Resident Compensation – Who Funds Us and What Is Our Value?

Resident physicians make roughly $60,000 per year, which – despite being in the 62^nd percentile for American income – reflects an hourly wage of $14.42 for an 80-hour workweek (asamonitor.pub/47erKrl). Take into account four years of undergraduate education, four years of medical school, and an average medical school debt of $200,000, one is left wondering if the compensation is fair. Historically, resident compensation was low due to high job competition. To requite for modest salaries, hospitals often provided food and shelter for their young physicians who seldom left the wards, which led to the term “resident physicians.” In 1965, President Lyndon Johnson signed Medicare into law – thus making Medicare the new payer of resident compensation. The plan was to federally subsidize new physician education to help support American needs, with the idea that the federal funding would eventually be replaced by hospital and community contributions. However – nearly 60 years later – the federal government is still paying the bill (asamonitor.pub/3QtLy42).

Resident compensation is hospital dependent, yet the hospital is eligible for resident funding in the form of Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME) payments. DGME and IME are funded primarily by Medicare, with smaller contributions from other federal- and state-level programs. The major source of resident salaries is from DGME, which generally relies on three variables: Hospital Per Resident Amount (PRA), Resident Full Time Equivalents (FTE), and the hospital’s Medicare share ratio. The IME payment calculation is complex and depends on the number of residents, number of hospital beds, and types of medical and surgical services performed. The GME payment equations are as follows (asamonitor.pub/3DEQz2s):

DGME = (PRA) x (Total FTE) x (Medicare Inpatient Days/Total Inpatient Days)

Whereas IME payment is based on the diagnosis-related group (DRG) payment and is calculated based on a Congress set multiplier and an intern and resident-to-bed ratio (IRB)

IME = multiplier x [(1+IRB)^0.405 – 1] x DRG payments

The purpose of DGME is to partially cover resident education costs, such as resident stipends, resident benefits, teaching faculty stipends, accreditation fees, educational supplies, and even portions of utilities like electricity. The purpose of IME funding is to partially compensate for higher patient care costs and resources at teaching institutions. Examples of IME funding allocations are burn units, ECMO services, and simulation labs. IME funding helps make advanced care services – such as specialized intensive care units – available to both trainees and members of the community, which in part explains why there are often greater treatment resources at teaching institutions.

In 2015, DGME payments were roughly $45,000 per resident per year, and IME payments were roughly $95,000 per resident per year (JAMA Intern Med 2020;180:148-50). The Medicare GME payment model was never meant to be long term, and it is far from perfect. Yet the fact remains that medical teaching facilities may receive roughly $140,000 per resident per year in federal funding. Granted, only the DGME portion is meant to help fund compensation. However, since each resident has the capacity to generate hundreds of thousands of dollars in revenue individually, the additional $140,000 total of federal funding seems staggering.

The funding is complex, as not every resident is necessarily eligible for DGME or IME payments. Commonly, hospitals exceed their FTE cap, which means they must independently fund or obtain sponsorship to fund many of their residents. Costs add up quickly when accounting for salaries, resident benefits, teaching faculty stipends, and advanced care funding. But hospitals find a way to pay CRNAs salaries, eclipsing $200,000 on average. So why, despite having federal funding, are resident physicians paid less than many of our health care peers? One factor is a resident’s fair market value, which essentially says most employers pay “X” amount, thus we are willing to pay “X” amount. In addition to a degree of dogma, there is a relatively high demand for many residency positions, thus employers do not need to raise wages to fill their jobs. One may argue the residency education offered is invaluable, thus compensation is appropriate. If taking into account a resident’s individual revenue for a hospital, specialties are subject to out-earn one another. For example, an anesthesiology resident’s work will likely generate more revenue than a pediatrics resident’s work. But should a resident’s pay be adjusted based on their revenue generated? Such a scenario could lead to an even greater work gap in primary care than already appreciated. If considering revenue, one 2011 study suggests residents performing procedures could generate $232,726 of revenue per year at their institution, and another 2013 study estimated that internal medicine residents could generate as much as $253,910 of revenue per year (Trauma 2011;70:136-9; asamonitor.pub/3OEd7GD). It is worth noting that revenue models vary by hospital, and differing levels of resident training and specialty can heavily influence potential revenue as well as productivity. As for value, in 2019 the University of New Mexico neurosurgery program had to hire 23 advanced practice providers to replace the work of eight departed residents, which is estimated to have increased department costs by 500% (asamonitor.pub/3DItdbS). Therefore, one could assume residents – who receive $140,000 in government funding, generate hundreds of thousands in revenue, and have the capacity to outperform mid-level providers – should be compensated beyond a $60,000 salary.

Ultimately, resident compensation and benefits are employer-dependent. Health care systems are often subject to a degree of financial gerrymandering, where funding from one department helps offset expenses from another. Thus, federal payments and resident revenue may end up in a large pot where their exact disbursements are a mystery. Some dissatisfied residents have chosen to unionize in recent years, and for some it has been fruitful – yet unionizing is a long, demanding process without guarantees of success. Ultimately, resident compensation is a reflection of federal and individual institutional policies, of which a certain degree of revision may be in order. Compensation is a physical reflection of value, and recognized value in the workplace is a branch of wellness. Resident work is demanding enough, even without global pandemics. Employers should recognize that all aspects of resident wellness – including compensation – should be addressed regularly, as it is worth protecting those who protect others.