Why does Medicare pay resident salaries?

Training doctors is no easy task. After medical school, newly minted doctors enroll in residency programs at various hospitals throughout the country for a length of 3 to 8 years, depending on their specialty. Some specialties, like family medicine, are even considering adding another year to the process. Resident physicians spend this time working long, arduous hours under their attending physicians, learning the clinical intricacies of their specialties that could not be covered in medical school.

Contrary to the exorbitant tuition rates faced by medical students, resident physicians are salaried. The average first year resident is paid a salary of $49,394 for a workweek recently capped at 80 hours. This results in an hourly wage of just under $13 per hour. Whether or not that’s reasonable is a discussion for another time, and not the purpose of this post. Instead, I want to discuss who actually pays those 100,000 resident physician salaries.

When Lyndon B. Johnson established Medicare in the United States under the Social Security Act of 1965, he allowed for the funding of residency positions through Graduate Medical Education (GME) funding. Today, Medicare continues to distribute nearly $10 billion to teaching hospitals throughout the nation to cover the costs of training physicians. These costs are divided into two categories, direct (DGME) and indirect (IME). DGME funds finance direct costs of the residency program, such as the resident salaries and salaries for their supervisors. A complex multiplier determines IME funds, which are supposed to cover the additional costs associated with having a less experienced, and thus less efficient, workforce.

What’s interesting, though, is that residents end up doing a significant portion of the actual patient care. Hospitals are able to expand patient volume when they enroll residents. In fact, a study performed by the American Society of Anesthesiologists found that over their three-year residency period, anesthesiology residents billed $1.3 million, yet cost the program $315,000. So why is it that the federal government decided to essentially fund cheap hospital labor? Originally, Medicare recognized that an educational investment would foster better medical care across the country. Today, I hear the argument that certain specialties’ residency programs, particularly those in primary care, do not generate revenue to the extent that specialty care does, and would not be sustainable without federal support.

But when billions of taxpayer dollars are directed towards maintaining a profit-generating labor force, I think it deserves reevaluation. If a hospital generates profits from a subset of its employees in excess of their salaries, it should be the institution’s responsibility to pay them. And if this is the case only for specialty care residency programs, so be it. Let Medicare fund the primary care specialties that operate in the red and let the hospitals pay their specialty care residents. Perhaps unrestricting resident salaries can allow them to be bid up to represent the actual value the residents bring. Maybe we’ll be able to open the bottleneck that Congress introduced in 1997 when they capped the number of residents at 100,000, which many point to as a cause of our doctor shortage. This presents a unique opportunity to reduce federal health care spending while untangling this bizarre hiring situation.

Ramin Lalezari is a medical student. This article originally appeared in The American Resident Project.

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