Doctor Shortage: Convoluted Medical-School Funding to Blame
A convoluted federal-funding system for medical school has led to a shortage of physicians in the U.S.
The United States is facing a critical shortage of doctors. Our health-care system produces fewer physicians per person than virtually every other developed country. Of the doctors we do train, most opt for high-paying specialties instead of pursuing careers in primary care. The result has been a persistent gap in primary-care access despite soaring levels of spending, now exacerbated by the COVID-19 crisis.
At the root of our primary-care shortage is America’s broken system of graduate medical education. Becoming a doctor in the U.S. requires at least eight years of post-secondary education, plus three to nine years of training in postgraduate residency and fellowship programs. The average doctor graduates holding over $240,000 in student debt. With no guarantee of securing a residency spot (thousands of U.S. graduates go unmatched each year), it’s no surprise that those who make it through the pipeline get pulled into lucrative specialties with the highest earning potential.
In comparison, European doctors typically go through dedicated six-year medical programs that often build in more clinical experience to get newly minted physicians into practice as quickly as possible. While the U.S. should do more to empower nurses and physician assistants to provide frontline care, unclogging our physician pipeline remains essential.
Democrats are aiming to expand federal support for medical residencies as part of their Build Back Better plan. Yet merely adding 1,000 or even 15,000 more training slots through the existing system would do nothing to get at the core problem. Federal and state governments already spend around $150,000 per resident — roughly three times the annual tuition cost of medical school. Bottlenecks in the physician supply are instead primarily about how we fund residencies rather than how much.
Federal support for medical residencies relies on a patchwork of outdated funding streams, including three within Medicare. Resources for “Direct Medical Education,” for example, are allocated based on the costs hospitals reported circa 1983. This has frozen in place significant funding disparities across teaching institutions.
The single largest government-funding source is Medicare’s adjustment for “Indirect Medical Education” based on an arbitrary ratio of residents to hospital beds. The payment is calculated as a percentage of Medicare-reimbursed services — like a restaurant tip — and delivers much greater funding to facilities based in high-cost areas and those that perform more expensive procedures. This creates significant biases against residency programs for primary-care doctors and facilities in lower-cost regions.
Medicare’s residency funding was designed around the naïve assumption that private insurers would contribute their fair share to training. So Medicare funding is based solely on the number of Medicare patients a hospital sees. This structure shortchanges geographic locations and facilities with fewer elderly patients, and while separate programs exist to deliver funds to children’s hospitals and rural clinics, Medicare dwarfs them.
Some medical centers, particularly the large and prestigious ones, can put additional cash into their residency programs because they have the power to negotiate higher reimbursements from private insurers. Hardball negotiating isn’t an option for most medical facilities, particularly those in poorer communities or markets with robust hospital competition.
The 1997 Balanced Budget Act worsened these problems by placing a cap on Medicare-funded slots, freezing both the number and the geographic distribution of residency slots. As the U.S. population has grown less concentrated in high-cost states of the Northeast, the mismatch between medical demand and where doctors are trained has increased. On a per-person basis, New York receives six times more Medicare funding for residency training than Georgia despite training only three-and-a-half times as many residents. A geographically uniform funding structure would be both fairer and more cost-effective, allowing doctors to train in places with greater unmet demand.
Training facilities that had funded slots when the cap was instituted now have little reason to fear that their residents (and funding) will migrate elsewhere. Rather than expand their programs, these facilities treat public funding for residencies as free money.
Medicaid is the other primary channel for financing residencies, accounting for roughly 30 percent of total federal-state funding. Current rules severely restrict states’ ability to strategically target those funds, because they are calculated, similarly to Medicare’s residency funding, as a percentage of a hospital’s Medicaid reimbursement. This makes it unnecessarily difficult for states to fill workforce gaps in a cost-conscious and effective manner.
America’s doctor shortage won’t be solved until the per-hospital residency cap is lifted and existing funding streams are consolidated into a uniform per-resident payment, available regardless of where the training occurs. Democrats may earn themselves a pat on the back for simply funding a few more residents through the existing system. Yet if they are serious about improving medical access while cutting costs in the long run, they will have to do better.
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