“Show Me the Money” Part 1: A Resident’s Guide to One’s Paycheck

by Lindsay Janes, MD
Resident, Northwestern University

When medical students become residents they know several things: they will work long hours, they will feel both rewarded and stressed on a daily basis, and they will finally get a paycheck, which will be a fraction of their earning potential after residency. There is no negotiating before you sign your contract and no asking for a promotion beyond small increases every July 1st. However, the majority of US medical residents don’t understand how their salary is determined and where that money comes from. The short answer is Medicare, but the long answer requires a bit more history.

The history of graduate medical education (GME) as we know it begins in 1910 with the Flexner report, a document that highlighted the excess supply of poorly trained physicians produced by an unregulated system of medical education (1). In response, multiple medical schools considered inadequate were closed, significantly decreasing the number of graduating physicians over the next 20 years (2, 3).

The first public funding of medical education was instituted with the creation of the Servicemen’s Readjustment Act of 1944 (GI Bill). Resident physicians in training, previously provided room and board by the hospital, with the cost for these benefits built into patient charges, earned salaries for the first time (1).  

In 1959, the Surgeon General’s Consultant Group on Medical Education (the Bane report) predicted a shortage of 40,000 physicians. In addition, there was concern that with the establishment of Medicare, the existing supply of physicians wouldn’t be able to meet the projected increased demand for health services that would come with all the newly eligible beneficiaries. Thus, through the Public Health Service Act, Medicare was authorized to provide federal support for medical education and teaching hospital subsidies (4). The result was an increase in the number of medical schools from 88 to 125 and annual number of graduates 7,409 to 15,135 between 1965 and 1980 (3).

Medicare still persists as the main source of GME funding, contributing 72 percent of all tax-financed support (4). Other federal payors include Medicaid, the U.S. Department of Veterans Affairs, the U.S. Department of Defense and the Bureau of Health Professions. State and local governments also finance GME programs, but specific amounts vary widely (4). Private insurers support GME through higher payments negotiated with teaching hospitals. However, the proportion of these payments that is attributed to education is unclear, making the contribution of private insurers to overall GME funding difficult to quantify (5).

Over the past 30 years, there have been several legislative attempts to control spending on graduate medical education. The most significant was the Balanced Budget Act of 1997, which capped the number of residents the hospitals could receive GME funding for. This cap has remained static with respect to the population, and many critics feel this cap is to blame for the current physician shortage. In 2006, the AAMC called for an increase in the number of medical school spots by 30% (6). Between 2002 and 2010, there was a 16.6 percent increase in the number of matriculating medical students (7). However, the number of residency positions in that time has not significantly changed, resulting in an increasing percentage of unmatched medical students every year.

As long as the federal government remains the main source of funding for resident education, the number of residency spots will continue to be tightly controlled and paychecks will remain constant beyond adjustments for inflation and cost of living.  Alternative payment systems or hospital contributions may become models for the future, but for now, save your negotiation tactics for your first attending position.


  1. Blumenthal D. New steam from an old cauldron – the physician-supply debate. N Engl J Med 2004;350:1780-7
  2. Ludmerer KM. Time to heal: American medical education from the turn of the century to the era of managed care. New York: Oxford University Press, 1999.
  3. Starr P. The social transformation of American medicine. New York: Basic Books, 1982
  4. Young JQ, Coffman JM. Overview of graduate medical education. Funding streams, policy problems, and options for reform. West J Med. 1998;168(5):428-436.
  5. Committee on the Governance and Financing of Graduate Medical Education; Board on Health Care Services; Institute of Medicine; Eden J, Berwick D, Wilensky G, editors. Graduate Medical Education That Meets the Nation’s Health Needs. Washington (DC): National Academies Press (US); 2014 Sep 30. 3, GME Financing. Available from: http://www.ncbi.nlm.nih.gov/books/NBK248024/
  6. The Physician Workforce: Position Statement. https://www.aamc.org/download/55458/data. Accsessed. 2/16/2016
  7. U.S. Medical School Applicants and Students 1982-83 to 2011-2012. https://www.aamc.org/download/153708/data. Accessed 2/16/2016.
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