In March 2009, I sat with my fiancée, Amanda, in a large auditorium in St. Louis along with about 100 of her medical school classmates. A national system called The Match had already decided where we would spend the first four years of our marriage—we just hadn’t been informed yet.
I was studying computer science at Princeton, so she had applied to residency programs in the two closest metropolitan areas: New York and Philadelphia. As students’ names were called, each one walked to the front and was handed an envelope. They opened it and announced where they were headed, prompting cheers from their classmates. Amanda matched at the University of Pennsylvania, so we moved to Philadelphia.
What I didn’t know—and honestly, I’m grateful I didn’t—is that there was a chance she might not match at all, with devastating professional and financial consequences. There are fewer residency spots than graduates from eligible medical schools. So every year thousands of people complete medical school only to find out they won’t get to practice medicine.
In a new report for the Niskanen Center, economist Robert Orr describes the archaic and wasteful structure of America’s system for training new doctors. Medical students must complete a residency—which can last anywhere from three to seven years—before they are allowed to practice independently.
But Orr’s calculations show that around 10 percent of graduates from US medical schools fail to get into any residency program. They spend four years and accumulate as much as $200,000 worth of debt, but never get a chance to put their training to use:
Though unmatched applicants can reapply, residency applications are expensive and those applying after their senior year of medical school face tough odds to succeed. Those medical graduates who fail to obtain a residency placement generally find they lack a smooth path toward a career that will allow them to apply their clinical skill in a manner commensurate with their training and education. Despite four years of postgraduate education, including two years in clinical settings, unmatched medical graduates cannot simply become a physician assistant (PA) or nurse practitioner (NP) without first going back to school. Yet that’s exactly what many unmatched medical graduates do, obtaining three more years of education, including one year of clinical experience, to become an NP or PA.
Of course, the biggest tragedy here isn’t the financial hardship this imposes on students who miss out on a residency slot—though that’s significant. It’s the millions of patients who suffer from the resulting shortage of physicians. As Orr has written, the US has far fewer doctors per patient than other industrialized countries, which means that medical care is less accessible and more expensive than it could be.
How to fix the residency system
There’s no particular logic to the modern residency system, which has evolved over decades. The federal government imposes minimum quality standards on residency programs and also provides subsidies for most residency slots. But the number of subsidized slots hasn’t kept up with the number of people who graduate from medical schools.
You might wonder why a system like this needs to exist at all. When a young lawyer graduates from law school, they typically take a job at a law firm where more experienced lawyers show them the ropes. The same is true for computer programmers, journalists, and plenty of other skilled professions. For the most part, the federal government doesn’t subsidize these entry-level jobs.
But the residency process is more heavily regulated than entry-level jobs in other professions. Hospitals must provide a certain amount of formal instruction, and they must hire administrators to make sure they are complying with a variety of legal requirements. Those regulations may raise the cost of running a residency program enough that subsidies are needed to ensure there are enough residency slots for everyone who completes medical school. It’s also possible that it simply takes longer to train a new physician than it does to train a new lawyer or computer programmer.
In any event, Orr argues that there’s a lot of room to improve the way the federal government subsidizes residency programs.
By an accident of history, a large portion of funding for residencies comes from Medicare. As a result, hospitals with a lot of elderly patients tend to get more funding for residency slots than other hospitals. This leads to systematic under-funding of specialties like family medicine and pediatrics.
Orr argues that the federal government should scrap the current formulas and pay a standard rate per resident. One big impact would be to shift the geographic distribution of subsidies. Both the number of residents per hospital and the subsidy per hospital is based on formulas that are decades out of date. As a result, a few states—particularly northeastern states like New York and Massachusetts—get a wildly disproportionate share of subsidies. Fast-growing states like Georgia, Texas, Arizona, and Washington get much less support for training new doctors.
The perversity of this system cannot be overstated. Essentially, our system for medical training forces would-be doctors from all over the country to get their medical training in expensive and slow-growing cities like New York and Boston. Then, because these cities already have plenty of doctors, many of them have to move back to lower-cost, faster-growing parts of the country to continue their careers.
This problem has attracted the notice of some elected officials. “We lose a very high percentage—probably 40 percent plus—of our graduates from medical school going off and doing residencies someplace else,” said the senior senator from Arkansas, Republican John Boozman, in a 2019 press statement. Boozman has co-sponsored legislation, both in the last Congress and the current one, to boost the number of residency slots.
Orr also argues that the federal government should offer hospitals a more generous subsidy for the first year of residency, while cutting off subsidies after the fourth year. This makes economic sense because residents likely contribute more to a hospital’s bottom line later in their training.
A side benefit of this reform would be to nudge the profession toward generalist fields like pediatrics, family medicine, and internal medicine, which only require a three-year residency, and which tend to be under-represented among US physicians. A more generous first-year subsidy would provide proportionately more support for these residency programs.
Training more physicians is an investment that will pay off for decades to come. And with borrowing costs at record lows, the federal government can afford to invest more.
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