Executive summary: Residency expansion affects more than payroll. A complete model includes variables beyond training costs, such as CMS support, clinical quality improvements, service-line coverage efficiencies, research funding and peer benchmarking, recruitment savings, and post-residency graduate retention. The model should use specific data and assumptions unique to your region, payer mix, and operational structure. Accounting for the combined tangible and intangible value of an expansion is crucial to developing an accurate, personalized understanding of your health system’s residency expansion economics.
Define the incremental decision
If you are starting your first residency program, first review the requirements for starting and funding a new program. If you already have residency programs, be clear about the expansion’s size and scope. Will it occur in an existing specialty? Is there enough faculty FTE to support it? Once you know how many residents and which specialties are involved, model three key features: training costs, tangible benefits, and intangible benefits.
Avoid allowing historic GME revenue or fixed overhead to distort the analysis. An expansion will fundamentally alter residency economics regardless of specialty.
Calculate the full training cost
Include resident compensation, benefits, faculty time, coordinator and GME administration, malpractice, recruitment, education, technology, and facilities.
The 2025 AAMC stipend survey reported an unweighted PGY-1 average of $68,166 and a weighted PGY-1 average of $70,685. Use local payroll in the final model. Depending on your region, housing stipends may also be necessary as part of a resident benefit package.
Separate fixed costs from incremental costs. A large program may absorb one resident without another coordinator, while a larger class increase may not. Integrated delivery systems with established programs can benefit from economies of scale in areas such as malpractice coverage, program coordination, and compliance.
Build a complete view of what it costs to graduate a class from the start to the end of training. Expressing that cost per resident is often useful for the financial modeling that follows.
Calculate Medicare support when applicable
Depending on payer mix, an integrated delivery system may be eligible for CMS support. CMS calculates direct graduate medical education using the hospital’s per-resident amount, weighted resident FTEs, and Medicare patient load. Indirect medical education uses a separate inpatient adjustment that includes the resident-to-bed ratio.
Classify every proposed FTE as below cap, supported by a special allocation, above cap, or uncertain. The U.S. Government Accountability Office found that 70% of hospitals with residency programs trained above at least one Medicare cap in 2018. Do not apply average GME revenue per resident to an above-cap position.
Add Medicaid and non-Medicare funding
Review state Medicaid GME policy, state appropriations, grants, philanthropy, and private funding. The right funding combination is health-system and region dependent. Thirty-five states reported $4.9 billion in Medicaid GME supplemental payments in fiscal year 2022, according to MACPAC’s hospital payment analysis.
Assign full value only to committed funding. Probability-adjust competitive sources and show the assumption.
Review the residency economics
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Model clinical economics conservatively
Use collectible revenue or contribution margin, not gross charges. Model professional and facility benefits, as well as ancillary and coverage benefits. All four can be directly affected by an expansion and must be conservatively modeled.
For procedural services, prevent double counting across professional, facility, imaging, pathology, and other downstream categories. Each category is specialty dependent. Even when GME billing is not structured to show this resolution directly, a holistic view of tangible and intangible resident value can be developed from payer mix, patient volume, clinical operations, and curriculum requirements.
Price coverage changes with actual invoices
Use current costs for locum tenens, advanced practice providers, moonlighting, premium shifts, external call coverage, or overtime when the expansion can replace them. Also consider the cost of attending time spent on nonclinical activities that residents support, such as documentation.
Add physician recruitment and retention
AAPPR reported a median physician time to fill of 118 days in its 2025 benchmarking report. The AAMC 2025 Report on Residents reports that 55.7% of 2015-2024 residency graduates practice in the state where they trained.
Use your institution’s own graduate retention rate when available. Value successful hires against recruiting costs, vacancy time, temporary coverage, and turnover. A resident who stays as an attending can create substantial value, making residency expansion an investment in the workforce development pipeline.
Build a five-year pro forma
Model the full class ramp until steady state. For specialties longer than five years, and for BeaconGME early-career track fellows, it may be helpful to project farther.
Stress-test the proposal
- Downside: uncertain funding, no graduate retention, conservative clinical attribution, and higher faculty cost.
- Base: realistic, institution-specific assumptions.
- Upside: stronger utilization and retention.
The downside case shows whether the expansion depends on optimistic assumptions.
Classify the investment
- Financially accretive.
- Strategically justified with a subsidy.
- Mission justified with a subsidy.
- Economically unsupported at current assumptions.
Finance can approve any of the first three when the rationale is clear. The model should not disguise a subsidy as an ROI claim.
Apply the framework to your positions
BeaconGME can apply this framework to qualifying proposed positions using hospital-specific funding, workforce, and operating assumptions.
Sources
- Association of American Medical Colleges: AAMC Survey of Resident/Fellow Stipends and Benefits.
- Centers for Medicare & Medicaid Services: Direct Graduate Medical Education.
- Centers for Medicare & Medicaid Services: Indirect Medical Education.
- U.S. Government Accountability Office: Caps on Medicare-Funded Graduate Medical Education at Teaching Hospitals.
- Medicaid and CHIP Payment and Access Commission: Medicaid Base and Supplemental Payments to Hospitals.
- Association for Advancing Physician and Provider Recruitment: 2025 physician recruitment benchmarking.
- Association of American Medical Colleges: 2025 Report on Residents.
