Remove the Regulatory Straitjacket to Solve America’s Physician Shortage

Friday, March 15, is a special day in the lives of most seniors graduating medical or osteopathic school this year. It’s Match Day—the day the results of the National Residency Matching Program (NRMP) are announced, and the students find out where they will take their residency for post-graduate training. Sadly, due to a residency shortfall that is the result of a century’s worth of political tampering at the state and federal level, thousands of seniors will not match, sending them into a jobless limbo—all while many of them are strapped with more than $200,000 in student loan debt.

Every state requires all newly graduated MDs (Doctors of Medicine) and DOs (Doctors of Osteopathy) to complete at least one year of supervised post-graduate training before they are eligible to apply for a license to practice. Unfortunately, the process of matching the graduate to the post-graduate program has become yet another impediment—one of many—that is contributing to a shortage of physicians.

Until the 1950s, medical graduates would individually apply to different hospitals, who then hired them to become interns. They were supervised by a part-time faculty of “attending” physicians largely made up of doctors practicing in the community. The classic internship was 12 months long, and it enabled the doctor to treat common medical, surgical, obstetrical, and childhood diseases. Most doctors up to that time then entered general practice, with a minority taking further specialty training in residency programs. I took a one-year internship program when I graduated medical school in 1967, because I hadn’t yet decided what kind of specialist I wanted to be. (After internship, I went into the U.S. Army as a general medical officer and then entered my residency after being discharged.)

By 1975, the internship was eliminated and subsumed into the first post-graduate year (PGY-1) of a multi-year residency. Nowadays, nearly all physicians specialize, including specialists in Family Medicine, who have largely replaced general practitioners.

With the increase in the size and numbers of both medical schools and residencies, it became increasingly difficult for individual graduates and hospitals to contract with each other. After all, large hospital systems offer residencies in multiple specialties with many dozens of house staff. So in 1952, the American Medical Association (AMA) and the American Association of Medical Colleges (AAMC) formed a non-profit organization called the National Residency Matching Program to centralize the process and optimize the results for both the applicants and the programs. Participants agree to abide by the results of algorithms that match the ranked choice of the applicants and programs to each other. This year, March 15 is the date when those results will be announced.

In 2023, there were 40,616 applicants competing for 37,425 PGY-1 positions. Of these applicants, 27,184 (~67%) were graduates of American medical and osteopathic schools and more than 30% graduated from international medical schools. Only 83% of the total pool was accepted, leaving approximately 7,000 unmatched applicants. Roughly a third of these were able to find an open position through a supplemental application process, but there aren’t enough programs to go around to take care of the rest. Approximately 5,000 applicants were unable to get post-graduate training and therefore unqualified to apply for a license to practice.

We are talking about highly educated people with either an MD or DO behind their name who have successfully completed four years of college and four years of medical school. This wasted talent is a tragedy considering the chronic shortage of healthcare workers. Given the demands of an expanding and aging population, we can expect matters to only get worse: the projected national shortfall of physicians could be as high as 124,000 in ten years.

When I graduated medical school, most of the cost of post-graduate medical education was borne by the hospitals themselves. There were more openings than there were graduates, and everyone got placed. Hospitals justified the meager wages they paid their house staff by claiming they were trainees. Residents and interns were expected to care for indigent patients with uncompensated care costs, taking the load off the attending staff.

After the passage of Medicare in 1965, the federal government began subsidizing hospitals for post-graduate medical education. Taxpayers now paid for better resident salaries, indigent care, and upscaled hospital facilities. Hospitals took advantage of the windfall by increasing the number and size of their post-graduate programs.

By the 1990s, the government became concerned about these bloated programs and unforeseen expenditures, and passed the Balanced Budget Act of 1997, which set limits on the number of federally funded residency positions. Considering that Medicare funds 85% of graduate medical education, this cap essentially created a bottleneck that many policy analysts claim to be the main source of the critical physician shortages that we see today. In a nutshell, the current 2024 medical graduates are competing for the same number of slots as medical graduates who applied for residency positions in 1997.

Recently, states have been scrambling to address this government-manufactured bottleneck, and efforts are being made to utilize the skills of the roughly 5,000 medical graduates who failed to match for a residency program and are now stuck in professional limbo. A handful of states have passed legislation permitting unmatched medical graduates to practice in the office of a supervising physician as an “Associate Physician.” In states like Arizona, this is similar to a transitional training permit for medical graduates to keep using their skills until they get placed into a residency. Unfortunately, this legislation is not serving medical graduates as intended because a significant proportion are unable to find a physician to supervise them.

This law may be better than nothing, but it is currently only half-baked. Also, this cosmetic legislation is not going to solve the shortage of healthcare providers, the increasingly difficult problems of healthcare access, or the high cost of medical care—problems that were bred by an overly politicized, overly bureaucratic healthcare system that emerged from the “progressive” healthcare reforms of 100 years ago. They were designed by and for special interests, and they limit competition and workforce flexibility.

Overall, we are constrained by a regulatory straitjacket that resembles a medieval guild not befitting a modern post-industrial economy. The problem engendered by the National Residency Matching Program is only a symptom of a much larger disease I call Chronic Institutional Sclerosis. Only when we treat the sclerosis will we be able to nimbly take full advantage of the marvelous advances in medical science—and a healthcare workforce that is ready to serve the nation.

Dr. Murray Feldstein is a visiting fellow at the Goldwater Institute. He has practiced as a surgeon for more than 50 years.