Graduate Medical Education (GME) plays a fundamental role in shaping the future physician workforce, providing specialized training necessary to physicians. With a growing physician shortage and increasing demands for healthcare services, particularly in rural and underserved communities, expanding GME funding and residency positions has become a critical issue. Understanding the structure of GME funding, the challenges imposed by residency slot caps, and potential legislative solutions is essential to addressing these workforce gaps and ensuring sustainable access to care for patients nationwide.
GME is a critical phase of physician training for medical school graduates to develop specialized expertise and achieve full licensure. This training includes internships, residencies, and fellowships, typically lasting between three to nine years. The American Medical Association (AMA) defines GME as encompassing both residency and fellowship training, providing physicians with the necessary clinical experience to practice independently.(1)
Despite the essential role of GME in preparing physicians, funding for residency positions has remained largely fixed because of federal caps established decades ago. However, ongoing legislative efforts, such as proposals to expand Medicare-supported residency slots, present a potential pathway to alleviating the physician shortage and improving access to care.
Funding Sources for GME
GME is primarily financed through Medicare and Medicaid, with additional contributions from private payers, the Health Resources and Services Administration (HRSA), the Veterans Health Administration (VHA), and the Department of Defense. Medicare remains the largest funding source, allocating payments through two separate funding streams:(2)
Direct GME: Covers direct expenses such as resident and faculty salaries, benefits, and administrative costs.
Indirect GME: Compensates hospitals for the increased costs associated with training residents, including longer patient care times and additional diagnostic services.
Both direct and indirect GME payments are determined based on the number of Medicare beneficiaries treated by the training institution.
Medicaid, the second-largest source of GME funding, offers states greater flexibility than Medicare in allocating payments. Unlike Medicare GME, Medicaid GME can support training institutions beyond hospitals and extend funding to non-physician professions, such as graduate nursing programs, laboratory personnel, emergency medical service students, and dental students.(3) At least 10 states provide Medicaid GME funding for graduate nursing education, while eight states allocate funds for other non-physician training programs.(4)
Figure 1 illustrates the disparity in Medicare-funded residency positions, revealing that in 2018, 70% of hospitals exceeded at least one of their Medicare caps, while only 20% remained below them.(5) This demonstrates that many hospitals are covering the costs of additional residency positions beyond federally funded limits to meet growing healthcare demands. However, despite these overages, Medicare continued to be the primary funding source for the majority of residency slots, highlighting the ongoing need for expanded support to address physician shortages.
Residency Slot Caps and Legislative Efforts
The Balanced Budget Act of 1997 imposed a cap on the number of Medicare-funded residency slots, limiting the reimbursement of teaching hospitals for additional residency positions beyond a set threshold.(6) This cap has constrained efforts to expand the physician workforce, requiring hospitals to seek alternative funding sources for additional residency positions. While the Consolidated Appropriations Act of 2021 introduced modest increases to these caps, the overall structure remains unchanged, posing a significant challenge to addressing the national physician shortage.
Addressing the Physician Shortage
The physician shortage continues to disproportionately impact rural and underserved communities, where attracting and retaining healthcare providers remains a persistent challenge. Health equity, ensuring the fair and just distribution of healthcare resources, is a crucial component in mitigating these disparities. GME plays a pivotal role in improving healthcare access by training physicians and equipping them with the expertise necessary for independent medical practice.
One effective strategy to alleviate physician shortages in high-need areas is through Medicare-supported GME positions. By prioritizing residency slot distribution to underserved regions, GME expansion can enhance access to specialized care in high-demand fields such as primary care, psychiatry, and geriatrics. These specialties are essential for managing chronic diseases, addressing mental health needs, and supporting an aging population.
Beyond expanding access to care, GME programs, particularly those within teaching hospitals, serve as catalysts for medical research and innovation. Residents actively contribute to clinical research through patient care studies, clinical trials, and data analysis, collaborating with leading medical professionals. As a result, teaching hospitals not only train future physicians but also drive advancements in medical treatment, healthcare delivery models, and patient care protocols.
Pathways to Expanding Medicare-Funded GME Positions
Legislative efforts remain key to increasing GME accessibility. A primary approach is advocating for congressional action to lift or raise the Medicare-funded GME cap. One significant legislative initiative in this regard is the Resident Physician Shortage Reduction Act of 2023.
The Resident Physician Shortage Reduction Act of 2023 is a bipartisan proposal aimed at expanding the physician workforce by increasing Medicare-supported residency positions. The bill seeks to add 14,000 new residency slots over seven years, with 2,000 slots allocated annually from fiscal years 2025 to 2031. This legislation aims to enhance training opportunities for medical graduates, ensuring an increased number of practicing physicians. It prioritizes residency placement in rural and underserved areas, health professional shortage areas, and states with new medical schools to help bridge gaps in healthcare access.
The Association of American Medical Colleges (AAMC) supports this initiative, citing a projected physician shortage of up to 124,000 physicians by 2034, driven by an aging population and a significant percentage of current physicians nearing retirement.(7) Similarly, the AMA has endorsed the bill, emphasizing its potential to reduce physician burnout and address workforce deficiencies through sustained residency expansion.(8)
By strategically increasing the number of residency positions and prioritizing underserved areas, the Resident Physician Shortage Reduction Act of 2023 seeks to strengthen the healthcare system, enhance patient access to care, and mitigate the growing physician shortage in the United States.
Addressing the physician shortage requires a multifaceted approach that includes increasing Medicare-funded GME positions, advocating for policy changes, and ensuring equitable distribution of residency slots to underserved areas. Legislative efforts such as the Resident Physician Shortage Reduction Act of 2023 offer a pathway to expanding training opportunities and strengthening the healthcare workforce. Additionally, teaching hospitals and research institutions play a crucial role in medical advancements, further reinforcing the need for continued investment in GME programs. By prioritizing these initiatives, the healthcare system can better meet the needs of a growing and aging population, ultimately improving patient care and health outcomes across the nation.
References
Save graduate medical education. American Medical Association. https://www.ama-assn.org/education/gme-funding/save-graduate-medical-education#:~:text=Workforce%20experts%20predict%20that%20the,Take%20action%20at%20saveGME.org . Accessed February 24, 2025.
Graduate medical education funding. National Conference of State Legislatures. https://www.ncsl.org/health/graduate-medical-education-funding . Accessed February 24, 2025.
Funding for graduate medical education. Accreditation Council for Graduate Medical Education, https://www.acgme.org/globalassets/pdfs/funding-for-graduate-medical-education-5.3.2022.pdf . Accessed February 24, 2025.
Graduate medical education funding. National Conference of State Legislatures. https://www.ncsl.org/health/graduate-medical-education-funding . Accessed February 24, 2025.
U.S. Government Accountability Office. Physician workforce: Caps on Medicare-funded graduate medical education at teaching hospitals. GAO-21-391. https://www.gao.gov/assets/720/714470.pdf . Accessed February 24, 2025.
U.S. Government Accountability Office. Physician workforce: HHS needs better information to comprehensively evaluate graduate medical education funding. GAO-18-240. https://www.gao.gov/assets/gao-18-240.pdf . Accessed February 24, 2025.
AAMC supports Resident Physician Shortage Reduction Act of 2023. Association of American Medical Colleges. https://www.aamc.org/news/press-releases/aamc-supports-resident-physician-shortage-reduction-act-2023 ? Accessed February 24, 2025.
Bill to add 14,000 new GME positions picks up support. American Medical Association. https://www.ama-assn.org/practice-management/sustainability/bill-add-14000-new-gme-positions-picks-support ? Accessed February 24, 2025.