Study suggests Medicare overpaying $1.28B annually to support residency programs

Male doctor in white lab coat
A new study looked at the savings that would result if Medicare capped funds for Graduate Medical Education at the rate of $150,000 per resident. (Getty/Saklakova)

Medicare is overpaying for graduate medical education (GME)—the money used to train residents—which could be used to address physician shortages, according to a new study.

If Medicare capped funds for GME at $150,000 per resident—a level based on the Teaching Health Centers (THC) GME—the move would free up more than $1 billion a year, according to a study published Monday in JAMA Internal Medicine. 

Medicare could use the savings to address the shortage of doctors in certain specialties and in certain parts of the country, according to the authors of the research letter. The country is facing shortages of primary care doctors and also a shortage in rural and other underserved areas.

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The training of residents is funded by GME payments made to hospitals and health systems, largely through Medicare and Medicaid. “Our study suggests Medicare GME may be overpaying some hospitals up to $1.28 billion annually,” the study’s lead author Candice Chen, M.D., an associate professor of health policy and management at the George Washington University Milken Institute School of Public Health, said in an announcement.

“Those funds could be redirected and used to strengthen the physician workforce, especially in underserved areas,” Chen said.

Researchers examined cost reports to calculate GME payments to hospitals from 2000 to 2015 and found, among 1,624 teaching hospitals, the mean per resident payment increased from $117,323 to $138,938.

Payment rates in 2015 ranged from $105,761 to $182,233 per full-time resident and 57 teaching hospitals (47%) received more than the $150,000 payment used by the Teaching Health Center program, administered by the Health Resources and Services Administration. It is the only federal GME program providing a single payment as recommended by the Institute for Medicine. Using that $150,000 rate, in 2015 Medicare paid out an estimated $1.28 billion more in payments for residency programs, the researchers calculated.

In a 2014 report, the Institute of Medicine recommended sweeping changes to how to fund GME, including a proposal to transition to a performance-based system combining GME and indirect medical education into a single fund and single payment.

While other residency programs base training out of hospitals, the Teaching Health Center programs focus training in community-based primary care settings, such as Federally Qualified Health Centers. The THC program was established to help ease shortages in primary care doctors and dentists in underserved areas. Residents trained using this model are more likely to remain in primary care and practice in rural and underserved regions of the United States, Chen said.

RELATED: 5 questions that need answers for the future of medical education in the U.S.

The study found GME payment rates to hospitals in 2015 varied significantly, with 25% of hospitals receiving less than $105,761 while 25% received more than $182,233 per resident. Nearly half of teaching hospitals received more than the $150,000 per resident rate.

“Our study suggests that the savings produced by capping all hospitals at the THC GME rate would add up enough to expand the THC program by tenfold,” Chen said. Chen noted that unless Congress acts soon, the THC program will run out of funding on Nov. 21.

The authors acknowledged limitations in the study, such as the fact they did not look at how much it actually costs to train residents or hospital characteristics that might make it more expensive to provide GME.

 “Capping the Medicare GME payment rate would be a limited reform,” Chen said. “More comprehensive approaches to GME reform would involve restructuring payment and increasing accountability for these publicly funded training programs.”

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