Residency programs are an integral part of the nation's healthcare system, providing medical school graduates in-depth training in their chosen specialties and serving as a major talent pipeline investment for hospitals and health systems.
Today, the Accreditation Council for Graduate Medical Education accredits more than 13,000 residency and fellowship programs across 905 institutions in the U.S.
As a physician shortage looms, the importance of these programs has never been more evident. Medical schools and industry groups emphasize the role medical residencies play in mitigating the shortage and continue urging lawmakers to act on legislation that would expand the number of trained physicians entering the workforce. In 2019, the American Association of Medical Colleges forecast the U.S. could see a shortfall of up to 124,000 physicians by 2033. Updated projections from this year indicate the shortage could be limited to 86,000 if the nation invests in graduate medical education and funds new residency positions.
Here is a breakdown of the history, funding and average costs of training residents at U.S. teaching hospitals:
History
Dr. William Osler established the nation's first formal medical residency program at The Johns Hopkins Hospital in 1899, laying the foundation for modern medical education.
He is known as one of the founding fathers of modern medicine for introducing bedside teaching as a core aspect of physician training. Before this, medical school mainly consisted of basic science classes and didactic lectures where students watched professors conduct examinations in large amphitheaters. Dr. Osler's model also introduced longer training periods for residents to gain comprehensive experience in patient care, marking a significant advancement from the short-term, less structured fellowships that were common at the time.
Today, residency programs range from three to seven years, depending on the speciality. Residency is a full-time job where residents are employed by hospitals, working up to 80 hours per week. The ACGME mandates that residents have one day free of clinical responsibilities per week. As residents progress through their training, they gain increasing levels of responsibility and autonomy in patient care, preparing them for independent practice.
Funding
The number of residents for which hospitals are eligible to receive Medicare payments is set by CMS. The Balanced Budget Act of 1997 established caps on the number of Medicare-supported positions as a measure to control federal spending on Graduate Medical Education. The caps were based on the number of residents teaching hospitals were training at the end of 1996.
In 2021, Congress authorized funding for 1,000 new Medicare-supported residency slots as part of the Consolidated Appropriations Act of 2021, marking the first expansion of its kind since 1996. The new positions are set to phase in over five years — a process that began in 2023, with 200 positions added yearly. Funding for an additional 200 slots was also included in the Consolidated Appropriations Act of 2023.
Major healthcare industry groups, including the American Hospital Association and American Medical Association, point to the cap on GME funding as a contributor to the nation's growing physician shortage. Despite growing enrollment in medical schools, residency training expansions have not kept pace. Each year, several thousand eligible applicants do not match into a residency program in part due to the cap, data from the National Resident Matching Program shows.
Teaching hospitals can train as many residents as the ACGME accredits, but Medicare will only fund up to the set cap, leaving the hospitals to cover the costs of training any additional residents. Large academic medical centers, which make up most of the Association of American Medical Colleges' members, often train residents beyond the cap, Leonard Marquez, senior director of government relations at the AAMC, told Becker's.
"Many, if not most, are far and above those Medicare caps, at which point they absorb the entire cost of training those residents," he said.
The AHA, AMA and medical school leaders routinely point to the Resident Physician Shortage Reduction Act as one measure that would significantly alleviate the shortage. The bipartisan legislation was introduced in spring 2023 and would add 14,000 Medicare-supported residency positions over seven years, with 2,000 slots allocated per year. One-third of the positions created through the bill would be reserved for hospitals already training above the cap.
"Until the cap is significantly raised, the shortage of physicians will never be truly resolved," James Madara, MD, former president and CEO of the AMA, wrote in a letter last year urging lawmakers to pass the legislation. "Therefore, it is essential that we invest in our country's healthcare infrastructure by providing additional GME slots so that more physicians can be trained and access to care can be improved."
Costs
In fiscal year 2021, the total cost of running residency training programs in U.S. teaching hospitals — including faculty costs, overhead, and accreditation — was $23.1 billion, according to AAMC data. Of that, Medicare covered just over $5 billion, or 22%.
At a more granular level, the average annual cost to train one resident is around $184,000. However, Medicare bases payments to teaching hospitals off of what it calls the Per Resident Amount, which was about $126,000 on average in fiscal year 2021. The reason for this gap stems back to when the payment system for direct graduate medical education was being developed, Mr. Marquez said.
The federal government essentially used the Per Resident Amount average cost in 1984, and trended those estimates forward to adjust for inflation. As a result, "there's a significant variation in costs that aren't being captured and supported by Medicare" today, Mr. Marquez said.
Medicare reimburses teaching hospitals for residency training based on what it calls a fair share, which reflects the percentage of Medicare patients the hospital serves. For many academic medical centers, Medicare beneficiaries make up 30% to 40% of their patient population. This means that, on average, a large academic medical center would receive reimbursements for 30% to 40% of the $126,000 average Per Resident Amount, versus the actual $184,000 average.
Where things stand
As teaching hospitals await federal action to increase GME funding, many are making their own investments to launch or expand residency programs. Last year, Becker's reported on at least 22 hospitals and health systems that rolled out new residency programs.
Norfolk, Va.-based Sentara Healthcare is among the latest health systems to unveil a major residency slot expansion. In August, the system shared plans to create new training programs at four hospitals and expand existing programs in cardiology, anesthesia and neurology. In all, the expansion will bring the number of positions at Sentara to more than 400, up from the 240 it currently hosts. The health system's cap on Medicare-supported slots is 122.90 full-time equivalent positions.
"We are working to train the specialties that the community needs," Michael Hooper, MD, senior vice president and chief academic officer at Sentara, said in an Aug. 1 news release on the expansion. "We believe strongly that if we train more physicians locally in our markets, we're more likely to keep physicians locally in our markets."
Over the years, data has consistently shown that physicians tend to practice in the same area where they completed residency training. Around 60% of physicians who completed residency training between 2013 and 2022 practice in the state where they trained, according to the AAMC's retention data. Retention rates vary from 77.5% in California to 38.5% in the District of Columbia.
In 2022, the AAMC represented 171 teaching hospitals. Of those, 116 (70%), had at least 500 beds. At those larger teaching hospitals, the median number of residents being trained was 492. In comparison, smaller teaching hospitals with less than 200 beds trained somewhere between 11 and 24 residents on average in 2022.