An analysis of the cost and revenue of an expanded medical residency

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Abstract
Objective: To analyze the additive costs and revenues resulting from expansion of a medical residency and associated subspecialty programs. Methods: Direct and indirect costs of the residency program were analyzed as was reimbursement for the costs of the residency. To determine whether expansion of the residency affected cost of care, the authors compared the costs of care on the teaching service and nonteaching services. Results: The number of residents increased from 18 medical resident and subspecialty fellows in the 1988 academic year to 36 medical residents and 12 subspecialty fellows in the 1991 academic year. Total measured costs increased by $2,036,570 to $3,911,196. Reimbursement increased to $5,319,117, of which $2,290,221 was attributed to the increase in the number of residents. Net income from the residency after subtracting costs increased by $815,714 to a total of $1,407,971, excluding any higher costs at the authors’ hospital that were an indirect result of the teaching program. Costs for the same diagnosis-related groups (DRGs) were not significantly different on the teaching and nonteaching services. Conclusions: Expanding the medical residency increased the net income available to offset the higher costs per DRG at the hospital. These costs did not increase in proportion to the increase in resident numbers. Increased revenue came primarily from Medicare indirect cost reimbursement. A reduction in this rate from 7.7% to less than 4.1% would have resulted in a net loss for medical education costs. Present reimbursement policy is not aligned with actual costs or public policy goals. This may have undesired effects both now and in the future.