Half of all healthcare spending goes to 5% of the population: Why this is a good thing

A frequent critique that has been levied at the US healthcare system, half of all healthcare spending goes towards 5 percent of the population.  Stop for a moment and ask yourself, why is this a problem?  Sick people need more healthcare than well people, and many diseases are chronic.  Obviously, if you have been treated for diabetes, heart disease, cancer or neurological disease in the past, there is an increased risk that you will be treated for these disease in the future.  Many diseases increase in prevalence as we age so older people tend to consume a disproportionate share of healthcare resources.  The fact half of healthcare resources are targeted to a relatively small fraction of the population is actually a good thing.  It says that the majority of the population is healthy and does not need a lot of medical care.

If you really want to get upset about unequal distribution of resources, think about fire departments.  Virtually 100% of fire department spending is consumed on the 0.01% of buildings that are on fire.  If owner of buildings on fire had to make a high co-pay before sounding the alarm and fire departments needed prior authorization before responding, we could greatly reduce expenditure on fire departments.  Of course, that would mean fire departments weren’t serving their fundamental role which is the point.

GME Slot Allocation: Why We Have the Physician Distribution We Do

There has been a lot of discussion of graduate medical education (GME) funding in response to a recent IOM report.  Basically, under the current system Medicare wites a blank check to academic training centers based on the number of GME positions they have.  An issue not discussed is how institutions allocate GME slots between different training programs.  The way training positions are allocated determines the number of primary care physicians and the mix of specialists vs. subspecialists in the physician workforce.  Slot allocation is, therefore, a critical issue in healthcare policy.

Changes in GME Slot Allocation

The number of GME training positions has increased only 17% over the past two decades, but there have been significant changes in the allocation of GME slots between primary care and medical specialties and between specialties and subspecialties.  The allocation of GME training programs and residents are summarized in Table 1 (data from Brotherton and Etzel 2002,  Brotherton and Etzel 2008, and Brotherton and Etzel 2013)

Programs Residents
Year Specialty Sub- specialty Total Specialty Sub- specialty Total % Sub-specialty
1995 4356 3301 7657 86299 11736 98035 12.0%
1996 4351 3436 7787 86320 11756 98076 12.0%
1997 4368 3493 7861 86421 11722 98143 11.9%
1998 4331 3561 7892 85631 11752 97383 12.1%
1999 4268 3678 7946 85460 12529 97989 12.8%
2000 4228 3757 7985 85081 11725 96806 12.1%
2002 4176 3888 8064 85368 12890 98258 13.1%
2003 4169 4023 8192 86357 13607 99964 13.6%
2004 4151 4095 8246 86975 14316 101291 14.1%
2005 4149 4254 8403 88241 14865 103106 14.4%
2006 4134 4368 8502 89269 15610 104879 14.9%
2007 4119 4470 8589 89618 16394 106012 15.5%
2008 4100 4594 8694 90907 17269 108176 16.0%
2009 4128 4745 8873 91963 17877 109840 16.3%
2010 4131 4836 8967 93153 18433 111586 16.5%
2011 4152 4959 9111 94486 18941 113427 16.7%
2012 4207 5180 9387 94990 20121 115111 17.5%
1995 to 2012 -3% 57% 23% 10% 71% 17%


The number of specialty programs has decreased form 1995 to 2012, but the number of subspecialty programs has increased by 57%.  The total number of residents has increased 17% over this time period with a 10% growth in the number of specialty residents and a 57% increase in the number of subspecialty residents.  As a percentage of the total, the fraction of GME slots devoted to subspecialty training has increased from 12.0% in 1995 to 17.5% in 2013.  Similar results are reported by Wynn et al

Looking more closely at recent data, in specialty training programs, from 2008 to 2012 the total number of positions increased by 6.4% while the fraction of slots devoted to primary care specialties has increased by 3.5%.  Despite repeated calls for increasing the number of primary care physicians over the past several decades, the fraction of GME training slots devoted to training primary care physicians has actually fallen from 36.6% in 2008 to 35.6% in 2012.

2008 2012 Change
Family med 9353 9934 6.2%
Internal med 22132 22710 2.6%
Pediatrics 8089 8332 3.0%
Total primary care 39574 40976 3.5%
% primary care 36.6% 35.6%
Pathology 2312 2282 -1.3%
Radiology 4455 4438 -0.4%
Surgery general 7712 7828 1.5%
Orthopedic surgery 3303 3501 6.0%
OB/Gyn 4815 4931 2.4%
Anesthesiology 5208 5507 5.7%
Emergency medicine 4750 5458 14.9%
Cardiology 2589 2718 5.0%
Interventional cardiology 240 300 25.0%
Hematology/ Oncology 1393 1531 9.9%
GI 1292 1407 8.9%
Dermatology 1069 1191 11.4%
Opthalmology 1220 1343 10.1%
Total 108176 115111 6.4%

Large increases are seen in some subspecialties including emergency medicine, interventional cardiology, dermatology and ophthalmology.  Non direct patient care specialties including pathology and radiology have seen an absolute decrease in resident positions and most surgical specialties have not kept pace with the overall growth in the number of residency positions.

The Resident Cap

The Balanced Budget Act of 1997 (BBA) fixed the number of medical residents that would be funded by Medicare indirect medical education (IME) and direct graduate medical education (DGME) reimbursement at the number for each hospital in 1996. The cap was modified in 1997 to exclude consideration of podiatry and dental residents, and in 1999 the  Balanced Budget Refinement Act (BBRA) increased the limit for rural teaching hospitals to equal 130% of each rural teaching hospital’s 1996 resident count (source AAMC).

From 2002 to 2012, there has been a gradual increase in the total number of GME training positions.  This may be the result of funding from sources other than Medicare, or institutions funding additional slots with internal resources.  It also reflects a shift toward fellowship training which is partially supported by the institution and partially funded by Medicare or Medicaid.

Direct Financial Impact of GME Programs

The financial impact of GME programs  has been examined recently (Wynn et al., 2013).  Table 3-1 from their work is reproduced below.

Direct financial costs/savings may be part of the reason primary care training positions have not kept pace with overall growth in training positions.  Primary care training programs are a burden on faculty time in outpatient clinics and residents do relatively little to save the institution money.  On the other hand, these direct costs do not explain the lack of growth in surgical programs and predict that dermatology would shrink rather than showing the dramatic expansion that has been observed.


Indirect Financial Impact of GME Programs

It is difficult to study individual programs or medical specialties in isolation.  For example, hospital and specialty clinics generated $7.23 of charges for every $1 of charges in primary care (Saultz et al., 2001).  The rapid growth in emergency medicine programs may reflect these indirect financial impacts.  Emergency rooms (ER) are literally the gateway to most hospitals with many centers moving to a model where all admissions are processed through the ER.  ERs not only generate significant revenue themselves, they are also key drivers of revenue across the institution.

Marketing and Advertising

As noted by Wynn et al, having GME training programs enhances an institution’s reputation, and essentially all of the top ranked hospitals nationally have GME training programs in a wide range of specialties and subspecialties.  Priorities in marketing may explain some of the changes that have occurred in GME slot allocation.

Reward for Faculty/Departmental Contributions to the Institution

In an academic center, training slots are an important currency for faculty recruiting and retention.  Faculty are motivated by their desire to be involved in training and in many cases forgo significant personal income as a result of their decision to pursue an academic career.  It follows that the size of a training program is a key consideration for faculty in choosing between institutions.  Further, both department size and training program size correlate strongly with national rankings across a wide range of academic disciplines.  A reasonable hypothesis is that hospital administration award training grant slots in part to reward faculty and departments that are benefitting the institution.


In the past, the number of available GME training slots exceeded the number of US medical graduates and many GME slots, particularly in primary care specialties, went unfilled.  With the growth in MD, DO and offshore medical degree programs, the number of medical graduates now significantly exceeds the number of available GME training slots and essentially all positions are filled.   Programs may once have been unwilling to expand primary care training programs because they could not fill their existing programs.  High applicant demand may still motivate expansion of some training programs, but lack of demand is no longer a major issue.


The need for an increase in the number of primary care physicians has been widely discussed for several decades.  Despite widespread agreement that healthcare would benefit from increased numbers of primary care physicians, the absolute number of GME training slots devoted to primary care specialties has not kept pace with the increase in total number GME training positions.  The proportion of positions dedicated to training subspecialists has increased with notable growth in interventional cardiology, emergency medicine, dermatology and ophthalmology.  The subspecialties that have increased disproportionately are all hospital based or make extensive use of hospital resources and all generate substantial financial returns for hospitals.

While non-patient contact specialties like radiology and pathology are hospital intensive, these services do not generate demand.  Rather they provide services requested by other physicians.  With improvements in imaging and analytic technology, the productivity of physicians in these non-patient contact specialties has likely improved meaning that hospitals do not need to expand these programs to meet demand.

The changes in GME slot allocation appear to reflect the needs of hospitals rather than the needs of the broader community.  Shifting the distribution of training slots to better address the needs of the community and Medicare/Medicaid system could improve the overall efficiency and effectiveness of the healthcare system.

Brotherton, S. E., and Etzel, S. I., “Graduate Medical Education, 2011–2012,” Journal of the American Medical Association, Vol. 308, No. 21, pp. 2264–2279.

Brotherton, S. E., and Etzel, S. I., “Graduate Medical Education, 2008–2009,” Journal of the American Medical Association, Vol. 306, No. 9, 2009, pp. 1015–1030.

Brotherton, S. E., Simon, F. A. and Etzel, S. I., “Graduate Medical Education, 2000–2001,”Journal of the American Medical Association, Vol. 286, No. 9, 2001, pp. 1056–1060.

Saultz, J. W., McCarty, G., Cox, B., Labby, D., Williams, R., and Fields, S. A., “Indirect Institutional Revenue Generated from an Academic Primary Care Clinical Network,” Family Medicine, Vol. 33, No. 9, 2001, pp. 668–671.

Wynn, B. O., R. Smalley, and K. Cordasco. 2013. Does it cost more to train residents or to replace them? A look at the costs and benefits of operating graduate medical education programs. Santa Monica, CA: RAND Corporation. http://www.rand.org/pubs/research_reports/RR324 (accessed October 14).