Wealthy hospitals should be last in line for the new residency slots

The $1.9 trillion American Rescue Plan that President Biden signed into law in March includes funding for the creation of an additional 1,000 residency slots for newly minted physicians at hospitals across the country. The provision is one of many in the bill that aims to help health systems provide essential care to their patients and communities.

While this important ramp-up is long overdue, an inequitable allocation of these residencies will defeat its purpose. To extend the delivery of necessary health care services in the fairest manner, a significant percentage of the new residencies in basic areas — including internal medicine, family medicine, pediatrics, obstetrics and gynecology, general surgery, diagnostic radiology, psychiatry, and emergency medicine — should be established at hospitals in rural, underserved, and tribal areas first. The remaining residencies should then go to wealthy hospitals.

Expanding the number of residencies, which were capped by the Balanced Budget Act of 1997 and have not budged for almost 25 years, could not have come at a better time. The combination of a growing and aging population, greater access to insurance coverage, and the retirements of older doctors were on track to result in a dangerous loss of between 37,800 and 124,000 U.S. physicians by 2034.

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The new medical residency slots funded by the American Rescue Plan will help stave off this crisis — if their assignment is based on where in the country new doctors are needed most. Unfortunately, the unjust awarding of billions in CARES Act funding last year shows that the distribution of federal aid to hospitals often favors large, affluent, and well-connected institutions at the expense of smaller ones that predominantly treat low-income populations.

According to a 2020 study by the Kaiser Family Foundation, hospitals that primarily serve financially secure patients got twice as much CARES Act relief as hospitals that serve needier patients on Medicare, Medicaid, or with no coverage at all. The guidelines that determined the distribution of CARES Act funds were devised by the Department of Health and Human Services with input from influential lobbying groups that represent prominent hospitals. HHS’ funding formulas overwhelmingly benefited institutions that were large, prosperous, and located in major metropolitan markets — such as Cleveland Clinic, New York Presbyterian Hospital, and HCA Healthcare, to name a few.

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To give an idea of how fiscally comfortable these affluent hospitals are, most have billions of dollars in cash reserves, receive millions more from well-off donors, run their own venture capital funds, and work with private equity firms to generate additional billions in investment profits. Did they require eight or nine figure infusions of emergency CARES Act support to keep the lights on? No — and they certainly didn’t need the monies as much as vulnerable hospitals that largely care for disadvantaged populations, and only have enough funds on hand to cover just a few weeks of operating costs.

Although financially quite healthy, prosperous hospitals will undoubtedly put into motion their vast leverage and influence to claim the greatest number of the new residencies. Why this aggressive approach? The amount of long-term profit that each residency slot offers is too significant to forego.

Up to half of a resident’s salary is covered by the federal government as a direct medical education payment. The federal government also provides hospitals with an indirect medical education payment, which delivers additional compensation of up to 12% to 15% of the amounts charged for the medical services of their residents. Add to that the total associated fees that hospitals are billing patients on top of their residents’ professional services (room, meals, supplies, lab work, tests, procedures, and the like) and it becomes clear how valuable the American Rescue Plan’s new residencies will be to all hospitals now and well into the future.

For wealthy hospitals, the upside of having a bonus crop of new residents is even more substantial: the bulk of these hospitals’ patients are privately insured, which means that their bills are worth to the hospital nearly double what they would be if they were paid for by Medicare or Medicaid.

Without a framework in place to ensure that the American Rescue Plan’s new residents are assigned to hospitals where they will do the most good, we could see a rerun of last year’s CARES Act funding bias that favored powerful health care organizations over smaller, less advantaged ones.

To attain a more equitable arrangement, two benchmarking methods can be employed: Hospitals can be tiered using a physician-to-patient ratio (hospitals with the greatest average number of patients under a physician’s management would be at the top of the list). Another approach is to use a private vs. public insurance/assistance ratio (hospitals in which more patients’ bills are paid with Medicare and Medicaid than with private insurance would be at the top of the list).

Monetary incentives could also be built into the designation of the new residency slots that would support young doctors who wish to begin their careers in low-income, underserved, and tribal regions, with tax-free grants being awarded to offset their sizable medical school debt. In addition, they could be provided with stipends to help them pay their relocation, utility, and housing expenses.

The American Rescue Plan aims to improve the long-term health of disadvantaged groups by boosting accessibility to medical care, investing in community health, and addressing social contributors to health. Giving the lion’s share of the plan’s new medical residency slots to wealthy hospitals will negate this goal. Prioritizing the establishment of essential service residencies in low-income urban areas, medically underserved rural locales, and tribal regions across the country will make it achievable.

David Lenihan is the CEO of Ponce Health Sciences University and Tiber Health, a St. Louis-based medical education company.


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