Cost of graduate medical education stifling ability to bolster physician workforce

For providers like UMass Memorial Health Care, the dearth of active physicians within the workforce has forced the organization to increasingly rely on physicians-in-training to address the health needs of their patients. The Worcester, Mass.-based system currently employs around 570 physician residents.

“We wouldn’t be able to take care of the patients that we have” without residents, said Dr. Deborah DeMarco, senior associate dean for clinical affairs and associate dean of graduate medical education at the University of Massachusetts Medical School. “The residents are a tremendous workforce, and you would have to fill those positions with midlevel providers that you can’t find, like nurse practitioners and physician assistants.”

Yet the number of physician residents at UMass has not substantially increased over the years despite growing demand for their services. DeMarco said a major barrier has been the costs involved in training physicians, which she said have increased over the years as the health system has had to take on more of the cost of training residents to meet workforce demands.

In 2018, total expenditures for GME cost UMass Memorial more than $215 million to train 525 residents, according to figures provided by the system. Medicare reimbursed more than $84 million of those costs, leaving a budget shortfall of $130 million. 

With limits on how many GME slots Medicare will cover, hospitals find themselves taking on a growing percentage of the burden to fund their GME programs. That has forced those providers to make some difficult business decisions. Stakeholders say it’s time to revamp what they deem an outdated governmental financing formula in order to meet the steady rise in medical school enrollment and ease the bottleneck in the doctor pipeline that’s limiting the number of physicians entering the workforce.

Most costs that hospitals incur for training physicians are reimbursed by the federal government through Medicare, which made up 71% of GME government funding in 2015 at $10.3 billion, according to the most recent data from the Government Accountability Office. 

Other sources include Medicaid, which paid approximately $2.4 billion, followed by $1.5 billion through the Veterans Affairs Department. HHS earmarked another $248 million for GME training in children’s hospitals and $76 million for community-based primary-care settings.

Private insurers also support GME, but unlike Medicare and Medicaid, their contributions are not in the form of an explicit payment but instead included in higher rates they pay to teaching hospitals, making it difficult to quantify how much funding they actually provide. But recent signs indicate commercial insurers are taking steps to avoid the higher prices that teaching hospitals can charge by encouraging patients to seek care in other clinical settings such as outpatient clinics. 

Some of the measures payers have used include requiring prior authorization for certain services performed at hospitals, as well as negotiating lower prices and exclusive contracts with certain hospitals while excluding providers whose costs for services are deemed too high.

Medicare provides teaching hospitals with two types of payments for GME. Direct graduate medical education payments cover such things as residents’ salaries, while indirect medical education payments are intended to cover the higher costs of treating sicker patients who visit such facilities. 

Medicare GME funding is calculated through a formula based in part on the number of Medicare inpatients a teaching hospital receives. The way Medicare counts residency positions at a teaching hospital means a physician who begins a three-year residency takes up three residency slots to complete his or her training. 

To curtail Medicare spending, the Balanced Budget Act of 1997 kept the number of medical residents for existing teaching hospitals at 1996 levels. An exception was made in 1999 to fund more slots at rural teaching hospitals. But for the majority of the more than 1,100 teaching hospitals in the U.S., residency positions have been relatively unchanged for more than two decades.

Last year saw a record 19,553 students graduate from medical school, an 18% increase from 2009. Subsequently, there was a rise in graduates applying for residency positions in 2019—38,300 compared with 33,167 in 2018. But due to limitations in the number of available posts, more than 3,100 applicants were left without a residency slot in 2019. 

Still, 95% of residency positions were filled in 2019, about a 1.2% decline from the previous year. Various reasons explain why residency positions are left unfilled even with a rise in the number of applicants, ranging from graduates failing to gain high enough test scores to too much competition in a specialized field or training location.

Stakeholders contend that increasing the number of available slots overall would expand the pool of opportunity to allow more applicants to get their desired positions. 

“We have medical students graduating who aren’t able to get post-graduate training spots,” said Dr. Ana Maria Lopez, president of the American College of Physicians. “By limiting GME funds, that limits GME slots, which limits care for people.”

Teaching hospitals have in recent years taken it upon themselves to create more residency positions at their own expense. The number of available first-year residency positions increased by 1,962 to 32,194 in 2019, a 6.5% rise over 2018, according to figures from the National Resident Matching Program.

Tim Johnson, senior vice president and executive director of the Center for GME Policy & Services at the Greater New York Hospital Association, said 62% of U.S. teaching hospitals now go above their Medicare caps for residency positions. 

Between 15,000 and 21,000 of the nation’s 140,000 physician residents are training in teaching hospitals without Medicare support. Johnson estimated the decision to go over the cap costs each hospital $150,000 to $200,000 annually per resident, typically for salaries and other overhead costs related to training residents.

At UMass Memorial Medical Center, Medicare provided funding support for 442 of the more than 500 resident physicians who worked at the facility in 2016, according to data from the Robert Graham Center, the policy research arm of the American Academy of Family Physicians. Last year, the total cost of GME at UMass was estimated at more than $409,000 per resident, with about $160,000 reimbursed by Medicare. 

Staying under the cap would have been detrimental to meeting demand, DeMarco said. UMass Memorial employs more than 1,200 physicians and handled 135,000 emergency department visits during the first three months of 2019.  

“In some of our programs—like emergency medicine—volume has gone up tremendously but we have not allowed an increase in the number of residents in our program and we limit the number of new programs,” DeMarco said. “We have a really stringent process for looking at this, because where is the money going to come from?” 

For the remaining 38% of teaching hospitals that train residents at or below their Medicare funding limit, Johnson said the majority are nonacademic, medium-size rural facilities. He said many of those providers simply don’t have other resources to train residents beyond what they receive from Medicare. “There is coming a point in which hospitals just cannot incur the costs anymore without needing additional external support from the Medicare program,” Johnson said.

GME funding appears to be having a separate but equally important impact on the physician pipeline, helping drive a spike in specialists and a decline in primary-care doctors. Primary care went from making up 44% of the doctor workforce in 2005 to 37% by 2015, according to a 2017 report in the Health Affairs Blog.

Some providers believe Medicare’s funding limits contribute to that imbalance by creating an incentive for hospitals to offer residency training slots in specialties that can generate the most financial value. “In a fee-for-service environment, I can justify hiring an orthopedic resident much easier than I can justify hiring an additional primary resident,” said Dr. David Hughes, executive vice president and chief medical officer at Kaleida Health, based in Buffalo, N.Y.

The decision on whether to train primary-care or other types of residents can have long-term implications for both patient care and the bottom line, which can be a tricky balancing act. With 420 physician residents, Kaleida has for the past five years tried to avoid going over its Medicare cap.

Hughes acknowledged the rising cost burden on hospitals to train physician residents has forced providers to look at GME as more of a business decision than an academic or altruistic choice. In terms of the best return on investment to the hospital, it often makes more business sense to train residents in medical specialties.

Dr. John Cullen, president of the American Academy of Family Physicians, said while more graduates have become interested in entering family medicine in recent years, there has been relatively little increase in the number of residency positions offered in the field. With hospitals opting to select fewer primary-care specialists for residency positions, Cullen is concerned that it will lead to fewer primary-care physicians in the workforce to lead the move toward population health. 

Nearly half of all first-year physician residents were offered a position in a primary-care specialty in 2019, a 7.8% increase over the number offered in 2018, according to the National Resident Matching Program. And Cullen noted that many medical graduates who complete their residency in primary care end up moving into more specialized fields early in their careers. 

Earning potential coupled with the high amount of debt many medical students accrue are common reasons medical graduates give for choosing to become specialists. 

Cullen said the current Medicare GME funding structure does little to give more medical graduates incentives to practice primary care given that the majority of the program’s support is still concentrated in hospital-based training programs. And the trend continues even though an increasing share of healthcare is being delivered in outpatient settings.

That decision has also had an impact on where doctors decide to practice medicine once they complete their training. Studies show physicians were more likely to stay in areas where they do their residency programs, many of which are in the Northeast and on the West Coast, leaving shortages in many areas throughout the middle of the country.

Hospitals have been calling for increasing the Medicare GME cap for years without much success, but recent signs indicate lawmakers in Washington are beginning to listen with greater interest.

Reports of the pending physician shortage—potentially reaching 122,000 by 2032, according to the Association of American Medical Colleges—has spurred congressional interest. An estimated 44% of the more than 890,000 active doctors in 2017 were 55 and older, which means there will be an exodus of professionals as they reach retirement age.

In February, a bipartisan group of senators that included Democrats Bob Menendez of New Jersey, Minority Leader Chuck Schumer of New York and Republican John Boozman of Arkansas introduced the Resident Physician Shortage Act, which aims to add up to 15,000 new residency positions over five years by allowing for increased payments for direct GME costs, which would train an estimated 3,000 new physicians. A companion bill was introduced in the House in March.

The bill would require participating hospitals to ensure at least 50% of the new GME positions be used for a program to address specialty shortages, which would include adding more slots for primary-care specialists.

Yet there’s some concern that continuing to focus so heavily on academic medical centers—which make up just 6% of all hospitals and provide roughly 20% of all hospital care—is as outdated as the Medicare GME caps.

“If you want to either shift something about the geographic distribution or the specialty choice, it would be much more effective to have targeted loan forgiveness or targeted subsidies to address the physicians you are trying to get to change their minds,” said Gail Wilensky, a healthcare economist who was head of the predecessor agency to the CMS from 1990 to 1992 under President George H.W. Bush. “To do it through this very diffused, nonspecific mechanism of making more money available to the hospitals puts the decisionmaking at the wrong point.”

Wilensky co-chaired a panel of experts brought together by the Institute of Medicine to examine the GME funding structure. Its findings, published in 2014, recommended a gradual phasing out of the current Medicare GME payment system and called for the creation of one fund to pay for operational costs and another to develop new innovative training programs.

She contended that if the ultimate aim of providing more Medicare GME support was to increase the primary-care physician workforce, providing more support directly to doctors as well as to community-based healthcare training programs, such as federally qualified health centers, would probably be a more effective means of achieving that goal.

Several government agencies—most notably the National Health Service Corps—currently offer a number of loan repayment programs for physicians to provide certain services for two years in a designated healthcare professional shortage area. Those services address a number of needs, including primary-care, dental and mental health services. The Corps added another program at the end of last year to include addiction treatment facilities to a list of eligible health sites for loan forgiveness.

Wilensky said those types of programs could be more robust. Any continued commitment toward Medicare GME funding should include reforms that make hospitals more accountable for how the money is spent and do a better job of addressing disparities in both the types of medical specialists being trained and where the physicians are distributed throughout the country, she said.

“If you just do what you’ve been doing, you can expect that you’ll get the same relative distribution that we’ve always been getting,” Wilensky said. “If you’re going to keep $10 billion of Medicare money going there, at least have it going into more sensible ways than what now occurs.”