Executive Summary: Medicare supports graduate medical education through two major mechanisms: Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME). Both use hospital-specific rules and FTE limits. ACGME complement approval does not create Medicare funding, and an added resident may produce little or no incremental DGME/IME Medicare payment when a hospital is above cap.
DGME supports direct training costs
CMS calculates DGME using the hospital’s updated per-resident amount, weighted resident FTE count, and Medicare patient load. [1]
The per-resident amount (PRA) is a hospital-specific Medicare value. It is not the resident’s salary.
Weighted FTE rules also matter. A resident on the roster does not automatically equal one reimbursable FTE for every payment calculation.
The Medicare patient-load component creates another source of hospital-to-hospital variation.
IME is a separate inpatient adjustment
IME does not reimburse a list of educational expenses. It increases certain Medicare inpatient payments for qualifying teaching hospitals.
CMS calculates the adjustment using a formula that includes the hospital’s resident-to-bed ratio. [2]
Keep IME separate from DGME in every expansion model.
Medicare caps limit funded resident FTEs
Congress established hospital-specific limits on Medicare-funded residents in the Balanced Budget Act of 1997. GAO explains that hospitals can train above those limits, but the added residents do not automatically receive additional Medicare GME payment. [3]
GAO found that 70% of hospitals with residency programs trained above at least one cap in 2018. [3]
That figure helps explain why teaching hospitals use Medicaid, institutional funds, grants, philanthropy, and private sources alongside Medicare.
A teaching hospital has only a few ways to increase the number of Medicare-supported residency positions it can fund. A hospital with an existing residency program can create a new program that meets Medicare’s regulatory definition of “new.” A hospital without a residency program can start its first program. Urban hospitals can also create Rural Training Tracks that train residents in rural communities.
The other major path is through Congress, which can authorize additional Medicare-supported residency positions. Congress recently added 1,000 new positions, distributed at a rate of 200 per year over five years. Priority is given to hospitals in rural areas, hospitals already training residents above their Medicare cap, hospitals in states with new medical schools, and hospitals serving underserved communities.
Unsure what Medicare will cover for your next resident?
BeaconGME can model the proposed FTEs against the hospital’s cap position and other available funding.
ACGME complement and Medicare cap are different
ACGME approves the maximum resident complement that a program can train. Review Committees assess whether the program has enough clinical and educational resources. [4]
Medicare applies payment rules to the hospital.
A program can therefore receive ACGME approval to expand without receiving a matching increase in Medicare-funded FTEs.
Congress has created limited cap increases
Section 126 of the Consolidated Appropriations Act, 2021 created 1,000 additional FTE cap slots. CMS distributes them in annual rounds of no more than 200. [1]
CMS awarded the fourth 200 slots for fiscal year 2026. [5]
Section 4122 of the Consolidated Appropriations Act, 2023 added 200 more FTE cap slots beginning in fiscal year 2026. At least 100 support psychiatry or psychiatry subspecialty programs. [1]
These programs can change the economics for eligible hospitals. They do not remove the need for a hospital-specific model.
Avoid 5 Easy-to-Make Modeling Errors
Using average GME revenue per resident
Average historic payment can differ from the incremental payment on the next FTE.
Combining DGME and IME
The mechanisms behave differently and should remain separate.
Treating ACGME approval as Medicare funding
Accreditation and reimbursement are separate systems.
Ignoring Medicaid
State Medicaid GME can materially affect the remaining gap. Thirty-five states reported $4.9 billion in supplemental Medicaid GME payments in fiscal year 2022. [6]
Ending the analysis at Medicare
A position can still be strategically or financially sound when Medicare does not fully fund it. The full model includes costs, other reimbursement, clinical effects, coverage, and workforce value.
Use an incremental payment worksheet
For every proposed FTE, record:
- program and PGY
- training location
- expected DGME treatment
- expected IME treatment
- cap status
- Medicaid effect
- other recurring funding
- remaining annual gap
This creates a clean bridge between the GME roster and the finance model.
Planning an expansion?
BeaconGME offers free reviews of position-level funding before you present the proposal to finance.
Sources
[1] Centers for Medicare & Medicaid Services. Direct Graduate Medical Education (DGME).
[2] Centers for Medicare & Medicaid Services. Indirect Medical Education (IME).
[3] U.S. Government Accountability Office. Physician Workforce: Caps on Medicare-Funded Graduate Medical Education at Teaching Hospitals.
[4] Accreditation Council for Graduate Medical Education. Guide to the Common Program Requirements: Resident complement.
[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.
