreme Court's ruling because it supported other basic workplace protections for residents, such as the right to collect Social Security, receive family-medical protections, and to organize.
“You only have to be inside an academic medical center or a teaching hospital for a few minutes to see that these institutions are reliant on residents to provide so much of the patient care that occurs,” Wiley said.
Wiley also noted that teaching hospitals already receive payments through Medicare graduate medical education funding to compensate them for the costs of educating residents.
However American Association of Medical Colleges Regulatory Counsel Ivy Baer said GME funding was unrelated to the tax issue.
Further, she was skeptical that the case regarding an IRS rule would be translated into guidance for other agencies outside the federal treasury. “The labor laws can say one thing and the tax code can say another thing. Certainly, the Labor Department can look to this decision, but this really has to do with” the IRS, Baer said.