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 .
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.