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Medicare and Graduate Medical Education September 1995

Federal payments related to training resident physicians are expected to exceed $6 billion for fiscal year 1995.⁽¹⁾ The bulk of those graduate medical education (GME) payments flow directly to teaching hospitals through the Medicare program.⁽²⁾ (Teaching hospitals are hospitals that have residency training programs.)

Many occupations involve a period of general training--much of it on the job--in which the young adult pays for the various costs of that training in the form of low rates of pay or outright tuition payments. What makes medical training unusual is the substantial amount of federal funds that subsidize the general post-medical school training of physicians. The vast majority of graduates of U.S. medical schools receive residency training subsidized by federal dollars. Furthermore, that subsidization extends to graduates of foreign medical schools--many of whom are foreign citizens--who fill a significant proportion of residency positions that are supported by federal subsidies.⁽³⁾

Questions about the logic behind federal subsidization of residency training and the sheer size of the subsidies have led observers to suggest that the government review its current GME policy. Such a review appears to be especially relevant in an era of growing concern over both the fraction of the economy's resources that is devoted to medical care and the fiscal strains on the federal budget generally and the Medicare program in particular.

Changes in federal policy toward residency training would affect the size and characteristics of the future physician workforce. Thus, GME policy will necessarily affect the future mix, cost, availability, and quality of medical care. A number of private-sector institutions and individuals including doctors, hospitals, insurers, managed care organizations, employers, and consumers will also be affected by GME policy decisions. This study examines trends in the size of the physician workforce and the distribution of specialties within it and describes the economic forces, including federal GME policies, that help to determine the workforce's shape. The study also presents options for addressing several health care issues through changes in GME policy.
 

Background

Some historical background helps explain why federal subsidization of medical residency training was once so readily accepted but now is increasingly questioned. In the early 1960s, the medical sector of the U.S. economy bore little resemblance to the medical sector of today. No large, federally sponsored medical insurance programs covered elderly or indigent people, and the health care economy as a whole was much smaller.

The mid-1960s was a time of sweeping government intervention in the health care industry. The Congress enacted legislation creating Medicare and Medicaid, and those programs brought about a large increase in the demand (or willingness to pay) for medical services. Not only did the government take on a substantial role in subsidizing the demand for medical care, but it also provided support on the supply side. That support included payments to medical schools for increasing the size of their classes and an acceptance by the Medicare program that it should pay some share of the costs for residency training. (At that time, many people held the view that an increase in the number of physicians was desirable.)

As the end of the century approaches, the past 35 years can be characterized as a period of remarkable successes for which the nation has incurred high costs. Elderly people in the United States are covered by Medicare. Particular groups of low-income people are covered by Medicaid. Today, the number of fully trained patient care physicians for every 1,000 people is about 1.8, compared with around 1.1 in the mid-1960s.⁽⁴⁾ Substantial advances in medical technology have occurred. But costs have also been noteworthy. National health expenditures are now about 14 percent of the nation's gross domestic product--more than double their share of 30 years ago, which stood at 5.9 percent. The fraction of the federal budget that goes toward health care is now almost 20 percent.

A number of questions claim the attention of today's health policymakers. One concern is whether too many of the economy's resources are being used to provide medical care. Several issues relate to the supply of physicians' services. How many physicians should be in training? What kinds of physicians, in terms of specialty, should be trained? How can the distribution of physicians among urban, suburban, and rural areas be altered?

Even critics who have different philosophical and political perspectives may conclude that the number of physicians being trained is excessive and that overtraining may be a problem. Arrangements for financing medical residency training contribute to those views. Critics with a free-market perspective argue that if general training is worthwhile, the benefits, which will flow to the doctor in the form of higher future income, will outweigh the costs of training, which are paid by the young doctor in the form of low income during residency and difficult working conditions.⁽⁵⁾ Such critics maintain that GME subsidization distorts market signals by making training appear less costly than in fact it is. According to that line of argument, it follows that too many doctors receive too much training.

Critics with a planning perspective support targets for the medical workforce based on assumptions about the number of different kinds of specialists that are required to fill the medical needs of the population. Such critics argue that there are too many doctors and that they are too highly specialized. Although these critics would reject a free-market approach in the medical care sector, they too would tend to question the merits of current GME policy. GME subsidization encourages a greater supply of physicians than would otherwise result. Furthermore, because the Medicare subsidies go exclusively to teaching hospitals, decisions about the site of training may be distorted by that financial incentive. Critics of current policy contend that such distortions have kept training away from ambulatory, primary care settings and reinforced its presence in more specialized and more technologically costly settings. As a result, current GME policy is not consistent with the goals of a smaller, less specialized physician workforce.
 

The Physician Workforce

The characteristics of today's workforce of fully trained physicians represent the cumulative decisions of many previous cohorts of medical residents. The future composition of the workforce depends on the makeup of the pool of physicians who are already trained and on the decisions made by current medical residents and future cohorts of residents about the specialties they will pursue. The workforce is also shaped by the characteristics of immigrating physicians.

The Mix of Physicians in Primary Care Versus Non-Primary Care Specialties

The relative balance of physicians in primary care specialties versus non-primary care fields continues to be an area of concern among health policymakers. Although no clear-cut definition of "primary care" exists, characteristics that tend to be associated with the concept of a primary care physician include being a point of first contact for a patient with the medical care system and providing routine examinations and vaccinations. Another distinction that people sometimes make is that primary care physicians are less oriented toward procedures (such as surgical interventions) than are non-primary care physicians. Yet another characteristic that is sometimes associated with primary care specialties is the breadth of patient problems that such physicians handle. Some people might argue that a primary care physician is one who engages in a broad range of activities, whereas a non-primary care doctor is one who treats only a narrow range of illnesses.

The above set of plausible characteristics for defining primary care is somewhat unsatisfactory because certain physicians will fit some of the attributes but not others. Nonetheless, a widely accepted view is that general practice, family practice, general internal medicine, and general pediatrics are primary care specialties; obstetrics and gynecology might also belong in the primary care category.⁽⁶⁾

Over the past three decades, the general trend has been a decline in the fraction of fully trained physicians who are in primary care specialties. In 1965, 51 percent of doctors involved in patient care were in the primary care fields of general practice, internal medicine, and pediatrics. Obstetrics and gynecology accounted for a further 6.3 percent of trained doctors. Surgical specialties (including general surgery) accounted for 21 percent of the workforce; other non-primary care specialties and subspecialties of internal medicine and pediatrics accounted for 21 percent as well.⁽⁷⁾

Today, most fully trained physicians do not consider a primary care specialty to be their principal activity. The primary care fields of general practice, family practice, general internal medicine, and general pediatrics account for 34 percent of all fully trained physicians who are involved in patient care. Obstetrics and gynecology accounts for a further 6.5 percent. The remainder of the trained physician workforce is divided as follows: surgical specialties including general surgery, 19 percent; other non-primary care specialties including anesthesiology and radiology among others, 29 percent; and the subspecialties of internal medicine and pediatrics, 11 percent (see Figure 1).⁽⁸⁾
 

Figure 1. Distribution of Fully Trained Physicians Engaged in Patient Care, by Specialty, Selected Years, 1965 Through 1993

SOURCE: Congressional Budget Office calculations based on data from American Medical Association (AMA), Distribution of Physicians in the U.S. (Chicago: AMA, 1967 and 1971), Physician Distribution and Medical Licensure in the U.S., 1975 (Chicago: AMA, 1976), and Physician Characteristics and Distribution in the U.S. (Chicago: AMA, 1982, 1986, 1992, and 1994).

NOTES: Data are for fully trained physicians who are actively engaged in patient care; that is, the data exclude residents and those fully trained physicians who are employed in professional activities other than patient care (for example, administration or medical research). The specialties of physicians are self-reported and refer to the principal specialty practiced by the doctor. Osteopaths are not included.

Data for 1990 and 1993 are as of January 1. Data for all other years are as of December 31. See Appendix Table A-1.

The fraction of the stock of fully trained physicians who actually spend some of their practice doing primary care exceeds the 34 percent who categorize themselves as primary care physicians. Physicians are self-categorized based on the specialty in which they spend the greatest amount of time in their practice; however, some physicians also report practice hours spent in specialties other than their principal one. In 1992, 47 percent of physicians reported some practice time in a primary care specialty.⁽⁹⁾

Physicians in some specialties could make a transition into primary care more readily than physicians in others. Doctors who practice the subspecialties of internal medicine or of pediatrics have done residency training in general internal medicine or pediatrics and then received further education in a subspecialty area. In principle, those physicians could move into primary care practice because they have already received formal training in a primary care specialty. But whether subspecialists reconfigure their practices toward primary care depends on the future marketplace for health care services and whether the relative returns from primary care practice rise sufficiently to encourage such changes. Many of these subspecialists already spend some of their time practicing primary care. Over 75 percent of subspecialists in internal medicine and about 65 percent of subspecialists in pediatrics report spending some hours of their practice in a primary care specialty.

The degree of concern arising over the relative number of primary care physicians may depend on how rigidly one defines a primary care practitioner. As Figure 1 indicates, the fraction of physicians with a primary care specialty as their principal specialty has declined since 1965. If, however, one also includes subspecialists of internal medicine and of pediatrics on the grounds that they are potential primary care practitioners, the picture looks somewhat different. The combined fraction of actual and potential primary care practitioners fell from 1965 to 1975 but has since remained approximately constant. Moreover, the fraction of doctors who spend some time doing primary care significantly exceeds the fraction who call primary care their principal practice activity.

Most of the growth in the number of fully trained physicians who are involved in patient care has been concentrated in the non-primary care specialties (see Figure 2). The number of primary care physicians--strictly confined to the specialties of general or family practice, general internal medicine, and general pediatrics--per 1,000 people grew only slightly between 1965 and 1993. The larger set of doctors that includes subspecialists who have trained in internal medicine or pediatrics grew somewhat more, from just under 0.6 per 1,000 people in 1965 to 0.8 in 1993.
 

Figure 2. Fully Trained Physicians Engaged in Patient Care per 1,000 People, by Specialty, Selected Years, 1965 Through 1993

SOURCE: Congressional Budget Office calculations based on data from American Medical Association (AMA), Distribution of Physicians in the U.S. (Chicago: AMA, 1967 and 1971), Physician Distribution and Medical Licensure in the U.S., 1975 (Chicago: AMA, 1976), and Physician Characteristics and Distribution in the U.S. (Chicago: AMA, 1982, 1986, 1992, and 1994).

NOTES: Data are for fully trained physicians who are actively engaged in patient care; that is, the data exclude residents and those fully trained physicians who are employed in professional activities other than patient care (for example, administration or medical research). The specialties of physicians are self-reported and refer to the principal specialty practiced by the doctor. Osteopaths are not included.

The "Other" category comprises fully trained physicians practicing in the specialties of obstetrics and gynecology, surgery, and other non-primary care fields.

Data for 1990 and 1993 are as of January 1. Data for all other years are as of December 31. Data are plotted at the intervals shown. See Appendix Table A-2.

The Geographic Distribution of Physicians

Although the number of doctors per 1,000 people has risen substantially over time, a number of geographic locales--in rural and some urban areas--are still characterized as having an inadequate supply of physicians. An extreme example of an underserved area is a county with no doctor. Since 1976, the fraction of people living in such counties has barely changed. In 1976, 4.3 percent of U.S. counties did not have an active physician providing patient care; the population in those counties was 0.23 percent of the total U.S. population. In 1993, 4.8 percent of U.S. counties did not have an active physician, and the population in those counties was 0.22 percent of the 1993 U.S. population.

The Path of New Physicians into the Trained Physician Workforce

After graduating from medical school, a new physician typically enters a residency training program centered at one of the approximately 1,200 U.S. teaching hospitals. The "major" teaching hospitals--those with resident-to-bed ratios of at least 0.25--are less than one-fourth of the teaching hospitals but train about two-thirds of the residents. Besides the approximately 15,500 annual graduates of U.S. medical schools, the cohort of first-year hospital residents includes over 6,500 doctors who attended a non-U.S. medical school. Some of the latter doctors are U.S. citizens who received their medical education in another country, but about 80 percent of the foreign medical graduates (FMGs) who train as medical residents in the United States are foreign citizens. The fraction of medical residents who are FMGs has climbed from 14 percent in the 1988-1989 training year to 23 percent in 1993-1994. Approximately 70 percent to 75 percent of those FMGs are expected to eventually enter the physician workforce in the United States.⁽¹⁰⁾

Residency training ranges from three to about seven years depending on the specialty or subspecialty. The primary care fields have shorter training periods; the surgical subspecialties tend to have longer ones (see Figure 3).
 

Because of the sequential nature of decisions to enter some fields, a census of first-year residents is not a clear indicator of that cohort's ultimate distribution among the various categories of medical practice. For example, based on the behavior of the cohort entering training in 1987, only 36 percent of the residents who spend their first year of residency training in general internal medicine end their training in that specialty. The other 64 percent of such residents finish their post-medical school training in a subspecialty of internal medicine, such as cardiology, endocrinology, or gastroenterology, or in another specialty, such as neurology or ophthalmology. Similarly, only 58 percent of residents who start in general pediatrics end their training as general pediatricians. Much of the gap is accounted for by those who decide to enter a subspecialty of pediatrics. In contrast, some fields show a high degree of predictability based on the first-year cohort: for example, 97 percent of those who start in family practice residencies finish their residency training as family practitioners.

Although the fraction of residents training in a primary care specialty or a subspecialty of a primary care specialty appears to have grown since 1965, several qualifications apply to that apparent trend (see Figure 4). Before 1969, official certification in family practice did not exist. Today, three-year residency programs in family practice are well established. Thus, the apparent growth in family or general practice residents between 1965 and 1980 may reflect the introduction of the three-year family practice option rather than an increased propensity for young doctors to enter primary care. Another point is that because of data limitations, internal medicine and its subspecialties are lumped together. As a result, it is impossible to isolate the fraction of residents who are training in a strictly defined primary care specialty.
 

Figure 4. Distribution of Residents by Specialty, Selected Years, 1965 Through 1993

SOURCE: Congressional Budget Office calculations based on data for 1965 through 1985 from American Medical Association (AMA), Distribution of Physicians in the U.S. (Chicago: AMA, 1967 and 1971), Physician Distribution and Medical Licensure in the U.S., 1975 (Chicago: AMA, 1976), and Physician Characteristics and Distribution in the U.S. (Chicago: AMA, 1982 and 1986); and on data for 1988 through 1993 from the American Association of Medical Colleges.

NOTES: Comparisons between the earlier and later years shown above must be made cautiously because specialties are unknown for a large proportion of residents in the earlier years and the three-year family practice residency was a new option in the 1970s. In addition, different data sources were used for the earlier and later years.

The "Unknown" category includes residents in a transitional year (a year of basic clinical training).

Osteopathic doctors in M.D. residency programs are included in the data. Data appear in Appendix Table A-3.

Several noteworthy patterns in the shares of residents in different fields have emerged over the past 30 years. Between 1981 and 1993, the fraction of residents in family or general practice has declined, but it was almost constant between 1990 and 1993. The proportion of residents in a much more inclusive group of potential primary care physicians (including internal medicine and pediatrics and their subspecialties) grew from 41 percent in 1981 to 48 percent in 1993.

Recent Cohorts of Trainees

The cohort of doctors who began their residency training in 1992 is projected to roughly match the current population of fully trained doctors in terms of their distribution among specialties. If the transition patterns of the 1987 cohort of first-year residents are repeated in the 1992 cohort (almost all of whose members will have completed their graduate medical education by 1999), 33 percent will enter the workforce of trained physicians in the primary care fields of either family practice, general internal medicine, or general pediatrics. (In comparison, in 1993, 34 percent of the workforce of fully trained patient care physicians had a principal primary care specialty.) Six percent of the 1992 cohort would be expected to enter obstetrics and gynecology, and the remaining 61 percent would enter non-primary care fields.⁽¹¹⁾

The projected percentages given above may be faulty to the extent that economic incentives alter the likelihood that a resident who is training in a particular field during a particular residency year will either continue in that field or move to training in another field for the next year. Such patterns are not fixed, and they are likely to respond to changes in the economic incentives of teaching hospitals or residents. Those alterations could result from modifications in government policy or changes in the private marketplace for physicians' services.
 

The Federal Government's Role in Shaping the Physician Workforce

Federal policies may affect the number of physicians and their distribution among specialties by altering the economic incentives faced by both the people and the institutions that are or may be involved in medical training. The people include medical students (those trained in both U.S. and foreign medical schools), medical residents, and potential medical students. The institutions include medical schools and teaching hospitals as well as health maintenance organizations (which have the potential to become more involved in training activities). In the context of graduate medical education for physicians, policies aimed at residency training and policies that affect the economic rewards from practice in the different specialties can influence the size and composition of the physician workforce. Because the magnitude of the effects of various policies on the physician workforce is uncertain, this study confines itself to assessing the direction of those effects.

Medicare Payments to Teaching Hospitals

The most apparent federal funding of GME comes through the Medicare program. Under current law, the federal government, through Medicare, provides about $6 billion per year in subsidies related to the graduate medical education of physicians. The Medicare subsidy program has two parts: the direct graduate medical education (DME) subsidy and the indirect medical education (IME) teaching adjustment (see Box 1). The DME payment is based on the number of residents training at the teaching hospital, the typical costs that hospital incurred for training a resident physician in a period roughly corresponding to fiscal year 1984 (adjusted for inflation), and the Medicare patient load of the hospital. DME payments, which for 1994 amounted to almost $2 billion, are intended to cover Medicare's share of the direct costs--such as residents' stipends (or salaries) and fringe benefits, salaries for teaching personnel, and overhead--of residency training programs.⁽¹²⁾
 

Box 1. Medicare's Subsidies for Graduate Medical Education The Medicare program provides teaching hospitals with two kinds of subsidies that are based on the size of their graduate medical education programs. Those payments are called direct graduate medical education (DME) payments and the indirect medical education (IME) adjustment. Direct Graduate Medical Education Payments For its DME payment, a teaching hospital receives an amount equal to the product of three factors: its "Medicare patient load," its adjusted number of full-time-equivalent (FTE) residents, and its allowed amount per resident. The hospital's Medicare patient load is the fraction of its total number of inpatient days that Medicare beneficiaries represent. The adjusted number of FTE residents is calculated by considering each resident in an approved training program based at the hospital, calculating the degree to which that resident is in the program full time, and then multiplying by an adjustment weight. The weight equals 1.0 for residents who are in their "initial residency period" (IRP) and who have not been in training for more than five years.1 (Residents in geriatric fellowships may receive a weight of 1.0 for two additional years.) Other residents receive a weight of 0.5. Graduates of foreign medical schools must have passed a competency exam to be counted toward DME payments. The allowed per-resident amount differs among hospitals. It is based on the direct graduate medical education costs per resident incurred by the hospital in a period roughly corresponding to fiscal year 1984, increased by 1 percent and updated for changes in the consumer price index for urban consumers (CPI-U). For fiscal years 1994 and 1995, only residency positions in primary care and in obstetrics and gynecology receive the CPI-U update. Indirect Medical Education Adjustment The additional amount Medicare pays to a teaching hospital equals the hospital's total Medicare diagnosis-related group (DRG) payments for inpatient services multiplied by a factor that is calculated according to a specific mathematical formula:   Under the formula, the hospital's payments increase with the resident-to-bed ratio (the ratio of the number of FTE residents in approved training programs who work in the hospital to the number of beds). A hospital receives approximately 7.7 percent more in payments for each 0.1 increase in the ratio of residents to beds. The various provisions that reduce the weight of many residents in the calculation of DME payments do not apply to the count of FTEs that is used to calculate the indirect adjustment. Other Payments Medicare's payments to hospitals for capital-related costs also include an adjustment that gives larger payments to hospitals that have more residents. Those payments are quite small in comparison with DME and IME payments and are not discussed in this study. Illustrative Examples The table at right shows the relevant information for calculating the marginal subsidy per resident for three different teaching hospitals. The marginal subsidies from the DME and IME programs combined appear in columns 7 and 8. Column 7 shows the additional payments for adding another resident who is in the initial residency period but who has not exceeded five years of residency training. Column 8 applies to a resident who either is beyond the initial residency period or has trained for more than five years. Several interesting points emerge from these actual examples. The marginal subsidy drops for residents who are beyond the initial residency period (column 8 versus column 7) because the DME regulations give such residents a weight of 0.5 instead of 1.0. The marginal subsidies fall by less than half because IME payments make no distinction between residents within or beyond the initial residency period and those payments constitute a substantial portion of the marginal subsidies. Hospital 1 has a large marginal subsidy because it has a very large DME per-resident amount, an average Medicare patient load (Medicare days divided by total days), and average diagnosis-related group payments for a teaching hospital. Hospital 2 has a marginal subsidy near the median despite the fact that it has a small DME per-resident amount. The large Medicare patient load of hospital 2, along with its high level of total DRG payments, which are probably the result of its sizable fraction of Medicare patients and the fact that it is a large hospital, helps boost its marginal subsidy. Hospital 3 has a relatively small marginal subsidy, even though it has a large DME per-resident amount. A small Medicare patient load and a low level of DRG payments hold down the marginal subsidy for hospital 3. The low level of DRG payments probably reflects both the small Medicare load and the fact that the hospital is small for a teaching hospital. Examples Beds (1)  Resident FTEs   (2)     Medicare Inpatient  Days    (3)      Total    Inpatient Days    (4)      DME    Per-    Resident Amount  (Dollars) (5)     DRG     Payments  (Thousands of Dollars)  (6)      Additional  DME/IME  Payments   for Another Resident   in the     IRPa     (Dollars)   (7)       Additional  DME/IME  Payments   for Another Resident   Beyond    the IRPa    (Dollars)   (8)       Hospital 1 310 23    35,098 81,214 106,273 23,761  102,092  79,128   Hospital 2 670 7    78,897 150,202 38,737 53,289  80,877  70,704   Hospital 3 145 26    9,288 32,803 95,912 6,550  58,448  44,870   SOURCE: Congressional Budget Office calculations based on data for 1993 from the Health Care Financing Administration. NOTES: Payments are figured on an annual basis and in 1993 dollars. Hospital 1 has a marginal subsidy value for residents in the initial residency period at approximately the 75th percentile of the distribution among teaching hospitals. Hospital 2 has a marginal subsidy value for IRP residents near the median. Hospital 3 has a marginal subsidy value for IRP residents at around the 25th percentile. For residents who have exceeded five years of training (with certain exceptions), the numbers in column 8 rather than column 7 would apply. a. This column represents the sum of additional DME and IME payments. 1. The initial residency period is the minimum number of years of residency training to be eligible for board certification in a particular specialty.

The IME teaching adjustment is a subsidy to teaching hospitals in the form of a percentage add-on to the reimbursement for each Medicare patient admitted to the hospital. The percentage adjustment increases with the resident-to-bed ratio. The adjustment is approximately 7.7 percent for going from a resident-to-bed ratio of zero to 0.1; however, the marginal adjustment falls as that ratio continues to rise (see Box 1 for the exact formula). Thus, a teaching hospital that has a resident-to-bed ratio of 0.1 receives an additional payment equal to 7.4 percent of the Medicare diagnosis-related group (DRG) payments to that hospital for inpatient hospital services provided to Medicare beneficiaries.⁽¹³⁾ A hospital with a resident-to-bed ratio of 0.2 receives an additional payment equal to 14.5 percent of Medicare DRG payments to the hospital. These "indirect" medical education payments amount to about $4 billion annually.

Supporters of IME payments view them as an attempt to reimburse teaching hospitals more than nonteaching hospitals because the costs of teaching hospitals are generally greater. Advocates cite a number of reasons, not all of which are related to teaching, to justify the payments. The reasons given for teaching hospitals' higher costs include the larger number of tests ordered by residents and other inefficiencies caused by residents' lack of experience, the greater severity of the cases such hospitals treat, the need to be at the forefront of technology and research, and the provision of more uncompensated care and care for indigent people.

The Size of GME Payments in Total Hospital Revenues

GME payments constitute a significant percentage of the revenues of teaching hospitals. For all teaching hospitals, total GME payments account for almost 4 percent of total revenues (see Table 1). (Total hospital revenues include patient revenues from all sources as well as donations, income from investments, and governmental appropriations.)
 

How significant GME subsidies are in relation to total hospital revenues varies among different categories of teaching hospitals. Private major teaching hospitals obtain more than 7 percent of their revenues from Medicare GME payments. In comparison, public major teaching hospitals get just over 4 percent of their revenues from such payments, and other teaching hospitals receive only about 2.4 percent. Perhaps the difference between major teaching hospitals and other teaching hospitals is not surprising since major teaching hospitals have more residents and therefore receive more in GME payments. Other categories of hospitals for which GME payments constitute at least 4.5 percent of total revenues include disproportionate share teaching hospitals in large urban areas, teaching hospitals with more than 400 beds, and teaching hospitals in the New England and mid-Atlantic regions.

Policies That Affect the Demand for Medical Care

In addition to Medicare payments that are linked to residency training, other federal government policies affect the market for medical residents. Medical residents provide patient care in teaching hospitals; thus, government policies that encourage the purchase of hospitalization insurance boost the demand for hospital services and hence the demand for medical residents. Such policies operate both directly (providing hospital insurance through Medicare and Medicaid) and indirectly (subsidizing the purchase of private hospitalization insurance through the favorable tax treatment of employment-based health insurance premiums).⁽¹⁴⁾ In addition, Medicare and Medicaid policies on fee schedules and coverage affect the rewards to various specialties and, in turn, the number of residents who seek to practice in those specialties.

Loan Policies

The payment provisions of student loans may also affect the specialty a resident chooses. The longer a resident who has obtained a student loan (for either undergraduate or medical school education) is permitted to defer repayment because of being in training, the greater is the incentive to continue the residency period and move into a non-primary care field. Evidence indicates that residents with large debts who were permitted to defer repayment throughout their training were more likely to enter fields with longer residency periods than residents who had smaller debts. In contrast, some residents with large debts who had to begin repaying loans during their residency tended to choose fields with shorter residency training. That evidence suggests that repayment provisions may influence the proportion of residents who choose training in the primary care specialties.⁽¹⁵⁾

1. In this study, the general term "resident" also includes "interns" and "fellows." In the past, "intern" was used to describe individuals who were in their first year of training after medical school. The use of the term "fellows" varies among specialties. In some fields trainees in subspecialty programs are called "fellows"; in other fields they are called "residents."

2. Besides the Medicare subsidies for GME, the Department of Veterans Affairs and the Department of Defense fund residency programs in federal hospitals. Outlays for those programs were less than $1 billion annually in the early 1990s. At an even lower level are Public Health Service grants that assist some primary care training programs.

3. Some publications have replaced the term "foreign medical graduate" with the term "international medical graduate."

4. In this study, "fully trained physician" refers to a physician who is no longer a medical resident. A "patient care" physician is one whose principal activity involves the diagnosis or treatment of patients as opposed to activities like administration or research. The physician counts reported here are based on American Medical Association counts of doctors of medicine (M.D.s). Schools of osteopathy, whose graduates receive a doctor of osteopathy degree, produce about 5 percent of a more broadly defined physician workforce.

5. The term "general training" means that the resulting knowledge and skills will continue to be useful to trainees after they have left the residency program and the particular institution at which they were residents.

6. Other observers argue that nurse-practitioners and nurse-midwives play an important role in providing primary care services and could play a greater role in the future. See Linda H. Aiken and Marla E. Salmon, "Health Care Workforce Priorities: What Nursing Should Do Now," Inquiry, vol. 31, no. 3 (Fall 1994), pp. 318-329.

7. The specialty counts of fully trained physicians are self-reported and refer to the principal specialty practiced by the doctor. The specialty category was unknown for about 1 percent of the doctors.

8. The specialty category is unknown for the remaining 1 percent of trained physicians.

9. Phillip R. Kletke, "Primary Care Versus Nonprimary Care Physicians: A False Dichotomy?" Physician Marketplace Report (Chicago: American Medical Association, Center for Health Policy Research), April 1994.

10. See Fitzhugh Mullan, Robert M. Politzer, and C. Howard Davis, "Medical Migration and the Physician Workforce: International Medical Graduates and American Medicine," Journal of the American Medical Association, vol. 273, no. 19 (May 17, 1995), pp. 1521-1527.

11. These calculations appear in David A. Kindig and Donald Libby, "How Will Graduate Medical Education Reform Affect Specialties and Geographic Areas?" Journal of the American Medical Association, vol. 272, no. 1 (July 6, 1994), pp. 37-42.

12. In some contexts, "DME" includes payments to hospitals to support training of nurses and other paramedical personnel. In this study, the term refers only to payments for the training of physicians. The payments for nonphysician training are many times smaller than the DME subsidies for physicians.

13. The DRG payments are the payments that Medicare makes for inpatient hospital services. Medicare pays a predetermined rate for each inpatient stay based on the patient's admitting diagnosis.

14. See Congressional Budget Office, The Tax Treatment of Employment-Based Health Insurance (March 1994).

15. See Gloria J. Bazzoli, "Medical Education Indebtedness: Does It Affect Physician Specialty Choice?" Health Affairs, vol. 4, no. 2 (Summer 1985), pp. 98-104.

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