Makin’ Money: How Residents Are Paid

So you’re in medical school. And eventually you’ll be a resident. And then you’ll have to start paying back all those loans–the median debt level for medical school graduates is close to $200,000. But while you might make anywhere from $200,000 to more than $500,000 once you’re out of residency, your average salary while completing residency will be in the neighborhood of $51,000.

How is that salary determined? And why, if adjusted for inflation, has residency compensation not increased in four decades? The number of residency positions [and by extension residency salaries] is constrained by the 1997 Balanced Budget Act (BBA) which sets the level of Medicare financing for training residents at teaching hospitals. If the number of allopathic or osteopathic residents at a teaching hospital exceeds the cap set by the BBA, teaching hospitals will not receive additional funding, which come from two sources: Medicare indirect medical education (IME) and direct graduate medical education (DGME) reimbursement. Between IME and DGME payments, Medicare finances 90%–around $10 billion–of the funds teaching hospitals use to train and pay residents. A report from the Government Accountability Office (GAO) found that the two types of reimbursement are not equal–$3 billion are DGME payments and $7 billion are IME payments.

IME funds are patient care payments that help hospitals maintain a rich training environment for residents, such as burn units, trauma centers, and NICUs. IME payments are an additional amount of money given to a teaching hospital on top of their normal Medicare inpatient payments [the normal payment is called a Medicare Severity-Diagnosis Related Group (MS-DRG)]. The IME amount is determined by a complicated formula that considers the intern and resident-to-bed ratio (IRB). The IRB is used to calculate the teaching intensity of a hospital–the higher the intensity, the more expensive the hospital. The formula also includes a multiplier (X) that is set by law (currently 1.35). This all equates to a 5.5% increase in MS-DGR payments for every 10-resident increase per 100 beds. [Thanks to the AAMC for this explanation. I’m not going into medicine for the math.] There are no IME payments for outpatient visits.

DGME payments partially fund direct teaching costs, such as resident stipends and benefits, certain overhead costs, and part of the salaries and benefits of supervising faculty. For example, if 40% of a hospital’s patient population are Medicare patients, then DGME payments should pay for 40% of training the residents at that hospital. The other 60% of funds come from the hospital itself, private payers, Medicaid, and Children’s GME (since children’s hospitals do not typically serve Medicare patients, there is an alternative funding program to help fund their residents).

A study conducted for the AAMC predicts that by 2030 the U.S. will face a physician shortage of between 42,600 and 121,300 physicians. While this prediction is a vast range, its does place an emphasis on the need address this problem now, especially considering that it takes upwards of 10 years to become a doctor (college, medical school, residency, etc.). Last year, the Resident Physician Shortage Reduction Act was introduced in Congress. The bill, which has not seen any action since being referred to committee in 2017, seeks to gradually add 15,000 Medicare-sponsored residency spots over a five-year period.

Medical school enrollment has increased by almost 30% since 2002, but there are still fewer U.S. medical graduates than residency slots. [It might not seem that this is true considering how stressful the Match is, but that’s because U.S. medical grads often compete for the more “desirable” specialities while international medical grads go where we don’t want to, namely rural primary care.]  In 2017, nearly 36,000 U.S. and international medical school students applied for 31,575 residency positions offered in the Match.

Although teaching hospitals represent only 1 in 5 hospitals in the U.S., they account for over half of all U.S. hospital admissions, surgeries, births, and outpatient visits as well as 46% of ER visits. Teaching hospitals are community lifelines, full of highly specialized providers, (NICU, burn unit, trauma unit), and fertile ground to teach our newest doctors how to provide exemplary care. To ensure that residents can continue to be trained (and paid!) at teaching hospitals, it is vital that we keep an eye on the Medicare Trust Fund, which is predicted to be insolvent sooner than expected.

We don’t claim to have an answer to this problem–think tanks with wonkier folks than us haven’t totally figured it out yet (more docs, lower salaries, single payer, etc.). It will probably take a combination of solutions to ensure that residents continue to get paid, doctors make enough to pay off their loans, and the U.S. health care system as a whole stays solvent. We’re keeping our eye on it–hopefully GME is still hanging around once we start residency.

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