California does not have enough physicians to meet the needs of its population. To address this physician workforce crisis, the state must train new doctors to replace those who retire. There is a bottleneck, however, in training capacity during residency. Currently, there are more medical school graduates wanting to complete residency training in California than there are positions available. Expanding residency training capacity will directly increase the number of doctors practicing in California. If the expansion can focus on underserved regions of the state and underserved populations, California can not only produce more physicians but also do so in the areas that need them the most. Studies have shown that physicians tend to stay and practice near where they complete their residency.¹ In fact, California has the highest retention rate in the nation of physicians who complete residency in California: 71% of physicians remain in California after residency training.²

Graduate Medical Education

Graduate medical education (GME) includes physician residency and fellowship training after graduation from allopathic or osteopathic medical school, domestically or internationally. (GME does not include dentistry.) When they graduate from medical school, physicians are not yet prepared to enter directly into clinical practice. Residency is the next step in a physician’s training, and completing an accredited training program for a minimum of three years is a requirement for licensure in California, though some specialties, such as general surgery and psychiatry, require additional years to complete.

Funding: The Main Obstacle to GME Expansion

Federal and state governments heavily subsidize GME, unlike training for any other profession, regardless of where the resident completed medical school. Though it can vary between institutions, most experts suggest that on average it costs an institution $150,000 per resident per year to run a residency program. In California, subsidies for GME do not come from one source but rather are cobbled together from multiple federal, state, and often private sources. The largest GME funder by far is Medicare, but the Balanced Budget Act of 1997 capped Medicare GME payments for each teaching hospital to the number of full-time equivalent (FTE) residents and fellows that it had in training in 1996. This limit on Medicare FTE positions is referred to as the 1997 Medicare GME cap. The cap essentially freezes the geographic and financial distribution of Medicare-supported GME positions without regard for future changes in local or regional health workforce priorities or the geographic distribution and demographic makeup of the US population.

The main obstacle to expanding GME in California is lack of funding.

GME-Naive Hospitals

Hospitals that have never been teaching hospitals are referred to as Medicare GME-naive hospitals and are not subject to the 1997 Medicare GME cap. These hospitals are of great interest to policymakers because of their potential for GME expansion using federal funds. California has about 150 Medicare GME-naive acute care hospitals, defined as acute care hospitals that did not receive Medicare GME funding from 1996 to 2015. If one of these hospitals becomes a new teaching hospital, the Medicare GME cap is calculated and implemented in the fifth year of the new training program. Centers for Medicare & Medicaid Services staff have said, however, that a hospital is a teaching hospital (that is, not naive) if training takes place according to a planned and regular schedule (that is, not spontaneously or randomly), even if the hospital does not incur the costs of the residents’ salaries, does not sponsor the program, and trains only a small number of FTE positions.

About the Authors

This issue brief was authored by Alexandra Ament, MA, independent consultant, and Diane Rittenhouse, MD, MPH, senior fellow, Mathematica.

1. Ernest B. Fagan et al., “Family Medicine Graduate Proximity to Their Site of Training: Policy Options for Improving the Distribution of Primary Care Access,” Family Medicine 47, no. 2 (Feb. 2015): 124–30.
2. 2019 State Physician Workforce Data Book, Assn. of Amer. Medical Colleges, 2017.