Residency Caps: What Medical Students Should Know

Last Updated on June 26, 2022 by Laura Turner

Updated December 26, 2021. The article was updated to correct minor grammatical errors and technical formatting.

Due to their complexity, residency caps don’t make for scintillating news. Outside the medical field – where the debate rages on – not many people are aware of the issue. Nevertheless, these caps on the number of residencies available to US medical students are incredibly important, not only to aspiring doctors but to the health of the nation as a whole.

The Physician Shortage and Its Impact

To appreciate why residency caps are so important, it is first necessary to understand the physician shortage in America and what it means for the health of the country’s citizens.

The Physician Shortage

Even those who have not heard of residency caps have likely heard at least something about the present and future shortage of physicians in the United States. There are many factors that will contribute to this shortage, including the retirement of currently practicing physicians, an aging population that is slated to add around 10,000 new Medicare enrollees daily as baby boomers begin to hit 65, and lastly, the nearly 32 million new patients who have access to health insurance due to the Affordable Care Act. Taking this all into consideration, the AAMC estimates that by 2020, the country will be short around 90,000 physicians.

The impact of this shortage is already being felt. Research shows that:

● 60 million Americans lack access to regular primary care.
● In the last 50 years, the percentage of primary care physicians has decreased from 50% to 30% of all practicing doctors.
● 1 in 5 patients who visit the ER could have had their problem resolved by a primary care physician.

Many people blame statistics like these on too few slots in American medical schools or on the increasing number of physicians going into specialties areas rather than primary care. What many don’t realize is that, arguably, the real culprit might be the residency cap that has impacted the US healthcare system since 1997.

Residency Caps in Context

Currently, United States medical students pay for the first four years of their medical education either out of pocket or through student loans – or some combination of the two. However, after becoming doctors, they must go through a residency program that can last 3-4 years or more depending on their specialty, where they provide patient care under the supervision of a more experienced physician in their field.

Let’s look at who pays for the cost of this residency – and why it is so controversial.

The Funding Trail

Some residency funding comes from the states themselves or from private insurance companies who negotiate with teaching hospitals across the country. However, at present, the bulk of the money for American residencies (called General Medical Education, or GME) comes from the government, specifically the Department of Health and Human Services via the Center for Medicare and Medicaid. This money eventually makes its way to the over 1,000 teaching hospitals where medical students go to serve as residents and hone their clinical skills. The cost, however, is high: $9.5 billion from Medicare and an additional $2 billion in Medicaid annually. This money funds the 115,000 medical residents operating in the U.S. each year. The total cost breaks down to around $100,000 per year per resident.

It was because of the cost of GME funding that this program came under the fire of budget-minded politicians in Congress. This resulted in curbing of funding for residencies under the Balanced Budget Act (BBA) of both 1997 and 1999:

● The 1997 BBA limited the number of osteopathic and allopathic residencies to the unweighted number of residencies on a teaching hospital’s most recent report. If the number of residencies exceeded this, there would be no more money forthcoming to pay for them.
● The 1999 version of the BBA made an exception for rural teaching hospitals because of the shortage of rural physicians but still capped this number to 130% of what it was in 1997.

It should be noted that when this cap was put in place, there was a predicted surplus of 70,000 physicians and some in the medical field were worried about the ramifications of having too many MDs in the United States.

The Controversy Over the Cap

Not surprisingly, this cap on residencies has generated fierce controversy over the question of funding for physician training, with worries over balancing the budget clashing with worries about the health ramifications of a physician shortage.

Critics of the Cap

The limitation in funding has essentially put a cap on the number of residencies that can take place in the United States – and since a doctor cannot go into practice without a residency, this is essentially a cap on the number of new, American-trained physicians who are allowed to practice in this country. The American Medical Association, in its AMA wire, blames this cap for the record number of students in 2015 who were not matched with a residency program at the end of their four years in medical school: of the 18,025 allopathic seniors and 3,000 osteopathic seniors who participated in the Main Residency Match, the two groups matched at rates of 93.9% and 79.3% respectively, leaving the highest percentage ever unmatched – and also unable to practice on their own.

The AMA and other critics of this cap have stated repeatedly that the cap is going to only worsen the physician shortage: no matter how many extra slots for medical students are created across the country, there will be a bottleneck as an increased number of those students compete for the same number of residency slots that have been in place since 1996. Many organizations like the AMA who are concerned about the shortage have repeatedly called for a repeal of this cap in order to alleviate this problem.

Some groups would also like to lift the cap, but only if certain conditions are met. The American Association of Family Physicians, for instance, wants to increase GME funding, but exclusively for primary care. Other groups would like to lift the cap as well, but only if it is linked to quality improvement and performance in regards to medical care.

What Proponents Say

There are proponents for keeping the current cap in place, however. This is mostly among budget-minded members of Congress who are wanting to cut spending, but even the Obama administration proposed reducing Medicare expenditure on GME, even halving support for children’s hospitals, which have their own separate sources of funding. People on this side of this issue tend to decry the seriousness of the physician shortage, pointing out that the increase of physician’s assistants and advanced nurse practitioners has helped to mitigate this problem, even with the cap still in place.

There are others, outside of the political realm, who also see government support of GME as superfluous. Allan Joseph, a fourth-year medical student writing for the Incidental Economist, begins with the argument that if government subsidies were cut, hospitals would not invest enough in medical education to produce enough physicians to meet US healthcare needs. Joseph notes that while there are substantial costs involved in training doctors, it is unwise to ignore the fact that residents actually generate money for hospitals and that hospitals are reimbursed for the services that residents provide.

To back this assertion up, Joseph points out that even after the BBA capped residency funding, the number of residencies increased – by about 20% for new residencies and 17% for residencies overall. In other words, Joseph believes that Medicare-based GME subsidies are not as vital as proponents believe. He also points out that non-Medicare sources of GME funding – such as Medicaid and the Children’s Hospital Fund – have increased in recent years.

Despite the many proponents of a remaining cap, Congress may well step in to change the current status quo in regards to residency funding.

The New Legislation and Its Potential Impact

This situation might be changing, however, and newly proposed legislation could repeal the 1996 cap on spending for GME.

The History of the Bill

According to the US Congressional website, the Resident Physician Shortage Reduction Act – also known as Bill 2124 – was introduced to the 114th Congress by Representative Crowley of New York and Senator Jon Tester of Montana in May of 2015. It has 139 Democratic and Republican sponsors from 35 different states and has currently been referred to the Sub-committee on Health; to date, it has not passed either the House or the Senate to become law. However, if it or a similar bill were to pass Congress, its impact would be felt by medical students throughout the country.

What the Legislation Entails

There are several characteristics about this bill that has the potential to impact this problem:

● The addition of 3,000 new residency slots annually for five years for a total of 15,000 by the end of the period. Around half of those slots would be dedicated to students practicing in “high demand” areas such as primary care.
● There would be a definite “pecking order” in regards to which hospitals would receive residency funding. In order, this would include hospitals in states with newly established medical schools, hospitals that are over their resident cap, VA-affiliated hospitals, hospitals that put an emphasis on community health, and hospitals that make “meaningful use” of EHRs.

The bill also calls for funding for research to find areas of shortage in the country so that this program could divert money to those places that are most in need; it also calls for studies on how to entice physicians to work in underserved, diverse, or low-income neighborhoods.

The residency gap is, admittedly, not the most-publicized aspect of the debate over what the country should do about its increasing scarcity of primary care doctors – and indeed, doctors in any specialty. However, current and prospective students should realize the importance of this issue, as it often has a big impact on their lives, from helping them to choose an area of medicine in which to practice to make sure that a residency will be there for them to complete the final, important step of their medical education.