Scramble for residency slots produces rural gains, losses

An estimated 357 U.S. hospitals may see an increase in the number of medical residents after a historic, one-time only redistribution of government money left over from 3,000 unused residency slots.

The Centers for Medicare & Medicaid Services in late October announced which hospitals would win the coveted slots and which would lose them. The redistribution is an effort to help alleviate the uneven distribution of physicians, particularly in underserved rural areas.

While CMS declined to clarify its data on the redistribution, an analysis by the Assn. of American Medical Colleges showed that teaching hospitals in small urban areas saw a net gain in residency slots eligible for federal money, leading them as a group to benefit the most from the shuffling of funds mandated by the Medicare Modernization Act of 2003.

Though the program was designed to help rural hospitals, the results were mixed. Rural hospitals saw a net loss of resident slots, though every rural hospital that requested additional slots got them. Hospitals in large urban areas gave up the most slots.

Karen Fisher, associate vice president for health care affairs at the AAMC, said it was unclear exactly how the redistribution was going to impact graduate medical education, but it was clear that demand was intense. In all, 1,800 programs at 540 hospitals requested 7,000 slots.

That means hospitals asked for twice as many slots as were available, and they could have requested even more, she said, but were only allowed to ask for up to 25.

"This program certainly indicates the cap [on federal funding for residency slots] and the entire policy needs to be re-evaluated," Fisher said. The AAMC actively advocates for lifting the cap created under the Balanced Budget Act of 1997. The Act froze the number of medical residents eligible for funding at 1996 levels, or about 98,000 slots.

For physicians involved in teaching medical residents, the redistribution effort promises to bring more funding and thus more residents. But the money could also be easily absorbed by other educational costs, experts said.

For example, many schools were already paying for more residents than the federal government was paying for, so the new money could be used for slots a hospital already created. Also, reallocated slots will only receive half the government funding that current residency slots receive. Of an estimated $8 billion the government spends on graduate medical education annually, a hospital may receive about $80,000 per residency slot (average of direct and indirect med ed payments), while a hospital would get $40,000 for the reallocated slot.

Schools assess reallocations

Southern Illinois University in Springfield thought the chances of it receiving a number of the reallocated slots were good. It had two factors CMS said it would look at during the redistribution. First, SIU has been over its caps for years and has had to look beyond the federal government for money to pay for them. Second, the programs are in the middle of a largely rural region with a clear physician shortage.

But SIU's results from the reallocation were mixed. Its programs collectively gained 14 indirect medical education payments, which cover the higher patient care costs teaching hospitals incur. The funding is based on the number of residents and the hospital's ratio of residents to beds.

But the university's programs also lost 20 direct medical education payments. These payments are calculated in part by the number of residents and the hospital's share of Medicare inpatient days.

"Clearly this is not the growth potential we were hoping for," said Karen Broquet, MD, SIU's associate dean for graduate medical education. "This whole process has been a perfect illustration of unintended consequences."

Memorial Medical Center in Springfield, Ill., hosts a number of SIU's residencies. It requested and won 14 indirect medical education payments. But it lost six direct medical education payments.

Bob Urbance, Memorial's director of reimbursement, said this may mean an annual net gain of $600,000 for the hospital. The loss in the number of residents qualifying for direct medical education payments is due to how CMS counts residents, he said.

The hospital had been paying for 14 to 15 residents above its cap out of its own resources, he said. But CMS will not count residents who are training outside the hospital at such settings like SIU's medical clinic or in private physicians' offices, so CMS reduced its resident count for Memorial.

Urbance expects SIU will ask Memorial to add more residents with the additional money, but he is not confident that's how the money will be spent. "If you took the full costs [of residents] versus what we're being paid, there's a shortfall," he said. "All this does is narrow the gap. We'd love to add more residents, but the money isn't there."

Residency programs in Florida also saw mixed results. According to the AAMC, Florida saw a net decrease of direct medical education payments of 24.5 slots or a 0.5% cut of all cap slots.

Mathis Becker, MD, a thoracic surgeon and chair of Florida's medical education committee said most of the state's teaching hospitals are in large urban areas, which were low in the pecking order for the redistribution. The biggest winner in his state was a Gainesville hospital that captured money for 25 additional cap slots, Dr. Becker said.

But, overall the reallocation did little to address Florida's critical need for more physicians, Dr. Becker said. The state has one of the lowest ratios of medical residents per capita. Dr. Becker said they are at half the national average.

"We're in an extreme situation in Florida," Dr. Becker said. "We've got new medical schools opening. We're graduating more medical students, but without more slots, they're training elsewhere, and it's less likely they'll come back. This impacts our ability to provide physicians for a growing population."