Financial analysis of a family practice residency threatened with closure.

Family practice residency programs often find themselves needing to fiscally justify their existence to their sponsoring institutions. One such program in a community hospital was threatened with closure, to be replaced by salaried and/or fee-for-service physicians. We present an applied research methodology for comparing the residency budget and revenues with that of a replacement delivery system with no educational mission. The total expenses for nonresidency physicians were projected to be from 10.5% to 25.1% less than the residency budget. Revenues generated by nonresidency physicians were projected to be from 29.4% to 37.6% less than those of the residency, primarily due to the loss of grants and graduate medical education reimbursement through the Medicare program. Proposed reductions in grants and graduate medical education reimbursement threaten the budget/revenue balance of this and other family practice residency programs.

Cost-benefit analyses of California family practice residencies.

Several national commissions have recommended that family practice residency training be subsidized, but without stating how much support is needed. Financial studies of graduate medical education have used the methods of cost allocation or joint-products cost analysis. Previous cost-allocation studies indicate that one third of family practice residency costs are met by extramural subsidy. Cost reports of eight California public hospitals with a single family practice residency program were evaluated for the 1984-85 fiscal year. Discrepancies in the education costs reported to Medicare and those reported in state hospital disclosure reports demonstrate the arbitrary nature of the cost-allocation method. The Medicare medical education reimbursement was an average of $20,444 per resident. State and federal grants provided an average of $5,190 per resident. The Medicare payments and grants met an average of 35.7% of the education costs reported to Medicare. A joint-products cost analysis was used to estimate the pure cost of education in an 18-resident family practice residency. Replacing the residency with salaried physicians would have decreased the hospital's net return by $143,534. If neither grants nor Medicare education payments had been received, elimination of the program would have increased hospital net return by $428,083.