MEDICARE AND GRADUATE

MEDICAL EDUCATION

SEPTEMBER 1995

The Congress of the United States

Congressional Budget Office
NOTES

Numbers in the text and tables may not add to totals because of rounding.
T

Preface

hrough the Medicare program, the federal government subsidizes graduate medical

education--the training of resident physicians--in amounts that approach $6 billion

annually. Those payments are projected to grow to more than $7.5 billion per year

in 2000. Given the current concerns about the federal budget in general and the solvency

of Medicare in particular, this is an opportune time to reevaluate Medicare's policy regarding graduate medical education (GME).

In response to a request from the House Committee on Ways and Means, this study

provides an overview of the changing physician workforce and the effects of Medicare's

GME policy on residency training and the teaching hospitals at which such training is

based. Since today's residents are tomorrow's fully trained doctors, subsidies for training

residents may have important implications for future access to medical care and the costeffectiveness of that care. The study presents various options for GME policy and explores their implications. In accordance with the Congressional Budget Office's (CBO's)

mandate to provide objective, impartial analysis, the study contains no recommendations.

James Baumgardner of CBO's Health and Human Resources Division prepared the

study under the direction of Joseph Antos and Linda Bilheimer. Susan Labovich provided

computer support, and Julia Matson Jacobsen offered valuable research assistance

throughout all stages of the study. Outside CBO, Ruth Hanft provided many useful comments on an early draft. Within CBO, Richard Fernandez, Nancy Gordon, Corinne

Manfredi, Alison Martin, Daniel Mont, Constance Rhind, and Roberton Williams contributed helpful advice and assistance.

Leah Mazade edited the study, and Christian Spoor provided editorial and production

assistance. Sharon Corbin-Jallow prepared drafts of the manuscript. Kathryn Quattrone

prepared the study for publication.

June E. O'Neill

Director

September 1995

Contents

SUMMARY ix

ONE INTRODUCTION 1

Background 1

The Physician Workforce 2

The Federal Government’s Role in Shaping

the Physician Workforce 8

TWO ECONOMIC FACTORS THAT AFFECT THE

CHARACTERISTICS OF THE PHYSICIAN

WORKFORCE 15

Effects of Medicare GME Subsidies on the

Number of Residents 16

The Linkage Between the Markets for Residents

and for Fully Trained Physicians 18

Historical Evidence 26

THREE POLICY ISSUES AND QUESTIONS 29

Access to Care 29

Cost-Effectiveness of Health Care Delivery 31

Special Activities of Teaching Hospitals 34

FOUR POLICY OPTIONS 37

Modify the Current System of GME Financing 37

Restructure the System of GME Financing 40

End Federal Financing of GME 42

APPENDIX Supplementary Tables 45
vi MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

TABLES

1. GME Payments as a Fraction of Total Revenues of 

Teaching Hospitals, 1993 12

2. First-Year and Total Residents by FMG Status,

1988, 1990, and 1993 17

A-1. Distribution of Fully Trained Physicians Engaged in

Patient Care, by Specialty, Selected Years, 1965

Through 1993 46

A-2. Fully Trained Physicians Engaged in Patient Care per

1,000 People, by Specialty, Selected Years, 

1965 Through 1993 47

A-3. Distribution of Residents by Specialty, Selected Years,

1965 Through 1993 48

A-4. Residents Engaged in Patient Care per 1,000 People,

by Specialty, Selected Years, 1965 Through 1993 49

FIGURES

1. Distribution of Fully Trained Physicians Engaged in 

Patient Care, by Specialty, Selected Years,

1965 Through 1993 4

2. Fully Trained Physicians Engaged in Patient Care per

1,000 People, by Specialty, Selected Years,

1965 Through 1993 5

3. Typical Patterns of Residency Training, by Specialty 7

4. Distribution of Residents by Specialty, Selected Years,

1965 Through 1993 8

5. Distribution Among Teaching Hospitals of Marginal

Subsidies per Resident from Medicare, 1993 18

6. Residents Engaged in Patient Care per 1,000 People,

by Specialty, Selected Years, 1965 Through 1993 19

7. Relationship of the Ratio of Physician Income to

Opportunity Cost and the Number of Physicians

per 1,000 People, 1946 Through 1982 26
CONTENTS vii

BOXES

1. Medicare’s Subsidies for Graduate Medical Education 10

2. Factors That May Influence the Number and Types

of Residents 24

T

Summary

he federal government subsidizes graduate

medical education (GME)--the training of

medical residents--in amounts that are expected to exceed $6 billion for fiscal year 1995. The

bulk of those subsidies are payments that the Medicare program makes to teaching hospitals (hospitals

with residency training programs). Medicare’s GME

payments are projected to grow to more than $7.5

billion in 2000. That annual figure is a substantial

amount of money for a controversial program--or

really, a pair of programs--that pay more to a teaching hospital the more residents it has. Given current

concerns about both the federal budget in general and

the solvency of Medicare in particular, this is an opportune time to reevaluate the arguments for and

against those GME payments and to consider various

policy options.

Types of Medicare GME 

Subsidies

The Medicare program makes payments for graduate

medical education to the approximately 1,200 U.S.

teaching hospitals through two significant programs:

direct graduate medical education (DME) payments

and the indirect medical education (IME) adjustment,

which is sometimes called the indirect teaching adjustment. DME payments to a teaching hospital are

based on Medicare's share of the hospital's inpatient

days, the direct costs per resident that the hospital

incurred during a year in the mid-1980s (those costs

have, in general, been updated for inflation), and the

number of residents training at the hospital. 

In contrast, IME payments to a teaching hospital

are calculated as an adjustment to the payments that

Medicare makes to a hospital for inpatient services

provided to Medicare beneficiaries. In other words,

if two otherwise identical hospitals each admit a

Medicare beneficiary for the same diagnosis, the

teaching hospital will receive a higher payment than

the nonteaching hospital. And the percentage add-on

increases as the teaching hospital's ratio of residents

to beds grows.

DME and IME payments result in a substantial

marginal subsidy for each hospital resident. The

Congressional Budget Office's analysis of data from

the Health Care Financing Administration indicates

that for hospitals in the middle of the distribution in

terms of subsidies per resident, an additional resident

means that the hospital receives between $58,000 and

$102,000 (in 1993 dollars) more in annual payments.

About one-fourth of the teaching hospitals receive

more than $102,000 annually for adding another resident, whereas about one-fourth of the hospitals receive less than $58,000 for one more. (For almost all

residents who are beyond five years of residency or

beyond the minimum number of residency years to

be eligible for specialty board certification, the analogous range is about $47,000 to $86,000.) Clearly,

both the absolute size of the subsidy per resident and

the variation in subsidies among hospitals are substantial. 

Average stipends for residents range between

about $30,000 and $38,000 per year depending on

the resident’s years of experience. Fringe benefits add

an average of 18 percent to the stipend, resulting in

an average range of compensation of between about
x MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

$35,000 and $45,000. Thus, the average stipend and

fringe benefits of residents are less than the marginal

DME and IME subsidies for more than three-fourths

of the nation’s teaching hospitals. An additional benefit to the hospitals from hiring residents is the value

of the patient care services that residents provide.

Additional costs that hospitals incur can include the

time of the teaching staff that is taken up in training

residents, payments to the teaching staff, overhead

costs related to residency training, and the costs of

extra tests or slower services because of the use of

residents.

Trends in the Number of 

Residents

The number of medical residents in the United States

has generally been increasing. The number of residents grew from 83,000 in 1988 to 102,000 in 1993.

Because the number of graduates of U.S. medical

schools has remained approximately constant, much

of the growth in the number of residents comes from

foreign medical school graduates (FMGs) who fill

hospital residency positions in this country. Between

1988 and 1993, the number of FMGs grew from 14

percent of the total number of residents to 23 percent.

Over 60 percent of the growth in the number of residents can be attributed to increases in the number of

FMGs who are training in the United States. (Previous experience suggests that most FMGs who train

here will eventually practice here.)

Should the Government 

Maintain the Current GME 

Subsidies?

Whether the federal government should subsidize

GME is a controversial issue. At a theoretical level,

neoclassical economic reasoning would lead to questions about the need for government intervention to

promote residency training. That line of argument

proceeds as follows. Residents are receiving training

and experience that will enable them to become competent, well-paid physicians. For an economically

efficient level of training to result, the individual who

will benefit from the training in the form of higher

future earnings should pay the costs of it. In the context of the residency, a trainee pays for the costs that

the hospital incurs by accepting a stipend that is

lower in value than the services the resident provides.

Whether costs are "direct" or "indirect" is a superficial distinction--those combined costs can be implicitly paid by the residents in the form of stipends that

fall short of the value of their services. GME subsidies, by increasing the apparent value of residents to

the hospital beyond their actual value in providing

services, encourage more training of residents than

would otherwise occur. By that line of argument,

valued medical services provided by residents to

Medicare beneficiaries should be paid for by Medicare, but training-related costs should not.

The subsidization of the supply of physicians

through GME payments by the federal government

seems to be poorly coordinated with emerging trends

in the marketplace. Many experts believe that the

growth of managed care in both the private and

government-provided insurance markets will lead to

(or perhaps has already led to) a situation in which

the demand for physicians, especially non-primary

care physicians, falls relative to the supply. Yet the

presence of the subsidies encourages larger increases

in the number of physicians than would otherwise

occur. 

The arguments in favor of continuing GME payments revolve around the consequences of reducing

or eliminating the subsidies. GME subsidies constitute a significant portion of the revenues of teaching

hospitals: for private major teaching hospitals, GME

payments are more than 7 percent of total hospital

revenues, and for smaller teaching hospitals, GME

subsidies are about 2.4 percent of revenues. Significant reductions in those payments could bring about

a drop in the activities and services that teaching hospitals provide. Both the number of residents and the

years of training of the typical resident might fall

compared with what they would otherwise have been.

Services might be curtailed in other areas besides the
SUMMARY xi

training of residents. Research, investment in new

technologies, access for Medicare enrollees, medical

school resources, and care for indigent people might

all be reduced as a consequence of cuts in GME payments.

Because resident physicians become the trained

doctors of the future, GME policy plays a role in determining the future characteristics of the medical

workforce and the health care industry in the United

States. Whether and, if so, how GME policy should

be used to manipulate the shape and size of the future

stock of physicians is another contentious issue. 

Policy Options

Options for changing the financing of GME reflect a

variety of policy goals including changing the level

of federal expenditures, altering the future number of

primary care (as opposed to more specialized) doctors, encouraging efficient amounts of training for

new physicians, providing sufficient access to care

for Medicare beneficiaries, encouraging medical research and development, and providing for the care

of indigent people. Possible options range from

modifying payments within the current structure of

Medicare GME subsidies to more radical changes.

o Reduce the IME subsidy. This option would

more closely align payments to teaching hospitals for inpatient services provided to Medicare

beneficiaries with the costs that are correlated

with training residents. However, residency

training would probably be curtailed, and other

services of teaching hospitals might decline.

o Alter GME subsidies further in the direction of

paying teaching hospitals relatively more for primary care residents. This change would encourage more primary care training. Whether that

shift turned out to be an appropriate direction

would depend on the validity of forecasts of a

greater demand or need for primary care services.

o Form an all-payer GME fund. This approach

could maintain revenues for teaching hospitals

while decreasing the amount of money coming

from Medicare. However, it amounts to substituting one form of government-imposed financing for another.

o Replace the current structure of the subsidies

with a voucher system. This option could lead to

greater flexibility in the site of residency training, which opponents of the present system have

argued is biased toward hospital-based training.

The impact of such a sweeping change is highly

uncertain.

o Set quotas on the number and types of residency

positions, and use the potential loss of GME

funds as an enforcement mechanism. This approach could increase the speed with which the

medical workforce adjusts to reach the primary

care proportions advocated by some workforce

experts. Quotas could, however, lead to a mismatch between the actual workforce and future

demands for physicians' services.

o Replace DME and IME payments with subsidies

targeted more specifically toward the public

goods that the government wishes to sponsor.

This change would reduce the incentive to increase the future supply of physicians but lessen

the possibility that the weight of the declines in

GME payments would fall on indigent care, research, or access to care for Medicare beneficiaries.

F

Chapter One

Introduction

ederal payments related to training resident

physicians are expected to exceed $6 billion

for fiscal year 1995. The bulk of those grad- 1

uate medical education (GME) payments flow directly to teaching hospitals through the Medicare

program. (Teaching hospitals are hospitals that have 2

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 privatesector 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.

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."
2 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

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. Substantial advances in medical 4

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. Such critics maintain that GME 5

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

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.
CHAPTER ONE INTRODUCTION 3

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 nonprimary 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 nonprimary 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 nonprimary care specialties including anesthesiology and

radiology among others, 29 percent; and the subspecialties of internal medicine and pediatrics, 11

percent (see Figure 1).8

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

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.
Percent

1965 1970 1975 1981 1985 1990 1993

0

20

40

60

80

100

120

Unknown

Other Non-Primary

Care Specialties

Surgical Specialties

Obstetrics and Gynecology

Subspecialties of Internal

Medicine and of Pediatrics

Primary Care

4 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

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.

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.
1965 1970 1975 1981 1985 1990 1993

0.0

0.3

0.5

0.8

1.0

1.3

1.5

1.8

2.0 Physicians per 1,000 people

Other

Primary Care

Subspecialties of 

Internal Medicine 

and of Pediatrics

CHAPTER ONE INTRODUCTION 5

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.

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

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.
6 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

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.

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

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.
CHAPTER ONE INTRODUCTION 7

Figure 3.

Typical Patterns of Residency Training, by Specialty

Year of Graduate Medical Education

1 2 3 4 5 6 to 7

Family Practice

General Pediatrics

General Pediatrics Subspecialties of Pediatrics

General Internal Medicine (IM)

General Internal Medicine Subspecialties of IM

IM Dermatology

IM Neurology

Psychiatry

Obstetrics and Gynecology

General Surgery (GS)

General Surgery Plastic/Colon/Thoracic Surgery

GS Neurosurgery

GS Orthopedic Surgery

GS Otolaryngology

General Surgery Urology

Pathology

Transitional 

Yeara

Anesthesiology

Ophthalmology

Physical Medicine

Radiology

SOURCE: Congressional Budget Office calculations based on National Resident Matching Program (NRMP), NRMP Directory (Evanston, Ill.:

NRMP, various years); American Board of Medical Specialties (ABMS), ABMS Annual Report and Reference Handbook--1994

(Evanston, Ill.: ABMS, 1994); and American Medical Association (AMA), Directory of Graduate Medical Education Programs

(Chicago: AMA, various years).

NOTE: These paths are only representative of training patterns for the different specialties, and not all fields are shown. In addition, many

of the specialties above have subspecialties that entail additional years of training but are not included in this illustrative figure.

a. The transitional year is one during which the resident develops basic clinical skills.
Percent

1965 1970 1975 1981 1985 1988 1990 1993

0

20

40

60

80

100

120

Unknown

Other Non-Primary

Care Specialties

Surgical Specialties

Obstetrics and Gynecology

Pediatrics and Pediatric

Subspecialties

Internal Medicine and 

Internal Medicine

Subspecialties

General Practice and

Family Practice

8 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

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.

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

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.
CHAPTER ONE INTRODUCTION 9

(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

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. A hospital with 13

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 on page 12).

(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

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.
10 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

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 fulltime-equivalent (FTE) residents, and its allowed

amount per resident.

o The hospital's Medicare patient load is the fraction of its total number of inpatient days that

Medicare beneficiaries represent.

o 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. (Residents in geriatric fel- 1

lowships 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.

o 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 up1. The initial residency period is the minimum number of years

of residency training to be eligible for board certification in a

particular specialty.

dated 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 diagnosisrelated 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
CHAPTER ONE INTRODUCTION 11

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.

o 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. 

o 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 diagnosisrelated group payments for a teaching hospital.

o Hospital 2 has a marginal subsidy near the median despite the fact that it has a small DME perresident 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. 

o 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.

Additional Additional

DME/IME DME/IME

Payments Payments

DME for Another for Another

Per- DRG Resident Resident

Medicare Total Resident Payments in the Beyond

Resident Inpatient Inpatient Amount (Thousands IRP the IRP a a

Beds FTEs Days Days (Dollars) of dollars) (Dollars) (Dollars)

Examples (1) (2) (3) (4) (5) (6) (7) (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.
12 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Table 1.

GME Payments as a Fraction of Total Revenues of Teaching Hospitals, 1993 (In percent)

Percentage

DME of All

DME IME Plus IME Teaching

Category Payments Payments Payments Hospitals

All Teaching Hospitals 1.3 2.6 3.9 100

Teaching Statusa

Major teaching, public 1.2 3.0 4.2 7

Major teaching, private 2.4 4.8 7.2 15

Other teaching 0.8 1.6 2.4 78

Disproportionate Shareb

Large urban 1.6 3.1 4.7 38

Other 0.9 2.2 3.1 26

Non-Disproportionate Share 1.0 2.3 3.3 36

Type of Control

Voluntary 1.3 2.7 4.0 81

Proprietary 0.8 1.6 2.5 7

Government 1.1 2.5 3.5 12

Number of Beds

1-100 0.8 1.2 2.0 7

101-200 0.8 1.4 2.2 21

201-400 1.0 2.1 3.1 44

Over 400 1.5 3.2 4.7 29

Urbanization

Large urban 1.5 3.0 4.5 60

Urban 0.9 1.9 2.8 35

Rural 0.8 1.8 2.6 5

Geographic Regionc

New England 1.7 4.0 5.7 7

Mid-Atlantic 2.1 3.3 5.4 22

South Atlantic 1.1 2.4 3.4 13

East North Central 1.2 2.7 4.0 21

East South Central 0.8 1.9 2.7 5

West North Central 1.0 2.1 3.1 9

West South Central 0.6 1.6 2.2 8

Mountain 0.6 1.6 2.2 4

Pacific 0.7 1.9 2.6 11

SOURCE: Congressional Budget Office calculations based on data from the Health Care Financing Administration (HCFA) for a sample of

almost 1,000 teaching hospitals.

NOTES: Total hospital revenues include patient revenues from all sources as well as donations, income from investments, and governmental

appropriations.

GME = graduate medical education; DME = direct graduate medical education; IME = indirect medical education adjustment.

a. A "major" teaching hospital is one with a resident-to-bed ratio of 0.25 or greater.

b. A disproportionate share hospital is one that qualifies for a payment adjustment because it serves a relatively large volume of low-income

patients.

c. The regions noted here are as defined by the Bureau of the Census.
CHAPTER ONE INTRODUCTION 13

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). In addition, Medicare and Medicaid poli- 14

cies 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

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.

A

Chapter Two

Economic Factors That Affect the

Characteristics of the Physician Workforce

 variety of economic factors from a number

of sources within the health care sector influence the composition of the physician

workforce. The demand for residents' services by

teaching hospitals has an effect at the level of the

training site. Farther downstream one finds the demand for the services of fully trained physicians by

consumers. These demands originate with consumers, but they also reflect the type of insurance arrangement that consumers and their employers have,

as well as the coverage and reimbursement policies

of government-provided insurance. 

Residency training is a time of investment for a

young physician, who will be able to earn a higher

future income as a result of those efforts. The residency period adds to the proficiency of the young

physician through hands-on patient care under the

supervision of the teaching staff, and it is a requirement for eligibility for board certification in the various specialties. Some analysts have argued that be- 1

cause residency training is a form of general training

that can be useful elsewhere, employers such as

teaching hospitals do not have a financial incentive to

absorb the costs of that training. In contrast, the

young doctor does have the incentive to make such

an investment. In return for training and a stipend

(or salary), residents provide patient care services for

the hospital. Any difference between the value of a

resident's services to the hospital and the stipend (and

fringe benefits) that the resident receives can be

thought of as a "tuition" payment for the other costs

that the hospital incurs in providing training. Those

costs include both direct and indirect costs.2

Standard economic analysis suggests that in

some sense, residents implicitly pay for the training

costs that they impose on the hospital, regardless of

the size of graduate medical education subsidies to

teaching hospitals. That implicit payment equals the

gap between the value of the resident to the hospital,

which includes the resident's value in patient care and

in GME subsidies, and the stipend (and fringe benefits) paid to the resident. If GME subsidies were increased, teaching hospitals would seek to hire more

residents because their value to the hospital would

have risen. Because the increased demand for residents would put pressure on the market for such

trainees, residents’ stipends might increase. Nevertheless, residents would still pay for their training in

a certain sense. The training costs (other than the

stipends and fringes) imposed on the hospital (including its direct costs, such as salaries for the teaching staff, and overhead costs, plus any increase in

operating costs related to the use of a less experienced physician) would be "paid for" by the difference between the resident's value to the hospital (in1. Board certification establishes that an individual has met certain

training requirements and passed examinations set out by the

respective specialty boards. Board certification is not the same as

a legal license to practice medicine. Hospitals may use board

certification, among other criteria, in decisions about whether to

extend staff privileges.

2. See William D. Marder and Douglas E. Hough, "Medical

Residency as Investment in Human Capital," Journal of Human

Resources, vol. 18, no. 1 (Winter 1983), pp. 49-64.
16 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

cluding the value of the subsidy) and the stipend (and

fringes). In addition, if GME subsidies were in- 3

creased, more residents would be training than if the

subsidies were smaller.

The available evidence suggests that the level of

Medicare GME subsidies to teaching hospitals is an

important factor influencing the overall number of

residents. No rigorous, quantitative analysis of the

impact of Medicare GME subsidies per se has yet

been conducted, but an econometric study of the demand for residents shows that teaching hospitals' behavior is consistent with economic theory. That the- 4

ory predicts that subsidy formulas like those used to

calculate direct graduate medical education payments

and indirect medical education teaching adjustments

will result in greater demand for residents than would

otherwise be the case because the GME payments

increase the residents’ value to the hospitals. Despite

the fact that the number of U.S. medical school graduates has been roughly constant for the past decade, a

trend toward an increasing number of residents is

apparent. Such a change can be explained in part by

a rise in the number of residents in the United States

who are graduates of foreign medical schools. Another source of change may be an increase in the

length of residency training for the typical medical

school graduate.

Effects of Medicare GME 

Subsidies on the Number 

of Residents

The available evidence suggests that the incentives to

teaching hospitals to hire residents are so strong that

the total number of residents continues to grow (see

Table 2). Teaching hospitals typically get much

more in Medicare GME subsidies for hiring another

resident than they pay in stipends and fringe benefits

to the resident. Among teaching hospitals in 1993,

the annual subsidies for an additional resident varied

widely: from about $58,000 at the 25th percentile of

the distribution to about $102,000 at the 75th percentile (see Figure 5). Residents' compensation was 5

much lower. In 1993, stipends for third-year residents taken from a sample of teaching hospitals

ranged from $30,360 at the 25th percentile to

$34,760 at the 75th. Adding fringe benefits--typically 18 percent of the stipend--brings the range of

residents' total compensation to between $35,800 and

$41,000. And those differences between marginal 6

subsidies per resident and compensation per resident

do not even account for the value to the hospital of

the patient care services that residents provide.

The presence of residency training programs also

imposes costs on hospitals besides the stipends and

fringe benefits of the residents. The teaching staff

takes time to instruct and oversee residents, for

which they may or may not receive a salary. The

hospital may also incur other training-related costs in

the form of overhead expenses, additional tests ordered by residents, or slower provision of services

when residents are involved. The net value of a resident to a hospital includes all such benefits and costs:

the value of the services residents provide plus the

value of Medicare GME subsidies, minus the various

costs of having residents (including the costs of the

stipend and fringe benefits).

Continued Growth of Residency 

Programs

Over the past several years, residency programs have

generally grown, and the level of stipends has risen

3. The value of residents to a hospital may go beyond the strictly

pecuniary contribution of their services and the GME payments.

For example, if a hospital valued the provision of care to indigent

people, then a resident's value to the hospital would take account

of the indigent care he or she provided.

4. See Robert H. Lee and Jack Hadley, "The Demand for Residents,"

Journal of Health Economics, vol. 4, no. 4 (December 1985), pp.

357-371.

5. The marginal subsidy figures given in the text are for residents in

the "initial residency period" and not beyond five years of

residency training (with minor exceptions). For residents who

have gone beyond five years of training or beyond the years

required for eligibility for board certification in their specialty, the

marginal subsidies are smaller. Among teaching hospitals in 1993,

the marginal subsidies for such residents were $47,000 at the 25th

percentile, $67,000 at the median, and $86,000 at the 75th

percentile.

6. See Association of American Medical Colleges (AAMC), Council

of Teaching Hospitals: Survey of Housestaff Stipends, Benefits,

and Funding, 1993 (Washington, D.C.: AAMC, October 1993).
CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 17

Table 2.

First-Year and Total Residents by FMG Status, 1988, 1990, and 1993

Category 1988 1990 1993

Number of Residents

First-Year Residents

Non-FMG 17,348 17,634 17,118

FMG

Citizen 1,289 1,427 1,152

Noncitizen 2,204 3,636 5,595

Subtotal 3,493 5,063 6,747

Total 20,841 22,697 23,865

All Residents

Non-FMG 71,235 75,870 78,578

FMG

Citizen 4,329 4,990 5,165

Noncitizen 7,227 10,999 18,592

Subtotal 11,556 15,989 23,757

Total 82,791 91,859 102,335

As a Percentage of All First-Year Residents

Non-FMGs 83.2 77.7 71.7

FMGs

Citizen 6.2 6.3 4.8

Noncitizen 10.6 16.0 23.4

Subtotal 16.8 22.3 28.3

Total 100.0 100.0 100.0

As a Percentage of All Residents

Non-FMGs 86.0 82.6 76.8

FMGs

Citizen 5.2 5.4 5.0

Noncitizen 8.7 12.0 18.2

Subtotal 14.0 17.4 23.2

Total 100.0 100.0 100.0

SOURCE: Congressional Budget Office using data from the Graduate Medical Education Tracking Census of the American Association of

Medical Colleges.

NOTE: FMGs are graduates of foreign medical schools. Osteopathic doctors in M.D. residency programs are included in the data.
25th Percentile Median 75th Percentile

0

20

40

60

80

100

120

Thousands of Dollars

Initial Residency Period,

Not to Exceed Five Years

25th Percentile Median 75th Percentile

0

20

40

60

80

100

120

Thousands of Dollars

Beyond Initial Residency Period

or Beyond Five Years

18 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

after adjusting for inflation. A number of factors including GME subsidies may have played a role in

that growth. The number of first-year residents grew

by more than 14 percent between 1988 and 1993.

The number of residents in all years of training grew

by more than 23 percent over the same five years.

The total number of residents for every 1,000

people in the country generally grew throughout the

1965-1993 period and especially after 1980 (see Figure 6). The number of general or family practice residents per 1,000 people remained approximately constant after 1985. But the rather inclusive group of

potential primary care practitioners continued to

grow both in absolute terms and in the number of

such physicians per 1,000 people.

Foreign Medical Graduates as the

Marginal Supply Source

Foreign medical graduates constitute an increasing

fraction of medical residents. Since the size of the

classes graduating from U.S. medical schools has

been essentially constant, ranging between 15,100

and 16,400 since 1980, the principal source of additional residents is FMGs. In 1993, FMGs made up

about 28 percent of first-year residents compared

with about 17 percent in 1988. 

The Linkage Between the

Markets for Residents and for

Fully Trained Physicians

Besides the fact that resident physicians become the

trained physicians of the future, another important

link exists between the market for hospital residents

and the market for the services of fully trained doctors. Namely, the incomes of trained physicians provide incentives to young doctors that affect the number of new physicians who choose to enter the respective specialties. For example, an increase in demand for the services of primary care physicians will

Figure 5.

Distribution Among Teaching Hospitals of Marginal Subsidies per Resident from Medicare, 1993

SOURCE: Congressional Budget Office calculations based on data from the Health Care Financing Administration.

NOTES: Marginal subsidy refers to the additional annual direct and indirect graduate medical education payments by Medicare that are made

to a teaching hospital for adding another resident.

The initial residency period is the minimum number of years required for eligibility for board certification in a particular specialty.
1965 1970 1975 1981 1985 1990 1993

0.0

0.1

0.2

0.3

0.4

0.5

Internal Medicine, 

Pediatrics, and the 

Subspecialties of

Internal Medicine 

or of Pediatrics

Residents per 1,000 people

Other

Family Practice and

General Practice

Unknown

CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 19

Figure 6.

Residents Engaged in Patient Care per 1,000 People, 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 (AAMC). The dotted line in the figure indicates the

shift from the AMA to the AAMC data.

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.

The $Other# category comprises residents in the specialties of obstetrics and gynecology, surgery, and other non-primary care fields.

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

Osteopathic doctors in M.D. residency programs may be included in the data.

Data are plotted at the intervals shown. See Appendix Table A-4.

increase the income of such physicians and also increase the number of young doctors who choose

primary care residencies. Likewise, the total supply

of new physicians (regardless of specialty) depends

on the return from the investment in medical education relative to other potential careers. Certainly,

nonfinancial factors, including differences in individual preferences and abilities, affect the number of

people who choose to become doctors and who

choose various specialties. But as long as some individuals place some weight on financial considerations, the number of entrants into a particular field

will increase if the expected income in that field

rises.

This linkage between the residency market and

the market for the services of trained physicians implies the existence of multiple policy options for

reaching the same workforce goals. It also increases

the possibility of following contrary policies in the

two markets. For example, a policy that reduced

GME subsidization of residency positions in non-primary care specialties would by itself encourage an

increase in the proportion of primary care residents

and ultimately an increase in the proportion of

trained primary care practitioners. However, if the

Medicare fee schedule was adjusted to increase the

relative compensation for surgical services, that policy by itself would encourage relatively greater entry

into non-primary care fields. The overall effect of

the two policies on the future physician workforce

would depend on the relative strength of the counterincentives.

Because the private sector accounts for almost

two-thirds of payments to physicians, changes in the
20 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

patterns of demand in that sector may outweigh policy adjustments by the federal government. Evidence

suggests that the increasing prevalence of managed

care insurance plans, especially the tightly managed

forms of health maintenance organizations (HMOs),

may be increasing the relative demand for primary

care versus non-primary care physicians. 

The Market for Resident Physicians

In this market, teaching hospitals obtain the labor

services of resident physicians, who take on greater

responsibility for patient care over the course of their

residency training. In return, resident physicians receive training from the teaching staff of the hospital

and a stipend (or salary). The stipends of resident

physicians are substantially lower than the typical

income of a fully trained physician. In 1993, the average stipend of family practice residents, who typically undergo three years of residency training, was

about $31,000; the average net income after practice

expenses for fully trained general or family practitioners was $116,800. Likewise, investment in surgical training opens the way for much higher future

earnings. In 1993, the average stipend of general

surgery residents, who typically train for five years,

was about $33,000, whereas the average income, net

of practice expenses, for fully trained general surgeons was $232,700.7

Demand Factors. The demand for hospital residents

in general and for hospital residents in different specialties is shaped by the insurance and demographic

characteristics of the patient population, epidemiological factors, the equipment and technologies available at hospitals, the reimbursement policies of private and government payers, the goals of hospitals

(which may include such objectives as providing care

to indigent people or being at the forefront of new

medical innovations), and the subsidies to hospitals

for GME. Some of those influences represent private

market forces, and others are governmental in nature.

The aging of the population is a demographic

factor that has increased the demand for hospital services and thus the demand for hospital residents. The

effect of the aging population on demand has been

further augmented by the presence of the Medicare

program, which provides hospital insurance to almost

all of the nation's elderly people. The demand for

hospital residents has probably been amplified still

more by the formulas used to calculate federal payments to hospitals for residency training (see Box 1

on page 10). Those formulas yield marginal subsidies per resident that exceed $100,000 for a number

of hospitals.

Supply Factors. The distribution of the supply of

resident physicians among specialties responds to the

incentives to enter the various fields. Both the salary

obtained while a resident and the expected stream of

income once one becomes a fully trained physician

have an effect on the number of residents who enter

training in a particular specialty. Other characteris- 8

tics--the expected hours of work, the number of years

in training, and the availability and payment terms of

loans--also have some impact. Estimates suggest that

a 1 percent increase in the income of fully trained

doctors in a particular specialty (after adjusting for

hours worked) relative to average earnings in all specialties will increase the fraction of residents training

for that specialty by between 0.3 percent and 0.6 percent.9

7. The resident stipend figures are based on Association of American

Medical Colleges, Council of Teaching Hospitals. The physician

income data are from the American Medical Association (AMA),

Physician Marketplace Statistics, 1994 (Chicago, Ill.: AMA,

1994).

8. Although a given hospital typically pays the same stipend to all

residents, regardless of specialty, who are in the same year of

residency training, the average stipend will still differ among

specialty categories for several reasons. One is that different

specialties have different training periods and hospitals pay larger

stipends to residents who have completed more years of training.

Thus, the typical surgical resident receives a larger stipend than the

typical family practice resident. In addition, a number of hospitals

allow program directors to pay residents additional amounts out of

departmental funds. Differences among hospitals in the level of

stipends can also be a source of variation in stipends by specialty

because hospitals differ in the mix of their residency positions.

9. See Niccie L. McKay, "The Economic Determinants of Specialty

Choice by Medical Residents," Journal of Health Economics,

vol. 9, no. 4 (November 1990), pp. 335-357.
CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 21

The Market for the Services of 

Trained Physicians

The forces that determine the demand for and supply

of the services of fully trained physicians determine

the incomes of trained physicians. In turn, those incomes provide a signal to young physicians about the

rewards that they can expect in various fields. Thus,

the demand and supply forces in the market for

trained physicians' services affect the distribution of

new residents among the various specialties or

among aggregate groups of specialties such as primary care versus non-primary care.

Grouping specialties as either primary care or

non-primary care is convenient, but the demand for

particular specialties within each subset may move in

different ways. For example, technical innovations

and increases in enrollment in managed care plans

may reduce the demand for inpatient care. As a result, physicians in specialties like anesthesiology

may experience a reduction in the demand for their

services and hence a reduction in their income,

whereas specialties that have adopted new outpatient

surgical techniques, like orthopedic surgery, may see

increased demand for their services. Both of those

specialties are within the non-primary care subset,

yet the demands for their services may move in opposite directions. 

Demand Factors. The demand for the services of

fully trained physicians is shaped by the amount and

type of insurance coverage of the population and its

demographic characteristics, epidemiological factors,

available technology, and the reimbursement and

coverage parameters of both private and government

insurers. An example of a demographic influence on

the demand for certain types of physicians' services

would be a decrease in the population of women of

child-bearing age. That decrease would lessen the

demand for the services of obstetricians and ultimately reduce the demand for primary care practitioners who dealt with children, such as pediatricians.

Over time, one would see a relative decline in the

number of such practitioners as fewer residents chose

such specialties and older practitioners retired.

An example of a governmental influence on the

demand for certain types of physicians' services

would be an expansion of Medicaid coverage for

pregnant women and children. Unless reimbursement levels were set so low that no providers were

willing to serve the newly covered beneficiaries, such

an expansion of coverage would increase the demand

for the services of obstetrician/gynecologists and of

pediatricians. Although women and children who

became insured as a result of the Medicaid expansion

would obtain more of those kinds of services than

they would otherwise, their competing demands for

services would make access to such practitioners

more difficult for other consumers. One would also

see a strengthening of fees and income for those

practitioners. Over time, those impacts would dwindle as relatively more residents received training in

and ultimately entered the relevant specialties.

Implications of the Growth of Managed Care.

The market for private health insurance is experiencing a rapid change from traditional fee-for-service or

indemnity insurance plans to various forms of managed care organizations. That shift toward managed

care represents a demand-side influence that may

affect the relative income of physicians in different

specialties and, in turn, the distribution by specialty

of future cohorts of trained physicians.

In 1992, approximately 20 percent of privately

insured people were in HMOs, which are among the

most tightly controlled of the managed care arrangements. Managed care represents a smaller fraction of

the Medicare sector than of the sector for private

health insurance; however, managed care is becoming somewhat more popular among Medicare beneficiaries. Medicare's risk-based HMO enrollment has

grown from less than 4 percent of beneficiaries in

1990 to about 7 percent.10

Managed care organizations are generally viewed

as less costly than traditional fee-for-service arrangements because they exercise greater control over the

medical expenditures of their enrolled populations

through a variety of techniques. Those mechanisms

include selective contracting with providers who

agree to accept discounted prices for their services,

reimbursement methods that give doctors less incen10. Risk-based HMOs are paid a fixed amount per Medicare enrollee.

Cost-based HMOs are reimbursed by Medicare on the basis of the

cost report they submit.
22 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

tive to provide services than under fee-for-service

plans, and other management techniques that reduce

hospital stays and visits to specialists.

Increased use of managed care, as well as technological changes in the direction of less inpatient care,

implies a shift in the relative demands for different

types of specialists. Managed care organizations use

relatively more primary care physicians than are represented in the physician population as a whole. One

study of staffing patterns found that the fraction of

primary care physicians in samples of several HMOs

varied between 41 percent and 48 percent of their

total physician workforces. In contrast, the proportion of primary care physicians in the entire nonfederal population of patient care physicians is only

about 36 percent. That study suggests that if 40 11

percent to 65 percent of Americans were receiving

care from a managed care network in 2000 and everyone had some type of insurance, there would be a

surplus of over 150,000 physicians, almost all of

whom would be in non-primary care specialties. 

For several reasons, the evidence cited on the

implications of managed care for changes in the composition of the workforce might overstate the magnitude of future changes in demand away from nonprimary care physicians. First, the conclusions of

that study depend on assumptions about the extent of

managed care in 2000. Other analysts may argue that

the growth of HMOs will not be as great as the

study's author has assumed. Second, physicians and

consumers who are most comfortable with HMO

staffing patterns may be the first to join HMOs. As

HMOs and other managed care plans expand to cover

more of the market, those plans might have to adapt

their staffing patterns to become more attractive to

consumers who have not yet joined such plans. In

that way, managed care staffing patterns might drift

toward the more traditional patterns seen under conventional insurance. Third, if the expansion of managed care increases the demand for primary care physicians, those doctors will become more expensive

(particularly in the short run), and managed care organizations may desire relatively fewer primary care

doctors than was the case when managed care was

less prevalent. 

Despite these caveats, if the trend toward managed care continues in either the private or the

government-provided insurance sector, one would

expect a relative decline in the income of non-primary care physicians, although the particular nonprimary care specialties may have quite different experiences. Over time, as the supply of newly 12

trained residents responded to the relatively greater

demand for primary care services, the direction of

change in relative incomes could eventually reverse

itself as the stock of physicians became oriented

more toward primary care.

Working in a counterdirection to those trends is

one that seeks to prevent managed care organizations

from determining the shape of their workforce.

Some state legislatures have passed laws that may

hinder the ability of managed care organizations to

cut costs and also limit the relative shift in demand

toward primary care specialties. For example, "any

willing provider" (AWP) laws require a managed

care organization to accept into its network any physicians who agree to the plan's terms for participation. Mandatory point-of-service (MPOS) options

require managed care organizations to permit their

enrollees to receive medical care from providers who

are outside the organization; some, albeit reduced,

payments are made for such services from the insurance pool. These kinds of laws might reduce an organization's control over the delivery of medical care

to its enrollees and dilute control over the composition of the pool of physicians within the managed

care organization. 13

Supply Factors. The supply of trained physicians'

services depends on the size and composition of the

11. See Jonathan P. Weiner, "Forecasting the Effects of Health Reform

on U.S. Physician Workforce Requirement: Evidence from HMO

Staffing Patterns," Journal of the American Medical Association,

vol. 272, no. 3 (July 20, 1994), pp. 222-230.

12. The income decline refers to relative changes in income, not

changes in the ordinal rankings of incomes among sets of

specialties. That is, the absolute level of primary care incomes

would probably stay below surgical incomes even with shifts in

demand toward primary care. All that would be necessary for

some increase in the relative supply of primary care residents

would be an increase in the ratio of primary care incomes to

incomes in other fields.

13. Between 1984 and 1994, about a dozen states reportedly

implemented some form of AWP or MPOS laws. The states differ

as to whether the laws include HMOs or only apply to looser

managed care arrangements.
CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 23

existing pool of trained physicians, the inflows of

newly trained physicians and immigrant physicians,

and the outflows of retiring physicians. Besides outright retirement, some doctors may move to part-time

practice or to non-patient care activities such as administration or research, which would effectively

change the available supply of trained physicians'

services. In addition to residency stipends and future

expected income, other factors that affect the flow of

new physicians and the total supply of physicians'

services include incomes in alternative professions,

the size of the population of young adults who could

become physicians, the incomes available from medical practice in other countries, immigration laws,

and governmental decisions about the subsidization

of undergraduate and graduate medical training and

about loan assistance to medical school students. 

These supply-side forces along with the demandside ones discussed above jointly determine the

amount of the different types of services that are provided as well as the incomes of the various types of

physicians. In turn, as discussed earlier, the residents

who choose from among the different specialties respond to those incomes. Hence, a number of different nongovernmental and governmental factors can

influence the number and types of hospital residents

and ultimately shape the future physician workforce.

(See Box 2 for a summary of those factors.)

Speed of Adjustment of the 

Physician Stock

Changes in the relative mix of primary care and nonprimary care physicians in the workforce of trained

physicians necessarily take a long time. Each year,

the number of newly entering physicians is only

about 4 percent of the total stock of active doctors.

As a result, it can take a number of years for changes

in the makeup of cohorts of newly trained physicians

to affect the makeup of the total physician workforce.

For example, assume that the fraction of newly

trained physicians who would practice in primary

care suddenly increased to 66 percent, nearly double

the current proportion. A simple calculation, based

on the assumptions that the absolute size of the physician workforce stays constant and the youngest

physicians replace the oldest ones, who retire, shows

that it would take more than 12 years for the fraction

of trained physicians in primary care to rise from

one-third to one-half.

Some caveats are necessary in regard to that illustrative calculation, however. The calculation

might overstate the length of time the workforce

needs to adjust because the example assumes that

newly trained residents are the only source of new

primary care doctors. But before their subspecialty

training, medical or pediatric subspecialists have typically undergone the same training as general internists or pediatricians, respectively. If those subspecialists moved into primary care activities, the fraction of primary care physicians would grow to almost

45 percent. Decisions by some trained subspecialists

to practice primary care, decisions by some nonprimary care physicians to retrain in primary care,

and changes in the relative retirement rates of primary care and non-primary care providers are all factors that could speed up the adjustment of the

workforce relative to the calculation discussed above.

Yet despite those qualifications, the calculation

holds several general lessons for policymaking in

relation to the medical workforce. If one accepts the

argument that the current fraction of primary care

physicians is far too small, a large increase in the

proportion of residents in primary care would be necessary to avoid a long period of adjustment to the

new goal. Those observers who favor an activist

stance toward the medical workforce might defend

such a policy against those who take a skeptical view

of policymakers' abilities to forecast future workforce needs. The activists would argue that even if

one aimed at an inappropriate target for the final

composition of the workforce, a workforce imbalance

would not appear quickly because it would take a

number of years for any policy to have large effects

on the composition of the total workforce. Of course,

the other side of this coin is that if one reaches an

inappropriate balance or size of the workforce, it

takes a number of years to correct the error. Yet another tack might be to question the point of activist

workforce planning, given both the potential for error

in forecasts of future demand and the long time before such alterations in the cohorts of residents would

have an effect.
24 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Box 2.

Factors That May Influence the Number and Types of Residents

A number of factors may affect the demand for and supply of residents. Likewise, numerous factors may affect the

market for trained physicians’ services. Because the supply of residents responds to the incomes they expect as fully

trained doctors, all of the factors that affect the demand for and supply of trained physicians’ services will affect the

supply of residents.

Some of those factors are governmental in origin; others are not. In many cases, a factor may evade easy

classification and could be considered both governmental and nongovernmental in nature.

Nongovernmental Governmental

Factors That Affect the Size of the population Medicare’s direct graduate medical

Demand for Residents education payments

Age distribution of the

population Medicare’s indirect teaching adjustments

Consumers’ incomes Medicare/Medicaid managed care policies

Consumers’ education Income supplements to subgroups of

consumers

Other demographic

characteristics Provision of insurance including 

decisions as to who is covered and what

Epidemiological factors services and technologies are covered

Consumers’ and employers’ Medicare/Medicaid reimbursement

decisions about insurance schedules

coverage

Tax treatment of employment-based

Insurance innovations such health insurance

as managed care

Laws and regulations that affect the

Research activities and insurance industry in general and 

technological advances managed care in particular

Subsidization of biomedical research

Factors That Affect the Supply of Incomes of fully trained Policies toward FMGs

Residents and the Future Supply physicians

of Trained Physicians’ Services Programs aimed at encouraging primary

Incomes in other professions care practice

relative to those in medicine

Subsidization of medical school training

Educational attainment of

young adults
CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 25

Nongovernmental Governmental

Factors That Affect the Supply of Size of the young adult Subsidization of premedical school

Residents and the Future Supply population training

of Trained Physicians’ Services

(Continued) Number of potential FMGs

Working conditions

Factors That Affect the Demand Size of the population Medicare/Medicaid reimbursement 

for Trained Physicians’ Services schedules

Age distribution of the

population Medicare/Medicaid managed care policies

Consumers’ incomes Income supplements to subgroups of

consumers

Consumers’ education

Provision of insurance including decisions

Other demographic as to who is covered and what services 

characteristics and technologies are covered

Epidemiological factors Tax treatment of employment-based 

health insurance

Consumers’ and employers’

decisions about insurance Laws and regulations that affect the 

coverage insurance industry in general and

managed care in particular

Insurance innovations such

as managed care Subsidization of biomedical research

Research activities and technological advances

Factors That Affect the Current stock of trained Policies toward FMGs

Current Supply of Trained physicians

Physicians’ Services Programs aimed at encouraging primary

Number of potential FMGs care practice

Physicians’ incomes in other

countries relative to their

incomes in the United States

Working conditions

NOTE: FMG = foreign medical graduate.
1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1.0

1.2

1.4

1.6

1.8

2.0

2.2 Ratio

Physician Income to Opportunity Cost

1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1.0

1.2

1.4

1.6

1.8

2.0

2.2 Number of Physicians

Physicians per 1,000 People

Active and

Inactive Physicians

Active

Physicians

a

b

26 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Historical Evidence

The pattern of behavior observed during the late

1960s and the 1970s after the introduction of Medicare, Medicaid, and their precursor programs illustrates the response of the supply of physicians to economic incentives. The historical evidence is consis- 14

tent with the view that the introduction of those government insurance programs brought about a surge in

demand for physicians' services. That surge led to an

increase in physicians' income and in the rate of return on medical education from the mid-1960s to the

early to mid-1970s. 

To understand the incentives facing potential

physicians, economists consider the relationship between physicians' earnings and the "opportunity

costs" of becoming a physician. The opportunity

cost of being a physician is calculated by considering

the income that a doctor could have earned had he or

she pursued the career of a typical college graduate.

In addition, the total opportunity cost includes the

direct costs of tuition for medical school and takes

into account the cost of beginning one's career several years later than a typical college graduate. 15

The income-to-opportunity-cost ratio for physicians began growing in the early to mid-1960s and

peaked near 1.5 in 1971. That strong economic incentive brought about a predictable supply response

(see Figure 7). The number of physicians surged, a

response that was amplified by paying subsidies to

increase the size of medical school classes. An additional component of the supply response was pressure for entry by foreign-trained physicians. During

the 1971-1981 period, the returns on investing in

Figure 7.

Relationship of the Ratio of Physician Income to

Opportunity Cost and the Number of Physicians

per 1,000 People, 1946 Through 1982

SOURCE: The data for the ratio of physician income to opportunity cost were adapted by the Congressional Budget

Office (CBO) from Monica Noether, $The Growing

Supply of Physicians: Has the Market Become More

Competitive?# Journal of Labor Economics, vol. 4,

no. 4 (October 1986), pp. 503-537. The data for the

number of physicians per 1,000 people are CBO 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, 1983); and

from the Bureau of the Census.

a. The ratio is the mean U.S. physician income to the total opportunity cost of becoming a physician. The total opportunity cost

of being a doctor is defined as the level of annual physician

income that would bring about equality between the present

value of net earnings as a doctor and the present value of

earnings of a college graduate.

b. Resident physicians are included in the data series; osteopaths are not. 

From 1950 through 1980, data are plotted at five-year intervals.

14. Amendments to the Social Security Act in 1960, 1961, and 1962

provided for matching grants to the states for medical assistance to

low-income elderly people. In 1965, Medicare and Medicaid were

enacted.

15. Specifically, the total opportunity cost of being a doctor is defined

as the level of annual physician income that would bring about

equality between the present value of net earnings as a doctor and

the present value of earnings of a college graduate.
CHAPTER TWO ECONOMIC FACTORS THAT AFFECT THE CHARACTERISTICS OF THE PHYSICIAN WORKFORCE 27

medical education began to decline toward their earlier levels as the stock of physicians swelled. None- 16

theless, the income-to-opportunity-cost ratio remained high in comparison with its levels prior to the

mid-1960s, which indicates that medicine continued

to be a financially rewarding field. That observation

is consistent with the continued entry of new, young

physicians into the workforce and the continued

growth in the number of physicians per 1,000 people.

The growth of the health sector since the mid1960s appears to have been spurred by the introduction and expansion of the Medicaid and Medicare

programs (and precursors of those programs), which

subsidized the demand for medical care. Those significant demand-side subsidies have been combined

with such supply-side subsidies as payments to medical schools for increasing class sizes and GME payments to teaching hospitals. The number of physicians is probably greater than would have been the

case in the absence of those government policies.

Foreign medical schools provide a pool of graduates who can augment the stock of practicing U.S.

physicians beyond the supply capacities of U.S. medical schools. In 1970, about 14 percent of fully

trained physicians in patient care were FMGs. By

1980, the fraction of such doctors had grown to almost 20 percent, and in 1993 that fraction was almost

23 percent. Foreign medical graduates represent an

increasing fraction of the stock of trained physicians

as well as an increasing proportion of medical residents.

16. See Monica Noether, "The Growing Supply of Physicians: Has the

Market Become More Competitive?" Journal of Labor Economics,

vol. 4, no. 4 (October 1986), pp. 503-537.

C

Chapter Three

Policy Issues and Questions

hanges in federal policy regarding graduate

medical education may have both budgetary

impacts and effects relating to broad goals

of public policy in the health sector. In terms of budgetary impact, direct graduate medical education

payments are almost $2 billion per year and are projected to grow to over $2.5 billion annually by the

end of the decade. Federal payments for the indirect

medical education adjustment are about $4 billion

per year and are projected to grow to almost $5 billion annually by the end of the decade. The broader

goals that GME policy may affect include such issues

as sufficient access to care, the cost-effectiveness of

health care delivery, and the support of special activities undertaken by teaching hospitals.

GME subsidies, rather than directly affecting

those broader goals, probably have their impact

through several intermediate outcomes:

o The number and specialties of medical residents

o The number, specialties, and training background

of future fully trained physicians

o The incentives for teaching hospitals to treat

Medicare beneficiaries

o The overall financial resources of teaching hospitals

Opinions may differ concerning the best approach for

affecting those outcomes. In addition, critics may

disagree about targets for the outcomes in a world of

limited resources.

Differences in opinion on GME policy will depend in part on different views about market incentives. Disagreements may arise over the degree to

which students and young doctors are aware of or

will respond to economic incentives. Policymakers

may also disagree about whether the economic incentives transmitted through the marketplace are the

proper signals to guide the allocation of resources.

Access to Care

Concerns about access to care are often raised in regard to particular subgroups of the population. Those

subgroups include Medicare beneficiaries, indigent

people, and people who live in geographic regions,

such as rural areas or inner cities, that have few, if

any, physicians.

GME policy may affect access to care through

several mechanisms. The current formulas for GME

subsidies are written in such a way that they offer

incentives for teaching hospitals to both provide

more services to Medicare beneficiaries and hire

more residents. Changes in the formulas might alter

teaching hospitals' incentives to treat Medicare beneficiaries. In the longer run, GME policy might affect

access to care through its impact on the future supply

of physicians. In the shorter run, policies that affect

the number of residents could affect access to care in

communities in which medical residents provide a

significant amount of hospital-based patient care.

Moreover, because changes in GME policy might

affect the revenues of teaching hospitals, many ser-
30 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

vices that teaching hospitals provide, including care

for people who are uninsured and indigent, could respond to changes in the level of GME subsidies.

Medicare Beneficiaries

The current formulas for GME subsidies encourage

teaching hospitals not only to employ more residents

than they otherwise would but also to be more willing to provide services to Medicare beneficiaries. A

hospital's DME payment is based on the product of

its Medicare patient load, the allowed amount per

resident, and the number of residents. As a result, a

hospital's DME payments increase with its Medicare

caseload. The IME formula bases payments on the

product of the diagnosis-related group payments

owed to a hospital for Medicare inpatient services

and another factor that depends on the resident-tobed ratio. Hence, a hospital's IME payments rise

with its Medicare admissions (adjusted for diagnoses). It follows that changes in the DME or IME formula would alter the incentive to admit and treat

Medicare patients.

Access to care for Medicare beneficiaries could

be at risk if the government insurance program reimburses providers for services at lower rates than do

private insurers. The fees for physicians’ services

that Medicare pays have been approximately twothirds of the level paid by private insurers. For 1

1993, the payment-to-cost ratio for hospital services

for Medicare patients is estimated to have been about

69 percent of the ratio for private payers. Although 2

in general, access does not appear to be a significant

problem for Medicare beneficiaries, difficulties could

develop if payment rates became sufficiently low.3

GME payments may affect access because they provide an incentive for teaching hospitals to treat Medicare patients.

People Who Are Uninsured 

and Indigent

Providing medical care to poor people who are uninsured and who do not qualify for Medicaid coverage

is one of the activities of teaching hospitals that may

be viewed as a public good (see the discussion later

in this chapter). Access to care for uninsured, indigent people may be affected by the level of GME

subsidies for two reasons. First, since GME subsidies are a significant source of revenue for a number

of teaching hospitals, changing the level of the subsidies would probably affect the amount of various

services that teaching hospitals provide, including

care for uninsured people. Second, to the extent that

care for indigent people is provided by hospital residents, changes in subsidies could affect access for

that group by influencing the number of residents

available to provide such care. 

Geographic Areas That 

Are Underserved

Standard economic theory predicts that a physician

will locate in an area only if the benefits from living

and working there are at least as great as those to be

obtained in a different location. Abstracting from

different amenities (for example, high-quality

schools and social and cultural opportunities) available among locales and specific preferences for practicing in particular areas, one would expect that all

communities that have doctors would have sufficient

demand (or willingness to pay) so that each doctor in

those communities earned at least a competitive return on his or her investment in a medical education.

Communities will not have doctors if their level of

demand is too low for a single doctor to earn an income equivalent to the income that could be made in

locations that have physicians. Communities that

have doctors will have enough of them to bid incomes (or, in economic terms, utilities) down to the

level available in other locales that are being served.

This standard model of physician location makes

clear why both general subsidies to physician supply

(including GME subsidies) and more targeted attempts to encourage doctors to locate in underserved

geographic areas (such as the National Health Ser1. See Physician Payment Review Commission, Annual Report to

Congress, 1995, pp. 75-80.

2. See Prospective Payment Assessment Commission, Medicare and

the American Health Care System: Report to Congress (June

1995), p. 21.

3. See David W. Lee and Kurt D. Gillis, "Physician Responses to

Medicare Payment Reform: An Update on Access to Care," Inquiry

(Fall 1994), pp. 346-353; and Physician Payment Review Commission, Annual Report to Congress, 1994, pp. 325-366.
CHAPTER THREE POLICY ISSUES AND QUESTIONS 31

vice Corps) appear to have limited success. According to the model, if the supply of physicians increased, the number of physicians would increase in

all the communities that already had physicians. The

increased competition in those communities would

bid down doctor's incomes (or utilities). Some formerly unserved communities would add physicians

only if the incomes (or utilities) available in served

communities became sufficiently low that settling in

an underserved community appeared attractive.

Therefore, it would not be surprising to find that the

counties with the lowest levels of demand would

continue to go without a physician even if the number of physicians in the country as a whole grew. 

Indeed, the empirical observation that the number

of counties with few or no physicians has been little

changed by the appreciable increase in the physicianto-population ratio in the country as a whole is consistent with the theory. The model also implies that a

policy that directly places a new physician in an area

with a low physician-to-population ratio is likely to

be offset eventually by the departure of another physician in that area for another market or by fewer

physicians settling in that area in the future.4

An example of a factor other than government

policy toward GME or toward physician supply that

might affect the geographic location of doctors is the

growth of managed care. Growth in that sector of the

health care market might cause a shift in the distribution of some types of physicians toward less densely

populated areas. For that shift to occur, two conditions must hold: the infiltration of managed care into

a locale must squeeze down physicians’ incomes in

that area, and the entry of managed care organizations must be greater in more densely populated areas

than in less densely populated ones--which is consistent with the view that scale economies are relevant

in the formation of managed care networks. Under

one plausible scenario, the entry of managed care

into an area would result in higher incomes for primary care physicians and lower incomes for non-primary care physicians. Then, if managed care entry

occurred to a greater extent in more densely populated areas, one would expect a tendency for primary

care physicians to relocate toward more densely populated locales whereas non-primary care specialists

would diffuse into less densely populated regions. 

An approach for reducing the number of medically underserved areas is to raise the demand for

medical services high enough in those locales for

physicians to find them economically attractive. To

the extent that amenities are fewer in underserved

areas, the financial incentives must be even greater if

physicians are to be attracted to practice in them. In

areas with a significant population of uninsured or

underinsured people, the government could provide

or subsidize health insurance to increase demand,

thereby making the area more attractive to physicians.

One way to subsidize the provision of medical

care in such locales would be to offer an additional

payment to physicians for each medical service they

provide. The Medicare program already furnishes

that kind of bonus payment--10 percent for services

provided in what it terms $health professional shortage areas.# The bonus program is relatively new;

therefore, assessing whether the program has had a

measurable impact on physicians’ decisions about

where to practice is premature. It might be the case

that some regions are so sparsely populated, or have

such low demand for medical care for reasons such

as low incomes or lack of insurance, or are so lacking

in amenities, that extremely large bonus payments

would be needed to draw a physician to those areas.

Cost-Effectiveness of Health

Care Delivery

The cost-effectiveness of health care delivery in the

future will be influenced by the size, specialty mix,

and training of the future physician workforce. Today's residents are tomorrow's fully trained physicians; consequently, GME policy--through its impact

on the characteristics of the residency pool--plays a

role in cost-effectiveness. At a more subtle level, the

style of practice of future physicians might be altered

if GME policy changed in ways that affected the basic model and sites of postgraduate medical training.

In a broader context, not only the physician work4. See Joseph P. Newhouse and others, "Does the Geographical Distribution of Physicians Reflect Market Failure?" Bell Journal of

Economics, vol. 13, no. 2 (Autumn 1982), pp. 493-505.
32 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

force but also the size and characteristics of the nursing and allied health workforces will have an impact

on cost-effectiveness. 

One particular concern is that the current physician workforce is too oriented toward specialty practice to be compatible with emerging arrangements for

managed care insurance. The question then becomes

whether an activist policy toward the physician

workforce can forecast future demands well enough

to forsake relying on the market to determine the

number and characteristics of physicians. Different

philosophical and theoretical perspectives lead to

different opinions about the appropriate policy to

follow.

The Appropriate Number of Physicians

Some health policy experts have concluded that the

United States has too many physicians. Those 5

claims are based on opinions about the appropriate

number and types of physicians required to fill the

basic medical needs of the population. Some people

have also suggested that the growing number of physicians is a cause of rising medical expenditures and

that reducing the number of physicians per 1,000

people would help to contain costs.

Some of the arguments underlying that view of a

surplus of physicians are not consistent with a conventional economic approach to labor supply. The

latter approach places more emphasis on the discretion of consumers regarding the desirable amount of

medical care than does the more rigid approach of

determining physician requirements. Some economists are likely to question whether the number of

physicians is the fundamental cause of high levels of

medical expenditures. Instead, a reasonable interpretation is that other underlying factors cause both

large numbers of doctors and high levels of expenditures. Those factors include the incentive to use

more services when those services are insured, the

favorable tax treatment of employment-based health

insurance, the fee-for-service nature of most

government-provided insurance, and federal subsidies directed toward the supply of physicians. Conventional economic analysis would stress that in the

absence of major noncompetitive factors or distortions, the market has the inherent ability to efficiently

allocate people to jobs. Thus, if the number of physicians was excessive, the relative fees and incomes of

doctors would fall, the medical profession would become less desirable to potential entrants, and the excess would be eliminated over time.6

Analysts with a medical requirements perspective

and analysts with a market-oriented economic perspective work from widely different underlying assumptions, but both parties would generally conclude

that the nation has more than the optimal number of

physicians. The requirements, or planning, approach

would base that conclusion on calculations of the

number and types of doctors needed to provide what

is viewed as appropriate medical care for the population. The market economics approach would base its

conclusion on the existence of significant demandand supply-side subsidies that have caused the medical industry to become larger than it otherwise would

be. (That is, the distortions that are present appear 7

to work toward making the medical industry larger

than optimal.) The two types of analysts would generally disagree on the proper policy response. For

example, planners might argue for continuing the

subsidies and imposing quotas on the number and

5. See the summary in Steven A. Schroeder, "Managing the U.S.

Health Care Workforce: Creating Policy Amidst Uncertainty," Inquiry, vol. 31, no. 3 (Fall 1994), pp. 266-275. The groups that

have concluded that there are too many physicians include the

Council on Graduate Medical Education, the Bureau of Health

Professions, and the Physician Payment Review Commission.

6. One theoretical viewpoint that places relatively more emphasis on

the notion that the number of physicians is an underlying cause of

higher levels of medical expenditures is the "demand inducement"

theory. The basic idea is that doctors take advantage of consumer

ignorance and respond to potential reductions in their own income

by providing more services to their patients than they would otherwise. The empirical importance of demand inducement is controversial among economists who study the health industry.

7. At one time, it was thought that the number of physicians was being held at an artificially low level to boost physicians' incomes.

Proponents of that view argued that licensing laws and limitations

on the number of places in medical schools were the tools by which

those artificial restrictions on supply were enforced. Under such a

scenario, a market economist might have favored subsidizing the

supply of physicians to offset the anticompetitive restrictions on

that supply. Beginning in the 1970s, the market for the supply of

physicians appears to have become more competitive (see Monica

Noether, "The Growing Supply of Physicians: Has the Market Become More Competitive?" Journal of Labor Economics, vol. 4, no.

4 (October 1986), pp. 503-537). If immigration polices were altered to restrict further the entry of foreign medical graduates, arguments for offsetting anticompetitive restrictions on supply might

become more relevant.
CHAPTER THREE POLICY ISSUES AND QUESTIONS 33

types of residency positions. Market economists

would argue for eliminating the subsidies and not

imposing any legal restrictions on the number or

types of positions.8

The Appropriate Mix of Physicians 

by Specialty

A number of experts have argued that there are too

many non-primary care physicians relative to primary care physicians in the current workforce and

that a large decline in the fraction of non-primary

care residents is necessary to attain a more appropriate balance. Two principal arguments appear to underlie the desire to increase the relative size of the

primary care medical workforce. One argument is

that more primary care doctors are needed to fill a

crucial $gatekeeper# role in managed care organizations and that such organizations represent the future

of health care delivery. A second argument is that

primary care physicians offer a cheaper, less technological, more preventive and holistic approach to the

delivery of health services.

As noted earlier, some experts prefer an activist

workforce policy and are skeptical of relying on market forces to determine the size and distribution of

the nation’s cadre of physicians. In their view, several good reasons support intervention by the government. Proponents of an activist policy argue that the

inherently slow adjustment of the physician workforce makes it too costly to rely on market signals

alone to encourage greater entry into primary care

specialties. Another argument against using market

signals is that young physicians are poorly informed

about the marketplace for trained physicians. Therefore, only a minimal change in supply would occur in

response to shifts in the demand for physicians' services. Market skeptics might also question the validity of demands by consumers for physicians' services.

If consumers cannot judge what is best for them, relying on market signals based on consumers' demands for medical services would not tend to yield

the appropriate number or types of physicians.

However, the experts who argue for a dramatic

increase in the relative number of primary care doctors may err for one of two reasons (or for both):

they may be using incorrect forecasts, or they may be

making inappropriate judgments about what consumers want. Some expert opinions depend on forecasts

of future increases in the prevalence of managed

care, including health maintenance organizations, in

health care delivery. Experts on the other side of the 9

debate point out that previous forecasts of HMO

growth have overestimated the actual rates. Another

point of contention concerns the appropriateness of

expert opinions in determining the correct balance of

medical care needs. Consumers may prefer more

highly technological, more interventionist, and more

specialized medical care than the experts deem suitable.

Market-oriented economists would point out that

the distribution of the supply of physicians among

the different specialties will respond to economic

incentives, which in turn will reflect the attitudes of

consumers about the types of health care delivery

systems that they prefer, given the costs of alternative systems. If managed care organizations that

make less use of the services of specialists carry the

day in the consumer marketplace, the incomes of

non-primary care physicians will fall relative to those

of primary care physicians, and relatively fewer

young doctors will seek non-primary care training.

However, free-market economists would warn that,

because experts might either incorrectly forecast

market trends or incorrectly determine what is best

for consumers, it would be preferable to follow a

neutral government policy regarding the entry of

physicians into various specialties. 

Many advocates of a market approach would

agree that the government can assist the marketplace

by providing information (to help overcome failures

in the market for information). But they would also

tend to argue that relying on the demands of imper8. Market-oriented economists who are concerned with allocating

resources efficiently might go even further. They might argue that

if the distortions toward too large a medical industry, which arise

from the tax treatment of employment-based insurance and subsidized government-provided insurance, cannot be eliminated, the

distortions could be offset by taxing the $inputs# used to produce

medical care. But it might be difficult and impractical to impose

taxes in a neutral fashion across those inputs.

9. For example, see Jonathan P. Weiner, "The Demand for Physician

Services in a Changing Health Care System: A Synthesis," Medical

Care Review, vol. 50, no. 4 (Winter 1993), pp. 411-449.
34 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

fectly informed consumers is preferable to relying on

the political process or a commission of experts to

determine the number and types of physicians the

country should have. The government could provide

information to consumers, medical students, and

young physicians and then allow them to make decisions in a free market.

Empirical evidence suggests that both the total

supply of physicians and the distribution among specialties respond to changes in relative incomes.

However, an interventionist policy may still have

merit despite the existence of such evidence. For

example, one may accept the view that students, residents, physicians, and hospitals respond to economic

incentives; however, one may also view the response

time as too slow or feel that consumers are inadequately informed and therefore that signals from

the marketplace convey inappropriate incentives.

Policymakers who subscribe to those views may argue for intervention by the government to alter the

economic incentives. Such alterations might include

paying relatively larger subsidies for primary care

residencies than for residencies in other specialties or

changing the fee schedule for Medicare to reward

primary care activities relatively more than non-primary care activities.

The Appropriate Site for 

GME Training

The current system of GME subsidies to teaching

hospitals may reinforce the traditional approach to

GME centered at the hospital site--an approach that

some experts have questioned. Many of the patient

care activities of fully trained primary care practitioners occur in a nonhospital setting. But because

non-primary care specialties have relatively more of

their services associated with a hospital setting, the

current mechanisms for GME financing may encourage more new doctors to focus on non-primary care

specialties than if GME subsidies were also available

to group practices outside of hospitals. Some industry experts have argued that HMOs find that newly

trained primary care physicians have not developed

adequate skills to work in an HMO environment because their training has used the hospital rather than

the medical group practice as its principal focus.10

Hospital-based training has many advantages,

however, and hospitals might remain the principal

site of post-medical school training even if relative

subsidies to the residency programs at teaching hospitals were reduced. The hospital, for instance, allows a resident to see more difficult and more severe

cases and to see a variety of cases and procedures in

one venue.

Special Activities of 

Teaching Hospitals

Because changes in the level of subsidies would affect teaching hospitals' revenues, other activities and

services that they offer besides GME might be altered in response to changes in the generosity of

GME payments. Indeed, the special activities and

special services of teaching hospitals are cited as additional reasons for providing GME subsidies. 

Economists classify some of those special activities as public goods--goods that, because their benefits cannot be restricted to those who purchase them,

tend to be undersupplied in the absence of subsidies.

The special activities of teaching hospitals in that

regard may include engaging in research and development, treating and educating the public about communicable diseases, and providing care to indigent

people.

Other special activities may include funding

some medical school education and dealing with

more difficult cases than are seen in other hospitals.

A substantial amount of the revenues of medical

schools is derived from patient care income generated at affiliated teaching hospitals; in addition, the

facilities of some teaching hospitals are used for education at the medical school level. Since GME payments affect the level of revenues of teaching hospitals and subsidize residency programs whose teaching faculty may also be affiliated with a medical

10. For example, see Robert Gumbiner, "Perspectives of an HMO

Leader," Inquiry, vol. 31, no. 3 (Fall 1994), pp. 330-333.
CHAPTER THREE POLICY ISSUES AND QUESTIONS 35

school, the resources of medical schools are probably

affected by GME subsidies. To the extent that some

of the activities of teaching hospitals are seen as promoting the public welfare, policymakers could provide subsidies for those special activities specifically

rather than indirectly supporting them through GME

payments.

P

Chapter Four

Policy Options

olicymakers have a number of options they

could pursue with regard to Medicare graduate medical education policy. The range of

options is fairly broad: from modifying the formulas

for the subsidies but maintaining the current basic

structure of direct graduate medical education and

indirect medical education payments, to more radical

restructuring of government payments for GME, to

ending federal GME subsidies.

All of the options have potentially significant

consequences for access, cost-effectiveness, and the

special activities of teaching hospitals, issues that

were raised in Chapter 3. In addition, almost all of

the options could be tailored to generate a number of

budgetary outcomes, ranging from savings to increased spending. For example, modifying the GME

formulas to encourage relatively more primary care

residencies could be done in a budget-neutral fashion

by increasing the DME or IME subsidies for primary

care (or both) while decreasing the subsidies for

other specialties. Alternatively, policymakers could

produce budgetary savings by maintaining the current subsidies for primary care while reducing them

for other specialties, or by reducing subsidies for all

residencies but making the greatest reductions in subsidies for non-primary care. As another example, the

option to end federal financing of GME could yield

budgetary savings, but those savings would be

smaller if the Congress enacted additional programs

of direct subsidies for public goods produced by

teaching hospitals (such as research and development

or care for indigent people).

Modify the Current System of

GME Financing

Several options are available for changing the mechanisms for federal financing of GME within the current structure of the DME and IME payment formulas. Those options all have potential effects on the

size and distribution among specialties of the current

pool of residents and on the future workforce of

trained physicians. They could have impacts as well

on the incentive for teaching hospitals to treat Medicare beneficiaries and the financial position of such

hospitals.

Reduce the IME Teaching Adjustment

The government’s Prospective Payment Assessment

Commission (ProPAC) has suggested that the current

IME subsidy be reduced to reflect more accurately

those increases in teaching hospitals' costs that are

associated with larger resident-to-bed ratios. Based

on an analysis of recent data, ProPAC has recommended that the IME adjustment be reduced in

phases from its current rate of about 7.7 percent to

4.5 percent, for a 0.1 increase in the resident-to-bed

ratio of the hospital. A decrease in IME payments 1

would be expected to lead to fewer residents than

1. Prospective Payment Assessment Commission, Report and Recommendations to the Congress (March 1, 1995), pp. 41-42.
38 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

teaching hospitals would otherwise have trained, although the effect of such a decrease on the mix of

residents among specialties is not clear.

Ultimately, these changes would have some impact on the characteristics of the trained physician

workforce. Teaching hospitals would probably also

scale back some activities besides residency training,

but predicting the magnitude and nature of other reductions in services is difficult. Access to care at

teaching hospitals might be diminished, especially

for hospitals at which residents provide a significant

amount of care. Moreover, because the lower IME

payments would have the effect of reducing what the

hospital was paid for providing inpatient services to

Medicare beneficiaries, teaching hospitals would

have weaker incentives to serve Medicare patients

than under the current formulas.

Change the Relative Subsidization 

of Particular Specialties 

An option that would encourage relatively more residents than otherwise to enter primary care would be

to alter the formulas for the IME and DME subsidies

to pay relatively more to hospitals for primary care

residents than for non-primary care residents. Because the subsidies affect the value of residents to

teaching hospitals, altering the formulas to increase

the relative reward for filling primary care residencies versus non-primary care training slots would

raise the demand by teaching hospitals for primary

care versus non-primary care residents. The option

could be implemented in a budget-neutral manner or

as part of a package that would change the total

amount of federal GME payments.

Over the long run, if no other changes occurred

in the market for physicians' services, tipping subsidies more strongly toward primary care training

would probably have several effects. In terms of access to care, consumers would have more access to

primary care services and less access to non-primary

care services. In terms of fees and physicians' income, primary care physicians would experience

downward pressures on their fees and income relative

to those of non-primary care physicians. Thus, a policy of relative subsidization at the residency level

would create some windfall gains for those who were

already fully trained in non-primary care specialties

and some windfall losses for those who were already

fully trained in primary care. 

All of those effects refer to comparisons with

how the market would otherwise be (that is, in the

absence of specific policy action). For example, if

the trend toward managed care continued and

brought with it an increase in demand for primary

care services, the downward pressure on primary care

fees from the subsidization of primary care residencies would be offset by the increased demand for primary care services. The net change in the income of

primary care practitioners would depend on which

influence turned out to be stronger.

The greater subsidization of primary care residencies would bring about a faster transition of the

trained medical workforce to its increased primary

care proportions than would otherwise have occurred.

Also in evidence would be a lower path of primary

care fees and income relative to non-primary care

fees and income. However, during the transition period, primary care fees and income would grow relative to non-primary care fees and income if the increased demand for primary care services outstripped

the effects on supply of greater subsidization of primary care residencies.

Reactions by the government to changes in demand for various services would also affect the incomes of different types of physicians and patients'

access to different types of doctors. Suppose, for

example, that the net effect of changes in the medical

insurance market and favorable subsidization of primary care residencies turned out to put upward pressure on non-primary care fees as a result of the relatively smaller number of non-primary care practitioners. If the fee schedule for Medicare failed to

incorporate the higher fees, increases in the income

of non-primary care physicians would be held down--

at the cost of potential problems in access for Medicare beneficiaries, who could experience a shortage

of non-primary care providers. In contrast, if the net

effect of changes in the insurance market and government GME policy put upward pressure on primary

care fees, Medicare might have to raise its primary

care payments to prevent a perceived shortage of primary care providers for Medicare beneficiaries.
CHAPTER FOUR POLICY OPTIONS 39

Other options that would increase the relative

number of residents in primary care while reducing

federal outlays for GME include eliminating subsidies for non-primary care positions or ending such

payments for residents beyond three years of training. The primary care specialties have the shortest

residencies. Thus, if the IME and DME formulas

were altered to pay hospitals only for residents who

were in their first three years of residency training,

that change would reduce what hospitals perceive as

the net value of non-primary care residents. Such

options, which imply an overall reduction in the extent of the Medicare subsidies for residency training,

would lead to smaller hospital residency programs

that were more disposed to primary care training than

would otherwise be the case.

The disadvantages of this approach would be the

decline in the number of residents at teaching hospitals, which might lead to a decline in the availability

of medical services at such hospitals or increased

costs for those services. It could also lead to a reduction in other outputs of teaching hospitals including

care for indigent people. Some of the impact might

be passed on to residents in the form of reduced stipends. Reductions in either type of GME subsidy

would reduce the hospitals' incentive to treat Medicare patients.

Reduce or Eliminate GME Subsidies

for Noncitizens

Yet another strategy to decrease GME payments

within the current framework of subsidies would be

to reduce or eliminate payments for residents who are

not U.S. citizens. About one-fourth of all current

residents graduated from foreign medical schools; the

majority of those foreign medical graduates are not

U.S. citizens, although most of them are expected to

enter the trained U.S. physician workforce at some

point.

Reducing or eliminating subsidies for noncitizens

would probably result in fewer residents than otherwise, with the decrease primarily the result of fewer

noncitizen residents than if the current system remained unchanged. A disadvantage of the policy is

that it might lead to a two-tier residency system with

a defined wedge between the stipends of citizens and

noncitizens or to increased segregation of citizens

into more desirable programs and noncitizens into

less desirable programs. Again, potential problems

with access and reductions in the services provided

by teaching hospitals become an issue as they do under other policies that reduce the overall level of

GME subsidies (unless, of course, other grants or

payment programs replace the subsidies). Also, the

future supply of physicians in this country would

probably be smaller than otherwise, and FMG physicians might average less residency training than they

would if the current policy was maintained.

Establish an All-Payer System 

to Finance GME 

A policy that would continue to subsidize GME yet

reduce the funding required for the Medicare program would be the formation of a GME fund supported by mandated payments from all insurers, both

public and private. That approach would increase the

cost of both employment-based and directly purchased health insurance and would probably encourage people, in a modest way, to buy less coverage.

By raising the price of insurance, the policy would

reduce slightly the take-home pay of workers with

employment-based insurance. However, it would

also allow Medicare to reduce its funding of GME

with no loss in total GME payments to teaching hospitals. The policy would simply shift some of the

government-imposed financing that is required to

fund GME subsidies from the Medicare program to

purchasers of private insurance and to other public

insurers. 

One effect of an all-payer fund could be to

weaken a teaching hospital’s incentive to treat Medicare patients. That outcome could occur if the current subsidy formulas were maintained except for

replacing Medicare's inpatient load and diagnosisrelated group payments with the insured inpatient

load and insured payments for inpatient hospital

charges. In that case, dollars from the GME fund

could be earned on all insured patients rather than on

Medicare patients alone, which would dilute the incentive, inherent in the current system, to treat Medicare beneficiaries.
40 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Payments to teaching hospitals from an all-payer

fund would not necessarily have to retain the current

or even modified financing formulas. For example,

policymakers could use the all-payer fund to finance

the more radical options discussed below. 

Restructure the System 

of GME Financing

Other options represent more fundamental changes in

the mechanisms by which the federal government

provides assistance for GME. Two possibilities that

come from different ends of the spectrum in terms of

using market incentives to shape residency training

are shifting to a GME voucher system or establishing

quotas for residency positions by specialty.

Open Up the Market for GME 

by Offering Vouchers

One method by which the government could subsidize graduate medical training would be to offer

vouchers to medical school graduates. The young

doctor could transfer the voucher to a medical group

or hospital as part of a contract in which the organization would provide training and a stipend to the

resident in exchange for his or her services and payments from the federal government. An advantage of

that approach is that it would subsidize post-medical

school education at sites that appeared to offer the

mode of training most relevant to the new professional's career. Young physicians would use market

signals and expectations about future changes in the

marketplace for physicians to make decisions about

the specialty they wished to pursue and the kind of

facility at which they wanted to receive training.

That approach would uncouple GME subsidization from teaching hospitals, which would have to

compete with other entities such as group practices or

health maintenance organizations that were willing to

start their own training programs. Over the long run,

teaching hospitals might remain the predominant providers of GME. However, if they remained so under

a voucher system, it would probably be because of

true advantages in the use of teaching hospitals for

GME rather than because of a federal system that

subsidized training only through those hospitals.

It is difficult to predict how specialty boards

would react to such changes. The current requirements for board certification were shaped in a tradition of training centered at teaching hospitals that

was reinforced by Medicare GME payments to such

facilities. If the boards were reluctant to consider

training at nonhospital sites as equivalent preparation, the GME system might remain essentially unchanged.

The disadvantages of a voucher approach would

include potentially adverse impacts on teaching hospitals from reductions in their Medicare GME revenues. Another disadvantage would be the loss of the

inherent incentives for teaching hospitals to treat

Medicare patients that are built into the current formulas for the GME subsidies. In addition, because

the voucher system is based on responses to market

incentives, it depends on reasonably informed decisionmaking. Without adequate information, changing to a voucher system might result in responses by

the workforce that were slower than some policymakers would find desirable.

Consequently, the argument that the government

should provide or assist in providing information

may be even more relevant to the voucher option

than to other options. The federal government could

inform medical or premedical students about trends

and innovations in the market for physicians' services. Publications could update students on trends

in physicians' incomes, employment opportunities for

new physicians by specialty, and other changes in the

nature of medical practice. Increasing the information available to students and residents could yield a

faster supply response to changing conditions in the

market than would otherwise occur. That quicker

response would address concerns that the market adjusts too slowly or that participants in the market lack

the information needed for relying on the marketplace to allocate the number and types of physicians.

Policymakers could vary several parameters

within a voucher framework. They could set up the

program to approximate current federal expenditures

per resident or base the value of the vouchers on
CHAPTER FOUR POLICY OPTIONS 41

some other level of total expenditures. If the government wanted to influence the balance of the medical

workforce among specialties, it could provide vouchers of different values or vouchers only for particular

specialties. Citizenship could be considered a potential requirement for receiving a GME voucher (but

not a requirement for receiving training).

Establish Quotas for Residency 

Positions

Quotas that designate the number and types of residency positions have been suggested as a means of

increasing the relative numbers of primary care doctors and reducing the overall supply of physicians.

One proposal that has been offered is to limit the total number of first-year residency positions to 110

percent of the number of annual graduates from U.S.

medical schools and to set specialty quotas allocating

half of the residency positions to primary care and

half to non-primary care. Proponents of such measures point out that it takes many years for the composition of the workforce to adjust and that responses

to financial incentives may not be sufficient for meeting their workforce goals. Proponents of letting market forces allocate the workforce would object to that

notion, maintaining that quotas could lead to a workforce that was not configured according to the underlying desires of consumers or future market realities,

which can be forecast only in a limited fashion.

A difficulty with using quotas is assigning the

slots. If the number of new medical graduates who

wish to enter a particular field exceeds the quota, the

decision as to which graduates obtain the available

positions might appear to be arbitrary. Under quotas,

some committee or group would have to allocate the

different kinds of specialty slots among the many

teaching hospitals. Those decisions might also appear to be arbitrary, given that some hospitals would

not be permitted to offer positions that otherwise they

would offer.

Moreover, unless the quotas were coordinated

with changes in the demand for physicians' services,

they would lead to an increase in the relative incomes

of fully trained physicians in the rationed fields--

which could encourage people to try to get around

the quotas. For example, if policymakers established

a quota that effectively restricted the number of nonprimary care residents but the projected shift in demand toward primary care services did not continue

as expected, the result would be an increase in the

relative incomes of non-primary care physicians.

That situation would lead even more residents to

want to enter non-primary care fields. Another

source of pressure might come from fully trained foreign specialists. Such specialists might immigrate,

which would not violate the quotas per se (since the

quotas apply to residency positions) but would partly

undo the goals of the quotas.

Another problem with using quotas is that the

definitions of various specialties may change or be

changed, especially in the face of economic incentives for doing so. Programs may label themselves in

accordance with the quotas, but the actual content of

training may instead resemble the way the market

would have looked without quotas. For example,

some "internal medicine" or "family practice" programs might begin to incorporate more subspecialty

training if the demand for and returns from being a

subspecialist remained high. In that fashion, the ultimate goals of advocates of quotas might be undone.

A policy restricting the total number of residency

positions to limit the total number of physicians

could face similar problems. Rationing of the limited

slots could appear to be capricious with apparently

qualified young physicians being turned away from

residency training. If no reduction in demand for

physicians' services occurred, physicians' incomes

would increase more than they otherwise would have,

and that would increase the number of young people

competing for the limited number of slots. In addition, more fully trained foreign physicians would

want to immigrate.

A positive or negative view of the immigration of

already trained doctors that could result from a quota

policy depends on one's perspective. Potential immigration (or the lack thereof) would be seen in a positive light if one believed that the quotas that had been

set truly reflected the direction of the market in terms

of future demand for physicians' services, and that

quotas were needed to speed the adjustment of the

workforce to that demand (since adjustment of the

workforce would be faster with immigration than
42 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

without it). Immigration would be viewed negatively

if one supported quotas from the belief that market

forces would not yield the appropriate number or

types of physicians in the workforce. (Immigration

would tend to undo movement toward the workforce

goals that were the original basis for the quota policy.)

To enforce quotas, policymakers could make the

receipt of funds (which could be called GME funds)

contingent on a hospital's remaining within the residency quotas that it received. The financial positions

of teaching hospitals could be maintained by keeping

their levels of funding near the current real (adjusted

for inflation) dollar values of GME payments. Alternatively, the policy could alter those funding levels--

although in that case, possible effects on the services

provided by teaching hospitals could not be ruled out.

For example, the incentives of teaching hospitals to

treat Medicare patients could be influenced by the

funding formulas. Because the current GME formulas build in some incentive to treat Medicare beneficiaries, a change to, say, a lump-sum payment--with

the condition that the hospital must remain within the

quotas--would eliminate that particular incentive.

The incentive might be maintained by keeping the

formulas in current law but making them conditional

on observance of the quotas. 

End Federal Financing 

of GME

Eliminating federal financing of GME is yet another

policy option. Estimates indicate that eliminating

both DME and IME payments would reduce federal

outlays below what they would otherwise have been

by over $7.5 billion for fiscal year 2000 and over

$8.5 billion for fiscal year 2002.

One argument in support of this option is that the

hospitals that obtain the services of residents and the

residents who receive training would be faced with

the true costs and benefits of the services and training. That newfound clarity would lead to decisions

about residency training that more accurately reflected the costs and benefits of providing and receiving it. In that spirit, Medicare’s payment rules for

physicians' services could be loosened to allow residents to bill for beneficial medical services that they

provide to Medicare patients. That policy, however,

might introduce new questions about payment levels

and qualification requirements for residents.

Eliminating the subsidies would also address the

concern that there will be more physicians than is

appropriate if the supply of physicians continues to

be subsidized. If GME subsidies were reduced or

eliminated, hospitals would be expected to demand

fewer residents. Many FMGs who would have done

residencies in this country and who would probably

have become part of the future U.S. workforce of

fully trained physicians might choose not to do so.

Also, graduates of U.S. medical schools might receive less residency training than otherwise. The

effects on access in the future to fully trained physicians in underserved locales would probably be very

small for the same reasons that large increases in the

total supply of physicians have caused minimal increases in such areas. However, the number of physicians per 1,000 people in locales that are already

being served would be fewer than they would otherwise have been.

Eliminating GME subsidies (without other, offsetting changes) would significantly lessen the revenues of teaching hospitals and would bring about a

reduction in some of their services. It is difficult to

predict the particular impact on different services.

Various public goods--such as providing care for indigent people, conducting research and development,

and undertaking efforts to control infectious diseases

--might be cut back in response to reducing or eliminating GME payments. Because teaching hospitals

would have significantly weakened incentives to hire

residents, they would attempt to fill fewer residency

positions. Some of the impact would probably include lower residency stipends. Medical schools

would also be affected because of their ties to teaching hospitals. In addition, teaching hospitals would

have less incentive to serve Medicare patients, although easing restrictions on Medicare billings for

physicians' services provided by residents might indirectly diminish that impact. Another alternative that

would address reduced incentives to serve Medicare

patients and lower revenues for hospitals would be to

allow larger inpatient payments to hospitals that currently receive GME payments but to dispense with
CHAPTER FOUR POLICY OPTIONS 43

formulas like the present ones that relate additional

payments to the number of residents.

To minimize adverse consequences, policymakers could gradually reduce GME payments over

time according to a stated schedule. A gradual drop

in the subsidies would allow teaching hospitals to

plan and adjust their facilities and services to lower

levels of revenue. Potential medical students would

also be able to plan better: they would have the information that the subsidies were being reduced and

the understanding that such reductions would probably result in lower residency stipends and fewer residency positions, as well as higher future incomes for

trained doctors in the respective specialties, than

would otherwise have been the case. 2

Policymakers could also use more specifically

targeted subsidies to encourage teaching hospitals to

provide public goods and to deal with specific issues

that now may be indirectly paid for through GME

funding. Payments to providers for indigent care,

research activities, and prevention of infectious diseases could be directed specifically toward those activities. If teaching hospitals indeed receive more

difficult cases than other kinds of hospitals, further

research could provide a basis for modifying the

DRG system of reimbursing hospital services under

Medicare. In addition, the concern that medical students and residents are uninformed about trends in

the medical market could be addressed by increased

efforts to provide such information.

2. The Prospective Payment Assessment Commission has recommended that the reduction it proposes in IME payments, which

does not call for ultimate elimination of the IME adjustment, be

phased in and reevaluated over several years.

T

Appendix

Supplementary Tables

his appendix contains tables that present the data used to construct Figures 1, 2, 4, and 6 in the text.
46 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Table A-1.

Distribution of Fully Trained Physicians Engaged in Patient Care, by Specialty, 

Selected Years, 1965 Through 1993 (In percent)

Specialty 1965 1970 1975 1981 1985 1990 1993

Primary Care 50.5 42.2 39.3 35.1 34.6 34.4 33.8

Subspecialties of Internal

Medicine and of Pediatrics 1.7 4.2 4.8 8.2 9.3 10.2 10.9

Obstetrics and Gynecology 6.3 6.8 6.8 6.8 6.4 6.6 6.5

Surgical Specialties 21.3 22.5 22.6 21.3 20.5 20.0 18.9

Other Non-Primary Care

Specialties 19.6 23.0 25.6 27.6 28.1 28.4 29.1

Unknown 0.6 1.3 0.9 0.9 1.1 0.5 0.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

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.
APPENDIX SUPPLEMENTARY TABLES 47

Table A-2.

Fully Trained Physicians Engaged in Patient Care per 1,000 People, by Specialty, 

Selected Years, 1965 Through 1993

Specialty 1965 1970 1975 1981 1985 1990 1993

Primary Care 0.55 0.46 0.46 0.49 0.53 0.56 0.59

Subspecialties of Internal

Medicine and of Pediatrics 0.02 0.05 0.06 0.11 0.14 0.17 0.19

Other 0.52 0.59 0.65 0.79 0.87 0.90 0.96

Total 1.10 1.09 1.16 1.40 1.54 1.63 1.74

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.
48 MEDICARE AND GRADUATE MEDICAL EDUCATION September 1995

Table A-3.

Distribution of Residents by Specialty, Selected Years, 1965 Through 1993 (In percent)

Specialty 1965 1970 1975 1981 1985 1988 1990 1993

General Practice and

Family Practice 1.6 2.6 5.6 8.4 9.2 8.6 7.8 7.8

Internal Medicine and

Internal Medicine

Subspecialties 18.5 19.6 25.2 24.6 26.0 30.8 31.1 31.0

Pediatrics and Pediatric 

Subspecialties 6.4 7.0 8.3 8.4 8.3 9.0 9.0 9.3

Obstetrics and

Gynecology 6.0 4.9 6.3 6.3 6.1 5.6 5.5 5.3

Surgical Specialties 26.1 25.3 24.9 21.6 21.9 19.5 18.7 18.0

Other Non-Primary

Care Specialties 24.0 24.1 21.5 18.4 23.4 24.7 26.3 27.2

Unknown 17.4 16.5 8.2 12.4 5.0 1.7 1.6 1.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

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.
APPENDIX SUPPLEMENTARY TABLES 49

Table A-4.

Residents Engaged in Patient Care per 1,000 People, by Specialty, Selected Years, 1965 Through 1993

Specialty 1965 1970 1975 1981 1985 1988 1990 1993

General Practice and

Family Practice a 0.01 0.01 0.02 0.03 0.03 0.03 0.03

Internal Medicine, Pediatrics, 

and the Subspecialties 

of Internal Medicine

and of Pediatrics 0.05 0.07 0.09 0.09 0.11 0.13 0.15 0.16

Other 0.12 0.13 0.14 0.13 0.16 0.17 0.18 0.20

Unknown 0.04 0.04 0.02 0.03 0.02 0.01 0.01 0.01

Total 0.22 0.25 0.26 0.27 0.31 0.33 0.36 0.39

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 "Other" category comprises residents in the specialties of obstetrics and gynecology, surgery, and other non-primary care fields.

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.

a. Less than 0.005 residents per 1,000 people.