Graduate Medical Education: Point/Counterpoint

Everyone knows we have a doctor shortage. One of the issues is that we’re not producing enough physicians. The rate limiting step appears to be at the residency level. It’s an issue of graduate medical education (GME). Hospitals complain that they’re not given enough money to pay for more GME. Others say they’re given enough.

This week’s NEJM has a nice point/counterpoint from some friends of the blog. First up is Atul Grover et al, with “The Economics of Academic Medical Centers“:

In U.S. teaching hospitals, the direct costs of training residents and fellows — including trainee stipends and benefits, faculty supervision, simulation and other equipment, salaries for administrative staff, and overhead — amount to more than $16 billion annually. Medicare is the largest explicit supporter of direct GME expenses, contributing just over $3 billion,4 while grant programs from Veterans Affairs, the Department of Defense, Medicaid, and the Public Health Service contribute more modest support. Most of the direct cost of GME is borne by the teaching hospitals themselves.

Some economists have suggested that trainees are low-cost, skilled labor that “make money” for AMCs despite their inability to bill directly for patient services. However, we are aware of no empirical analyses that suggest that trainees increase clinical revenue sufficiently to offset the investment required to support training. In addition, the cost of training has increased substantially in recent years owing to a series of unfunded mandates, including more stringent educational requirements, decreased duty hours, and strict supervision requirements.

Countering this is the team of Amitabh Chandra et al, in “The Economics of Graduate Medical Education“:

The conventional wisdom is that increasing GME funding is key to addressing any physician shortages, will lead to the production of more residents, and reduces the financial burden imposed by becoming a physician. This wisdom results in advocacy for increasing DME funding. But we would argue that DME financing does little to offset the cost of training physicians — that residents essentially pay the full cost of their training, while the DME program simply transfers money to recipient hospitals. IME is more controversial, in terms of both the accuracy of the costs that are reimbursed and the underlying concept — paying institutions more because they spend more, rather than because they provide higher value. Such cost-based reimbursement runs counter to the direction in which health care reimbursement is heading. Moreover, even cost-based reimbursement requires accurate knowledge of costs, ideally marginal costs, but few providers know their cost structure.

In his theory of human capital, Nobel Laureate Gary Becker explains why economists believe that residents, not the hospital where they obtain their training, bear the full cost of their education: they accept lower wages during training that offset training’s significant costs. For example, if the total cost of training a resident is $80,000 annually but his or her services generate $130,000 in hospital revenue, then the resident would appropriately be paid a salary of $50,000 — the difference between the two.

I’m sympathetic to points on both sides. I don’t know what the right answer is. But both of these arguments are worth your time. Go read them.

This is an issue that TIE should get back to in more detail in the future…


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