Position Statement

The Financing of Graduate Medical Education

This Position Statement was developed as an educational tool based on the opinion of the authors. It is not a product of a systematic review. Readers are encouraged to consider the information presented and reach their own conclusions.

The health and welfare of patients is inextricably linked to the knowledge and skills physicians develop during their clinical training, the major portion of which takes place in the years immediately following graduation from medical school. During this period, which generally lasts three to seven years, young physicians ("residents") participate in the care of patients and study in supervised educational programs that are based in teaching hospitals. The satisfactory completion of a course of education in one of these approved programs is a pre-requisite to achieving board certification in a chosen medical or surgical specialty.

In providing graduate medical education, teaching hospitals incur a variety of expenses beyond those generated by routine patient care. These include the direct costs of graduate medical education, such as salaries and benefits, including the cost of medical malpractice insurance, for residents, faculty and other support staff and the costs of institutional space devoted to clinical training and research. They also include the indirect costs of graduate medical education, which reflect the additional staff time and other hospital resources needed to involve residents in patient care. In addition, because teaching hospitals are in the vanguard of medical science, they tend to attract more severely ill patients, which in itself causes an additional financial strain.

Graduate medical education is primarily supported through patient care revenues. Traditionally, most payers have implicitly financed graduate medical education because its costs are included in teaching hospital charges. Medicare, which is the largest single funding source, provides teaching hospitals with somewhat higher prospective payments to help cover the indirect costs of graduate medical education. Additionally, Medicare makes separate payments to teaching hospitals to help cover the direct costs of graduate medical education.

Rising concerns over health care costs in general have created an atmosphere which jeopardizes the financing of graduate medical education. Some payers are even reimbursing teaching hospitals at the same rates that are paid to non-teaching hospitals. In addition, federal policymakers in recent years have implemented limits on Medicare financing of graduate medical education, and are currently considering further reductions. As a result of these trends, it is becoming more difficult for teaching hospitals to cover their costs.

The American Academy of Orthopaedic Surgeons (AAOS) believes that graduate medical education is vital to the well-being of our health care system, and must be maintained through strong financial support for teaching hospitals.

Graduate medical education is an essential component in the training of our nation's future physicians. It is a service to our society which needs and deserves strong financial support from both the public and private sectors. Therefore, teaching hospitals should be fully reimbursed by all payers for the reasonable costs of their graduate medical education programs. Since graduate medical education is a public good, Medicare financing should not be decreased further unless and until other sources of funding are more fully developed.

The Financing of Graduate Medical Education

The AAOS believes that the financing of graduate medical education should not be used as a means to implement national physician manpower policies.

Under the assumption that there is a shortage of primary care physicians, federal policymakers have been considering various Medicare payment policies to encourage teaching hospitals to create more primary care residency positions. Conversely, these proposals would adversely affect financing for surgical residency programs.

Data from the National Resident Matching Program indicate that there is an adequate number of available primary care residency positions, and that a significant number of these positions are not filled. These data show that the failure of medical students to choose primary care residency training is based on personal and professional factors which transcend the educational financing process.

The AAOS recommends that physician manpower policies be developed through a careful and deliberative process that takes into account all of the factors that influence how physicians choose their specialties. Furthermore, policies on physician manpower should be designed in ways that do not threaten the quality of graduate medical education in those specialties which are not currently experiencing manpower shortages.

May 1992 American Association of Orthopaedic Surgeons.
Reviewed December 2007.

This material may not be modified without the express written permission of the American Association of Orthopaedic Surgeons.

Position Statement 1109

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