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Medicare Cap Makes Physician Supply Fall Short

Opinion Editorial
August 1, 2006

By Joanna Conder

“Hello, I need to see a cardiologist for a heart checkup. I’ve been feeling a little pain in my chest for the past few days. Sometime this week would be the best.”

“I’m sorry. There is nothing available for the next couple of weeks. How about next month?”

This can be a common conversation in several Colorado counties, including Baca, Conejos, Custer, Dolores, Jackson, San Juan and Washington. Many rural counties in Colorado are designated as Health Professional Shortage Areas. These local shortages of primary medical care providers are a part of a growing national problem. Indeed, entire states such as California, Arizona, and Wisconsin are suffering from physician workforce shortages.

According to the Council on Graduate Medical Education the supply of physicians will increase to approximately 1.02 million by 2020. But the demand for physician services is projected to grow between 1.03 million and 1.24 million physicians. The growth in demand will be mostly due to the aging of the population; the number of Americans older than age 65 will increase by 19 million between 2000 and 2020, and by another 28 million between 2020 and 2050. Based on these projections, the U.S. might face a shortage of about 85,000 physicians in 2020.

A starting point to solve the problem is to increase enrollment in U.S. medical schools. The Association of American Medical Colleges has called for 15 percent growth in the number of medical school graduates by 2015. Over past 30 years Colorado’s population has more than doubled, but the enrollment at the University of Colorado School of Medicine remains at the same level of 132. The school’s plan is to increase a class size to 160 by 2007 according to dean Dr. Richard Krugman.

For the same reason, the number of residency positions should increase. Medical school graduates are required by law to complete a residency training before receiving a license to practice medicine. The training takes between three and seven years and is offered through nationally accredited programs, typically by large hospitals. The U.S. government controls the supply of physicians by how much federal funding it provides for the residency training.

Hospitals are reimbursed for the cost of training medical residents through the federal Medicare program, which is the major financier of graduate medical education. In 1996, Congress passed the Balance Budget Act, establishing caps on the number of physicians in training (residents) that can be paid for by Medicare. These caps seriously discourage teaching hospitals from increasing the number of resident physicians being trained. No new residency programs are being created, and some programs are being closed because Medicare does not pay enough to cover residents and faculty salaries, benefits, and overhead expenses related to training programs.

Although 93 percent of the total residency positions are filled, according to National Resident Matching Program, the way Medicare pays for residencies does not allow efficient distribution of residency slots geographically and among medical specialties. It also makes it difficult to switch from one specialty to another. This is how the government keeps the physician supply down.

In this situation, we can either put pressure on lawmakers to lift a cap on Medicare funding for physician training, or get rid of the cap and let the supply be regulated by the free market. Before the enactment of Medicare in 1965, residency programs were primarily funded by teaching hospitals through their patient care revenues.

Instead of relying only on Medicare funds, hospitals are already moving towards privately financed residency training. As they need more doctors, they are adding residency positions above the Medicare caps and using other ways to finance residencies, such as revenues from clinical practices, research grants, endowments, and funding from professional associations.

Between 1998 and 2004, residencies grew 4 percent as institutions reached into their own pockets to pay for new positions, according to the American Medical Association. So the trend is slowly moving in the right direction.

We should remember that supply is a function of price. Even if privately-funded residency programs can only pay doctors a small stipend, medical school graduates will accept those residencies, because the residency is the gateway to a future career with a large income.

Relying on the market mechanisms to increase the number of available residency positions will to solve the entire problem of the physician shortages in the rural areas. The question how to attract the doctors to come and work there will remain. Nevertheless, the first step is to take residency programs out of the governmental control if we do not want a local Colorado problem of physician shortages to become a statewide problem.