What does not explain the variation in the direct costs of graduate medical education

Background. There is considerable variation in the costs of training residents across hospitals. Previous studies have reported training costs that range from $7,500 to $200,000 per resident, with means in the $50,000 to $60,000 range. This paper examines the factors associated with the variation in the direct costs of residency education across hospitals. Method. Hospital costs, hospital payment rates, various cost-of-living indices, and hospital characteristics for all hospitals in the United States receiving Medicare funds for residency education in fiscal year 1991 were obtained from various public sources. Bivariate and multivariate analyses were performed to determine whether organizational structure of residency training, specialty mix of residents, quality of training, cost of living in the geographic area, patient mix of the hospital, or other factors could explain some for all of the cost variation. Results. Only a small proportion of the variation in the costs of training residents or payments for residency education could be explained by the factors analyzed. Conclusion. Much of the current variation in residency costs and payments is attributable to accounting and not structural or locational factors. Institutions looking for ways to become more efficient could compare costs of training across institutions without sophisticated adjusters. Federal policymakers should consider a national payment rate per resident to replace the current system based on hospital- specific costs. This proposal would redistribute dollars across residency programs. The proposal would affect payments for direct medical education in the Medicare program and could form the basis for payment for residency education by all payers.