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Ch. 15 - Graduate Medical Education Funding

Victoria "Tory" Haddad, MD; Puneet Gupta, MD, FACEP

As the U.S. faces the challenge of caring for a growing, aging population, the demand for physicians has intensified. By 2030, the need for U.S. physicians will outstrip supply by a range of 40,800 to 104,900.1 Graduate medical education (GME) funding is the lifeline for training new doctors to meet this growing demand. Yet GME continues to be under attack — chiefly because of financial challenges to Medicare and Medicaid, the key contributors to GME funding. State and federal governments have limited their support of GME, leading to potentially debilitating constraints to residency funding.

GME not only funds the next generation of physicians, but also improves access to care.

GME Funding: The Basics

Graduate medical education is primarily financed by public funding from a variety of sources. The federal Medicare program, via CMS, contributes the majority of GME funding. As of 2015, roughly $16 billion in public funding supports GME, and two-thirds of that — about $10.3–$12.5 billion — comes from Medicare. Medicare supports 90,000 residents, providing payments of on average $112,000-$129,000 per resident.2,3 The second largest source of funding comes from Medicaid, providing an additional $4 billion. The U.S. Department of Veterans Affairs (VA) funds $1.8 billion, and lastly, the Health Resources and Services Administration (HRSA) funds $500 million. The degree to which private insurers, nonprofits, and others fund training-related costs is difficult to calculate, because GME payments are often included in patient care revenue.


Funding generally is divided into direct medical education (DME) and indirect medical education (IME). Medicare will only provide DME payments for residents and fellows in approved programs that, for EM, have been accredited by ACGME or the American Osteopathic Association. DME includes resident salaries, overhead, accreditation fees, GME offices, and faculty supervision. DME costs are calculated based on a hospital’s direct GME costs per resident, multiplied by the number of full-time equivalent residents and the number of inpatient days allotted to Medicare patients.4 DME costs per resident are based on costs incurred in the 1980s during the original CMS inpatient prospective payment system, are adjusted for inflation, and vary widely across the country. They are paid by patient services revenue from Medicare, Medicaid, the VA, and private insurers.5

Medicare will only pay the full DME amount for the minimum accredited length of the first program in which a resident matches. If they have to repeat a year or decide to switch to a specialty that requires more time to be board certified, the DME funds they take with them will only cover part of their new residency length. This may make it difficult (though not impossible) for a resident to switch specialties.

Indirect medical education payments are designed to offset the increased cost associated with the complex patient care that happens at teaching hospitals. IME makes up a larger portion of Medicare funds with payments of $6.5 billion in 2010, compared to $3 billion in DME funding.6 IME supports academic centers in caring for higher acuity patients, added staff, maintaining trauma or referral center status, inefficiencies secondary to having multiple learners, and increased technological costs. The AAMC reports that teaching hospitals “make up 20% of the nation’s hospitals yet conduct almost two-thirds of the most highly specialized surgeries, treat nearly half of all specialized diagnoses, train almost 100,000 resident physicians and supply more than 70% of the hospital care provided to the nearly 43 million uninsured patients.”7

IME funding is an additional payment for each Medicare inpatient stay. It is based on the IME adjustment factor, which is calculated with a formula dependent on the number of residents at the hospital and a multiplier set by Congress. In the following IME formula the resident-to-bed ratio is represented as r, and a multiplier, c, is set by Congress:

c x [(1 + r).405 — 1]

The multiplier has fluctuated several times. Under the current adjustment factor, hospitals receive a 5.5% increase in their Medicare payment as IME payment for every 10% increase in the resident-to-bed ratio.7 IME funding has been criticized because of its lack of transparency once it enters the hospitals’ coffers. The IME funds go into the general funds and can be used as the hospital sees fit.8 Given the difficulty in tracking the IME funds, IME has been the target of proposed funding reductions.


Medicaid is the second largest source of funding (behind Medicare) for GME. Unlike in the case of Medicare, the federal government has no explicit guidelines for states on how states make GME payments. Medicaid funds for GME may be through Medicaid Fee-For-Service, directly to teaching programs as part of managed care, as part of capitated rate payments, or through Medicaid DSH payments. Budget shortfalls have motivated some states to reduce their support of GME. However, total Medicaid GME payments in 2015
were estimated at $4.26 billion, an increase from $3.87 billion in 2012.9

DSH payments

Disproportionate share hospital (DSH) payments can come from either Medicare or Medicaid sources and function to help offset costs to hospitals that care for a higher percentage of uninsured or underserved patients.10 These funds impact trainees because teaching hospitals, which disproportionately serve low-income populations, receive two-thirds of all DSH payments.11 Since the intent of the ACA is to reduce the number of uninsured and uncompensated care, the ACA also planned for DSH reductions originally scheduled to start in 2014. However, the cuts have been delayed multiple times before going into effect. Most recently, the Bipartisan Budget Act of 2018 delayed DSH allotment reductions until 2020, now scheduled to be a much steeper cut of $4 billion in 2020 and $8 billion in
the years following – potentially bad news for trainees and teaching hospitals.12

Resident Position Allocations

The Balanced Budget Act of 1997 capped the number of residency positions CMS would fund, based on the number of residents a teaching hospital reported in 1996.13 However, many “above the cap” residency positions have been added since 1997. Medicare’s original cap was for existing hospitals. Hence new teaching hospitals, ones that did not have a previous GME program, can create a new residency program eligible for Medicare funds, after which a cap is implemented in the program’s fifth year. “Above the cap” positions can also be developed from financing via state and local support, hospital revenue, scholarships, corporate investments, targeted federal funds, and endowments.3

There are some exceptions to the Medicare residency cap. Rural hospitals are funded for residents at 130% of the 1997 cap; critical access hospitals also do not have caps, and inpatient rehab and psychiatric facilities have their own funding rules.

Additional ways residencies can create new funded slots include:

  1. Rural hospitals can start new residency programs.
  2. Urban teaching hospitals can start new rural training track residency programs and get additional slots for when the residents are at the urban teaching hospital as long as at least half their time is spent rural.
  3. Teaching hospitals can share cap slots between each other by entering GME affiliation agreements.
  4. Hospitals without teaching hospital status can start a new residency program and have a cap set after 5 years.
  5. If a program or hospital closes, other hospitals can receive those slots temporarily or permanently.

Since the 1997 resident cap,14 there has been a roughly 27% increase in the number of residents, increasing to 129,291 residents in 2018.3,15 In fact, two-thirds of hospitals train more than their cap slots, accounting for more than 11,000 residents over the Medicare funding cap.16 Reflecting potential revenue streams for these new positions, the growth has been disproportionately large in more lucrative specialties.17,18 Hospitals enjoy marginal staffing benefits to adding a resident to a training program.19 Though no value calculations have been conducted for EM residents, studies of other specialties reveal the theoretical value of resident work. Surgery residents have shown potential financial contributions between $94,871 to $267,690.20,21 The value is theoretical because resident services are not directly billable. Adding to this contribution, federal funds support approximately $120,000 per resident. In contrast, the cost to train internal medicine residents ranges from $130,000 to approximately $200,000.22 The estimated value of resident work compared to costs can help explain the increase in resident positions over the federal funding cap over the past two decades.

Despite concerns that the number of residency slots would not keep pace with the increase in medical school graduates, 10-year projections from 2016 show that for allopathic graduates, there are enough residency positions.23 Since 2002, enrollment at the nation’s medical schools has increased by 28%, and 35 new medical schools have been established.24 In the 2018 NRMP Match, a record 43,909 applicants vied for 33,167 positions. Of the 18,818 U.S. allopathic medical school seniors who entered the 2018 Match, 17,745 matched to first-year positions, leaving 1,073 (5.7%) graduating allopathic medical students unmatched. The rate of unmatched osteopathic medical school graduates was even higher, as 844 of 4,617 (18.3%) went unmatched.25

The ACA established a number of provisions that impact GME funding. These include reducing the cap on residency positions by 65% of currently unused slots (eg, if 6 slots remain unused, the cap is reduced to 2), with 75% of new slots going to primary care or general surgery (§5503). Prior to the ACA, if a teaching hospital closed, these residency spots would be “lost.”26 The ACA stipulates that unused slots from hospitals that close (§5506) also are redistributed with priority to areas with low resident-to-population ratios, Health Professional Shortage Area (HPSA) areas in highest need, and rural areas.19

Current Legislation

In 2018, there were bills in both the U.S. House and Senate aimed at increasing support of GME. The Resident Physician Shortage Reduction Act of 2017 (H.R. 2267/S. 1301) would increase the number of residency positions eligible for Medicare DGME and IME support by 15,000 slots above the current cap. One-third of the new residency slots would be available only to hospitals that already train at least 10 residents in excess of their cap and train at least 25% of their residents in primary care and general surgery. New slots would be given preferentially to hospitals in states with new medical schools, partners of VA medical centers, community-based settings, and in a rural area or a program with an integrated rural track.27,28

Similarly, the Advancing Medical Resident Training in Community Hospitals Act of 2018 (H.R. 6056) would improve the GME funding system and model. This bill establishes rules for payment of GME costs at hospitals that establish a new residency training program after hosting resident rotators for short durations. It would permit community hospitals whose Medicare GME caps and/or per resident amounts were established by small numbers of resident rotators to build and receive Medicare funding for new residency programs.29

Finally, H.R. 7233, the Creating Access to Residency Education (CARE) Act of 2018, routes CMS funds to states with a ratio of less than 30 medical residents per 100,000 population. This fund would help finance up to two-thirds the cost of a primary care residency slot or up to one-half the cost for a slot in other specialties and encourage partnerships between teaching hospitals and other entities to cover the remaining expenses.30

Outside Rotations and Rural Medicine

When EM residency programs seek to increase training opportunities, they face a potential financial penalty if rotations occur off hospital grounds. The DGME section of the Social Security Act will only count residents doing rotations towards GME if the hospital “incurs all, or substantially all, of the costs for the training program in that setting.”31 Thus, non-hospital settings, including nonteaching facility rural hospitals or other sites (eg, poison control centers, pediatric centers), may be ineligible for GME compensation. Such a policy is a disincentive to the development of rural EM rotations and other non-hospital-based training opportunities.

One program developed to address this issue is the Teaching Health Center Graduate Medical Education Program (THCGME), which pays teaching health centers for the expenses they incur when training medical and dental residents in underserved areas and HPSAs. This is the only program of its kind and the only increase in government GME funding that has occurred since the freeze in the 1990s. Teaching health centers (THCs) are operated by federal health centers, rural health clinics, and tribal health programs. In 2018, the program supported 59 residency programs at THCs in 24 states and trained 800 fully funded residents in 2017–2018.32,33

Michigan is one state taking a proactive stance to combat physician shortages in rural and underserved areas. Four medical schools (Central Michigan University, Michigan State University, Wayne State University, and Western Michigan University) created a consortium in response to then-state Sen. John Moolenaar’s call to action. The consortium, now referred to as “MiDocs,” is set to begin in 2019 as a state-funded program to finance expanded residency positions in select specialties within the state. Residents who enter these new positions will contractually commit to practice for at least 2 years after residency in a rural or underserved setting in Michigan. In exchange, they qualify for up to $75,000 of educational loan repayment. By 2029, MiDocs is dedicated to creating 300 new primary care physicians practicing in underserved communities throughout Michigan. While emergency medicine was not included in the initial rollout, the program could serve as a stepping stone to a nationwide commitment to rural medicine and improved access to
health care.34

Institute of Medicine Report Aims to Reform GME

The Institute of Medicine raised concerns with the governance and financing of the GME system in its report, “Graduate Medical Education That Meets the Nation’s Health Needs.” The report asserts that GME programs do not train adequate numbers of physicians who are prepared to work in needed specialties or underserved areas.35 Instead, the IOM recommends the creation of a new GME financing system “with greater transparency, accountability, strategic direction, and capacity to innovate.”2 This would be achieved by maintaining current levels of Medicare GME funding while modernizing payment methods to reward performance, ensure accountability, and create incentive for innovation, eventually phasing out the current system. However, the report does not find credible evidence to support claims of a physician shortage, and it does not propose adding additional funds to GME or increasing the number of residency positions.

The IOM report makes several recommendations. The first is to replace the current payment model (made up of direct and indirect GME payments) with one GME fund with two subsidiary funds: an operational fund and a transformation fund. The operational fund would distribute a single payment to currently accredited GME programs based on a national per resident amount, adjusted for geography. The transformational fund would award new Medicare GME-funded training positions in priority specialties and geographic areas, develop GME program performance measures, and support other innovative projects. The money to finance the transformational fund would be drawn from the operational fund (the total payments to accredited GME programs) at a rate of 10% in the first
year (approximately $1 billion), increasing to 30% by the fifth year, with eventual restoration of the monies to GME operations once successful innovative models had been established.

Second, the report proposes creating a GME policy council in the HHS to develop a strategic plan for Medicare GME financing, research areas of workforce needs, develop future federal policies, and provide annual progress reports to Congress and the president on the state of GME. This also would create a GME center within CMS to manage the operational aspects of GME funding.

The American Hospital Association, AMA, and AAMC heavily criticized the IOM report. The AAMC estimates that the IOM proposal would result in a 35% reduction in Medicare GME payments. The AMA stated, “the report provides no clear solution to increasing the overall number of GME positions… to meet actual workforce needs.”36

Recent Changes to Emergency Medicine Residencies

Since 2010, at least 70 additional EM programs have entered the NRMP Match. In 2018, 29 new ACGME-accredited EM programs participated and 231 additional EM positions were offered compared to 2017. Much of this increase was due to the Single Accreditation process, merging osteopathic accreditation into the ACGME path. Additional EM residency slots arose from established programs that obtained funding to increase their class size, and from newly accredited programs.37 With the residency cap from 1997 limiting federal funding, how are new programs being developed? One novel route that is becoming increasingly common is through corporate America.

There are an estimated 14 corporate-owned residency programs spread across 10 states nationwide, with more on the rise.38 Corporations’ creation and management of residency programs may be motivated by early recruitment and a way to supply their own workforce. One example is with Hospital Corporation of America (HCA), one of the largest for-profit hospital companies in the U.S., which has joined with the University of Central Florida to develop and fund multiple new residency programs, creating 550 new residency slots in the state of Florida.39 The majority of residency graduates — including 78% of graduates from EM residency programs — end up practicing in the state where they trained. Paying to train these residents can mean retention and staffing for these large corporations for years to come.

Provided the ACGME can ensure the quality of training at these new privately funded programs, the benefits may be widespread. Additional training programs will mean increased access to accredited EM training, which is becoming more competitive.40 Some physician groups have raised concerns about corporations’ involvement in GME as a potential conflict of interest between fiduciary duty to their shareholders and their educational mission. However, this shift in the dynamic of residency funding could serve as a catalyst for changing the underperforming government-funded model in the future.40

Advocating for the Value of GME

It is important to advocate for continued GME funding. On the national level, GME not only funds the next generation of physicians, but also improves access to care. Teaching hospitals care for the underserved, indigent, and elderly, including 28% of all Medicaid hospitalizations. Teaching hospitals provide 40% of all charity care, amounting to $8.4 billion in care.41 More than 37,000 medical residents receive some or most training at VA facilities, and the Veterans Access, Choice and Accountability Act of 2014 directs the Department of Veterans Affairs to add as many as 1,500 GME residency positions by 2024.42 What’s at risk if state and federal funds for GME decrease? One Medicare demonstration project in New York in which hospitals voluntarily participated aimed to reduce residency training positions by 4-5% per year. Programs reported negative impacts of this downsize; they had to hire additional staff and there was less time for clinical teaching. Additionally, there was decreased elective or research time, fewer pediatric shifts, and longer shift lengths.43 GME funding helps shield the training mission of residency programs from the risk of service outweighing education.


  • Advocate on behalf of GME. Visit (sponsored by the AMA) to sign a petition to Congress urging support for preserving GME funding. Via, you can also obtain information regarding scheduling meetings with local officials.
  • Get involved with your state’s ACEP chapter to educate your state legislators about the importance of GME.
  • Be vocal in your hospital rallying support for GME both in the local residency association and at the hospital administrative level.
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