Executive Summary: New residency positions can draw support from Medicare, Medicaid, federal workforce programs, state programs, hospital funds, philanthropy, private sponsorship, and external GME funding. Start with the source that makes the most sense for your health system and expansion goals. Then calculate the amount, timing, restrictions, and duration of every source. BeaconGME can help you acquire privatized funding for residency expansion through our co-investments, reach out to our team here.
Start with the position, not the funding program
Graduate medical education (GME) does not have one funding stream. Medicare remains the largest federal source, but hospital-specific rules limit how much support follows an added resident. In 2023, Medicare paid about $22 billion for GME at more than 1,400 hospitals. [1]
The Medicare cap also does not stop hospitals from training above it. GAO found that 70% of hospitals with residency programs trained above at least one Medicare resident cap in 2018. [2]
Build your funding analysis around a specific proposal. Define the specialty, number of full-time equivalent (FTE) residents, start year, training sites, current cap position, and steady-state program size.
1. Medicare direct graduate medical education
Direct Graduate Medical Education (DGME) helps support direct training costs. CMS calculates DGME using the hospital’s per-resident amount, weighted resident FTEs, and Medicare patient load. [3]
Do not treat DGME as a fixed payment per resident. The incremental payment depends on the hospital and on whether the added FTE can count for payment.
Use DGME first when the position qualifies. It is established federal support.
2. Medicare indirect medical education
Indirect Medical Education (IME) is a separate Medicare inpatient adjustment. The formula includes the hospital’s resident-to-bed ratio. [4]
Model DGME and IME separately. A proposal that combines them into one average payment can hide the effect of the resident cap.
3. Additional Medicare-funded slots
Congress has created limited pathways for new Medicare-supported positions. Section 126 of the Consolidated Appropriations Act, 2021 authorized 1,000 additional FTE cap slots. CMS awarded 200 Round 4 slots for fiscal year 2026. [3] [5]
Section 4122 of the Consolidated Appropriations Act, 2023 created another 200 FTE cap slots beginning in fiscal year 2026. At least 100 must support psychiatry or psychiatry subspecialty programs. [3]
These slots are valuable, but they are scarce. GAO found that demand exceeded supply during the first three Section 126 rounds. [1]
Planning positions that are not fully covered by Medicare?
BeaconGME can provide funding, review the specialty, planned positions, current GME reimbursement, and expected funding gap.
4. Medicaid GME
Medicaid GME varies by state. Some states include GME in base hospital payments. Others use supplemental payments or other state-specific methods.
In fiscal year 2022, 35 states reported $4.9 billion in Medicaid GME supplemental payments. That figure excludes GME amounts embedded in base hospital rates. [6]
For each proposed position, verify whether the state recognizes new FTEs, limits eligible hospitals, favors specific specialties, or depends on annual appropriations.
5. HRSA programs
The Health Resources and Services Administration (HRSA) supports several workforce programs. Eligibility is narrow enough that you should test it before building the budget around an award.
The Teaching Health Center Graduate Medical Education (THCGME) program supports eligible community-based ambulatory patient care centers. Current eligible disciplines include family medicine, internal medicine, pediatrics, internal medicine-pediatrics, obstetrics and gynecology, psychiatry, geriatrics, general dentistry, and pediatric dentistry. [7]
Teaching hospitals and academic institutions are not themselves eligible THCGME applicants unless an eligible community-based entity sponsors the program or consortium. [8]
6. State and local workforce programs
States can fund GME through Medicaid, appropriations, workforce initiatives, rural programs, or specialty-specific programs. Availability changes by state and budget cycle.
Maintain a state funding inventory for every expansion. Record eligibility, deadlines, award duration, matching requirements, and whether the funding recurs.
7. Hospital and department funding
Hospital funding has one advantage that competitive grants do not: the health system can act when leadership approves the expense.
Finance still needs a complete business case. Include resident compensation, benefits, faculty time, administration, program expenses, expected reimbursement, clinical effects, coverage effects, and physician workforce value.
Avoid a salary-only request. The stipend is only one cost line. and does not include programmatic/compliance costs.
8. Philanthropy
Philanthropy can fit programs with a defined community purpose. Examples include behavioral health access, rural physician supply, maternal health, or care for underserved populations.
Define the sustainability plan before accepting time-limited funding. A recurring residency position needs a recurring source after the gift ends.
9. Private sponsorship
Health plans, employers, foundations, community organizations, and other private entities may support GME. ACGME states that GME funding comes from public and private sources, including private entities and the institutions themselves. [9]
Keep the purpose specific. A sponsor can fund a defined workforce objective, while the accredited institution retains responsibility for the program’s education and governance.
10. External GME funding
External GME funding can fit a position that has educational capacity and workforce need but remains underfunded after available public and institutional sources.
Institutions like BeaconGME are designed for that funding gap. Other common sources such as Medicare, Medicaid, or grants exist as well, though these often have their own individual drawbacks, restrictions, and long application cycles.
Compare every source on the same criteria
Use one table for the entire funding plan:
| Criterion | What to document |
|---|---|
| Eligibility | Whether this hospital and position qualify |
| Incremental amount | Funding generated by the added position |
| Timing | When payments begin |
| Duration | One-time, time-limited, or recurring |
| Restrictions | Permitted uses and reporting requirements |
| Probability | Confirmed, probable, or competitive |
| Sustainability | Replacement source after temporary funding ends |
| Remaining gap | Cost left after all reliable funding |
A durable plan can combine several sources. The goal is not to collect the largest number of grants. The goal is to fund a residency position that remains educationally and financially viable.
Have positions you want to add without a complete funding plan?
BeaconGME can estimate the remaining gap and evaluate whether their GME funding fits your institution’s needs.
Sources
[1] U.S. Government Accountability Office. Graduate Medical Education: Information on Initial Distributions of New Medicare-Funded Physician Residency Positions.
[2] U.S. Government Accountability Office. Physician Workforce: Caps on Medicare-Funded Graduate Medical Education at Teaching Hospitals.
[3] Centers for Medicare & Medicaid Services. Direct Graduate Medical Education (DGME).
[4] Centers for Medicare & Medicaid Services. Indirect Medical Education (IME).
[5] Centers for Medicare & Medicaid Services. MLN Connects: Medicare-funded physician residency positions awarded, January 8, 2026.
[6] Medicaid and CHIP Payment and Access Commission. Medicaid Base and Supplemental Payments to Hospitals.
[7] Health Resources and Services Administration. Teaching Health Center Graduate Medical Education Program.
[8] Health Resources and Services Administration. Teaching Health Center Graduate Medical Education Program FAQs.
[9] Accreditation Council for Graduate Medical Education. ACGME Frequently Asked Questions: Funding.
