Medicare's Graduate Medical Education program spends more than $21 billion annually to train doctors, but a formula locked in place since the 1990s is sending the money exactly where it isn't needed most. A new analysis from the Niskanen Center published June 17, 2026, finds that the federal government's largest investment in physician training systematically rewards large urban hospitals at the expense of rural areas, depresses primary care training in favor of specialty medicine, and has created a geographic mismatch so severe that states like Montana receive $7,000 per 1,000 residents while New York gets $120,000—more than 17 times as much. The report argues that reforming how the formula works, not just adding more training slots, is the most direct path to building the physician workforce Americans actually need.
Between 2013 and 2023, the Northeast region captured 39 percent of all GME funding despite having only 17 percent of the U.S. population, while the South—the most populous region at 38 percent—received just 24 percent of funding. The report shows that only 4 percent of all U.S. medical residents spent more than half their training in rural areas, even though 20 percent of Americans live in rural communities and only 9 percent of physicians practice there. Nevada and Idaho, whose populations grew 19 percent and 23 percent respectively between 2010 and 2023, train just 20 and four residents per 100,000 people—among the lowest rates in the nation. Since 2000, GME funding has expanded specialist training positions 2.4 times faster than primary care positions, and last year over 9,500 medical graduates couldn't be matched to residency programs solely because of limited slots. Rural areas experienced an 11 percent net loss of family physicians between 2017 and 2023, and 42 percent of all doctors are now over age 55, with rural doctors averaging a year older than their urban counterparts.
The report's authors write that Medicare's GME payments "were never designed to shape the physician workforce" but have become "the federal government's single most important lever on where doctors train, what specialties they enter, and ultimately where they practice." According to the analysis, the formula's structural problems stem from three key features: it ties the largest portion of funding—71 percent, or $15 billion—exclusively to inpatient hospital discharges, even though outpatient visits grew 31 percent between 2000 and 2023; it uses a resident-to-bed ratio that systematically penalizes rural hospitals, which operate more beds relative to their training programs; and a 1997 cap froze each hospital's funding at 1996 levels, locking in advantages for institutions that were already well-resourced. The report finds that the top 5 percent of teaching hospitals receive funding adjustments exceeding 33 percent, while the bottom 5 percent get less than 0.3 percent. The authors note that when Congress created 1,000 new Medicare-funded positions in 2021—the first real increase since 1997—most still went to large urban hospitals already among the biggest recipients, with fewer than 5 percent reaching geographically rural hospitals.
The formula creates these imbalances because it treats procedure volume and cost as proxies for training costs, even though the Medicare Payment Advisory Commission has estimated the current multiplier generates payments up to twice what's empirically justified. A hospital that performs expensive procedures receives larger payments, which subsidize training more residents, which generates more procedures—a self-reinforcing cycle that has nothing to do with where doctors are needed. The inpatient-only structure means a hospital expanding primary care training, which happens largely in outpatient clinics, generates little additional revenue, while one expanding cardiology or oncology collects larger payments with every discharge. The 1997 cap made this worse by freezing the distribution of federal support just as the physician shortage was beginning to deepen. Over 80 percent of large programs now fund slots above their caps using other revenue, while only 23 percent of small programs can do the same. Rural programs face an even steeper climb: only 37 percent fund more slots than Medicare reimburses, compared with over 50 percent of urban programs. Hospitals trying to start their first training program spend an estimated $2 million to $8 million over three to seven years before Medicare begins making payments, a barrier large academic centers cleared decades ago.
The report outlines four budget-neutral reforms Congress could pursue: extending funding to outpatient settings where care is actually delivered, which modeling shows would benefit 70 percent of rural hospitals; redirecting payments toward states with genuine physician shortages by reducing funding in oversupplied areas; increasing payment rates for primary care residency slots to reverse the 2.4-to-1 growth advantage specialists currently enjoy; and front-loading funding for new programs so smaller and rural hospitals can afford the startup costs. The authors emphasize that lifting the 1997 cap without fixing the underlying formula would simply send new slots to the same large urban programs that have benefited for decades. With America's doctor shortage projected to reach 86,000 over the next decade—potentially exceeding 100,000 if underserved populations used healthcare at rates similar to suburban areas—the report argues that Congress has a $21 billion lever it hasn't yet used deliberately. The same formula that has reinforced concentrations for 40 years can become a tool for building the workforce patients need, but only if policymakers stop treating size and procedure volume as measures of merit.