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State-Supported Physician Residency Programs

Written by Dr. Ramon Martinez
Published on February 10, 2023
Research Highlights

Federal funds support most medical residencies and usually specify where mentorships occur.

Several states provide additional residency funding through budget allocations, taxes and/or grant incentives, which can increase rural healthcare supply.

State residency funding can reduce costs to healthcare providers, but there is not enough data to quantify the extent of cost savings.

States fund less than 12% of medical residencies.

About 86% of U.S. medical residencies are federally funded through Medicaid, Medicare, and Veterans Affairs; remaining funds come from state matching of federal Medicaid funds (less than 12%) and hospitals and philanthropic sources (2%) (GAO 2018). In 2018, 14% of medical residents in Missouri were supported by non-Medicare funds (AAMC 2018).

  • Federal payments cover regional salary and education costs (between $38,000-150,000 per resident). The average U.S. medical resident salary is $61,000.
  • Federal funding for medical residencies remained the same between 2003-2019 (Grischkan 2019).

Projected physician shortages over the next decade, largely caused by retiring physicians and an aging population, are expected to disproportionately impact rural areas. To learn more, read our Science Notes on Medical Residency & Rural Physician Training Grants.

  • Federal funds support residencies at teaching hospitals, medical schools, or community-based training sites; community-based training sites; more than 93% of teaching hospitals are in large cities (He 2021; GNYHA 2021).
  • Because most rotations occur in training hospitals, many community-based care sites that offer practical training are ineligible for direct federal reimbursement.

State residency funding can increase healthcare access.

While 19% of Americans live in rural areas, 11% of physicians currently practice and 3% of medical students plan to practice in rural areas. Residents who come from rural areas, train in family practice, rotate in rural communities, or take courses that incorporate rural health elements are most likely to practice as physicians in rural areas (NASEM 2014).

In 2016, CA approved a one-time, $100 million budget allocation to support 78 residencies in family medicine, pediatrics, internal medicine, and obstetrics/gynecology for three years. The program is partially maintained ($2.5 million annually) by fees on hospitals, skilled nursing facilities and long-term care facilities. Another $40 million is supported annually by a permanent cigarette tax approved in a 2016 CA proposition.

  • Doctors funded by these residency funds are trained at sites in underserved areas, and are 40% more likely to choose to practice as a physician in health professional shortage areas (CA Grants 2022; CHCF 2019)

In 2017, TX approved a one-time, $53 million expansion in grant programs to sponsor over 160 medical residencies and their mentors.

  • After 5 years, TX had 10% more residency slots than graduates in-state.
  • Overall, residents in this program are twice as likely to select family practice, and mentors are 40% more likely to teach family practice residents (Nieman 2004).

Three states (NY, MI, MN) use grant incentives for training hospitals to (1) apply and sponsor resi-dencies in emergency care in underserved areas, (2) diversify the resident pool, (3) incorporate web-based teaching and assessment tools for residents not on site, or (4) reapportion funds for hospital systems to support residencies at branch sites. These funds use a federal, state and private discretionary funds (HHS 2006; Colletti 2013).

Benefit analyses for residency funding often characterize trends, but not exact values.

It is difficult to quantify the benefits of supporting medical residencies (Figure 1) as:

  • Medicare funds only require reports of total costs, number of trainees, hours on rotation, and patient-physician ratios (NASEM 2014).
  • States do not always collect information on residency funding (Henderson 2021).
  • Hospitals are not always required to report metrics such as how much they collect in hourly per resident fees (Henderson 2021).

From 2012-2021, 55% of physicians practiced in the state where they did their residency, 2% less than the previous 10-year window (AAMC 2022). Federal support for community-based resi-dencies can increase access to practical clinical experience and expand the number of billable services for smaller clinics.

In IN, for example, community clinics generate annual economic benefits of $200,000 per resident and $1.5 million per practicing physician due to better care coordination, fewer unnecessary hospitalizations, and closer medical access (IN MEB 2017). 51% of those who complete undergraduate and medical training in-state remained for residency (IN MEB 2017).


Figure 1. Relative financial impacts of residency programs on care and health costs for hospitals. Net savings (down arrows) and net costs (up arrows) per resident, where darker shading indicates a greater magnitude change. Double-sided arrows signify costs for some hospitals, and benefits for others. Data from RAND 2013.


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