This spring, over 9,000 medical school graduates found themselves unable to secure residency positions, marking a peak in what many see as significant shortcomings in the financing of physician training by the government.
For those without a residency, the implications can be tough. They might have to face a year of uncertainty, reconsidering their options—retrying for residency, exploring research or administrative roles, or even stepping away from medicine entirely. It’s concerning, especially as the U.S. grapples with a growing shortage of doctors. Surprisingly, federal regulations still cap the number of residency slots available each year.
This unfortunate situation, which is a misallocation of medical talent that could be helping patients, stems from government rules and bottlenecks. With a substantial number of baby boomers reaching retirement age and a surge in demand for medical services, the supply of doctors remains restricted.
The Health Resource and Services Administration’s report suggests that the doctor shortage could hit around 187,000 by 2037. To address this issue and better align the number of physicians with the demand, it’s essential for the U.S. to rethink how physician training is funded and return to more market-driven strategies.
After their graduation, medical graduates must undergo a period of supervised training—essentially an apprenticeship—before they can qualify to practice medicine. But who funds this training? Surprisingly, it’s not hospital charges that cover these expenses; rather, it’s largely through federal Medicare taxes, which help subsidize graduate medical education at teaching hospitals.
In the 1997 Balanced Budget Act, Congress set a limit on the number of Medicare-funded residency spots at each teaching hospital, based on 1996 numbers. This was intended to control Medicare costs, as funding graduate medical education constitutes a significant portion of its expenditures. At that time, there was a belief that there might even be an oversupply of physicians, supported by predictions from the American Medical Association and others that suggested a surplus. However, that view inadvertently reinforced the residency cap, as the American Medical Association had previously advocated for limiting federal funding and trainee positions.
Amendments to the Social Security Act in 1965 allowed Medicare to compensate hospitals for treating its patients and set aside additional funds for teaching hospitals that train future doctors. This mechanism, based on the understanding that supporting teaching hospitals delivers broad societal benefits, has created funding bottlenecks subject to various medical lobbies’ influence, including the AMA, which has historically pushed for caps and limitations on training positions. Keeping the supply of practicing physicians low has ultimately driven up physician salaries.
Even some prestigious hospitals benefit from this arrangement since federal funding subsidizes resident salaries, resulting in lower labor costs and a continual influx of skilled yet affordable medical staff. If top-tier hospitals were to expand their training slots, they might lose some of their “prestige,” make it tougher to choose candidates, and even increase competition and wages for trainees.
Another critical point is certification. Only training programs accredited by the Accreditation Council for Graduate Medical Education receive subsidies from the Centers for Medicare and Medicaid Services. This exclusivity leaves many capable institutions, like rural health centers and outpatient clinics, underutilized in their ability to train doctors.
Ultimately, it’s patients who suffer from this arrangement. The limitations imposed on the supply and funding of medical residents result in ongoing shortages, making it harder for patients to access affordable and convenient care—particularly in rural areas facing declining health conditions, marked by a shortage of primary care physicians contributing to lower life expectancies.
A viable solution to the doctor shortage lies in dismantling the current monopoly in Washington. By allowing hospitals, states, and philanthropic organizations to fund residency slots, and broadening accreditation to include other institutions that meet quality standards, we could better train doctors and distribute them where they’re most needed.
Texas serves as a promising model for what a more decentralized approach can achieve. The state has combined legislative efforts and funding from medical schools to increase residency opportunities and keep more physicians practicing locally. In 2017, Texas passed a law mandating that publicly funded medical schools ensure enough in-state residency positions for graduating students. Collaborations among Texas’ major medical schools have led to the creation of hundreds of additional residency spots at local hospitals.
Congress should consider similar measures to allow more newly licensed physicians into the workforce. The residency cap established by the Balanced Budget Act of 1997 should be gradually removed, and hospitals, states, and private entities should gain the ability to directly fund additional residency positions. What Texas has done illustrates the potential of expanding funding sources for residency programs.
The doctor shortage isn’t a riddle; it’s a consequence of outdated funding methods and stringent regulations on residency positions. Lawmakers need to eliminate these obstacles to enable the next generation of doctors to train where their services are most urgently needed.
