Medicare GME funding reform debate focuses on rural hospitals

Better-targeted funding is essential to ensure the clinical talent pipeline meets the needs of hospitals in rural and underserved areas, according to insights at a recent congressional hearing.

Phelps Health, a rural Missouri hospital, has benefited from federal and state planning and development grants that enabled the launch of a family medicine residency with enhanced training for obstetricians.

But that support is not enough, testified Jason Shenefield, president and CEO of the hospital, which serves 200,000 residents across six rural counties, all of which are designated as primary care Health Professional Shortage Areas (HPSAs).

“We are seeing firsthand the startup grants are necessary but not sufficient,” Shenefield said during a Feb. 24 hearing of the House Ways and Means Committee’s Subcommittee on Health.

For example, accreditation requirements for the program translate to build-out costs of between $5 million and $7 million.

“For a health system operating on approximately a 2% margin, that level of investment is significant,” Shenefield said. “Without additional flexibility, programs can stall before the first resident ever arrives.”

Shenefield hopes Congress can enact flexible bridge funding to cover gaps between initial planning grants and full program launch, including for the infrastructure needed to accommodate clinical and teaching space and the startup staffing required for accreditation and resident support.

How current GME formulas disfavor rural hospitals

“When thin margins, high-need populations and outdated funding formulas intersect, rural hospitals are asked to shoulder disproportionate risk in building the very workforce pipelines our communities depend on,” Shenefield said.

Among potential solutions, when rural hospitals start a new residency program, they should have the option to update their per resident amount to reflect current training costs rather than outdated historical data.

“While Congress has provided opportunities to reset resident caps, there’s currently no pathway to modernize outdated per resident amounts,” Shenefield said.

That and other limitations with the GME formula can “frustrate GME development in smaller hospitals and community-based institutions,” said Thomas Mohr, DO, vice president of medical affairs and dean of the College of Osteopathic Medicine at Sam Houston State University.

Community hospitals are eager to build sustainable pipelines, he added, but they need stronger financial predictability. Improvements should be made to policies around per-resident allocations and slot distribution, Mohr said, echoing Shenefield, and funding should be more flexible based on workforce needs and demographic changes.

One thing that may not be a problem is the sheer number of available slots nationally, said Rep. Greg Murphy (R-N.C.), noting that prior-year appropriations bills created 1,200 slots, including 400 that were allocated in December.

A way to gear newly created residency positions toward rural hospitals is to deemphasize HPSA criteria for some slots, said Emily Hawes, PharmD, a director with the Cecil G. Sheps Center for Health Services Research at the University of North Carolina.

The formula as applied to the recently created slots “actually disincentivized some of the rural hospitals with low or no HPSA scores from even applying,” she said.

Benefits and drawbacks of recent GME policy developments

Members of the subcommittee seemed receptive to the ideas proposed by the panelists. Still, recent funding measures have been a mixed bag for clinical workforce training.

The 2026 appropriations bill for HHS included funding through FY29 for the Teaching Health Center Graduate Medical Education program, which trains physicians and dentists in community-based settings, with a focus on primary care. Community health centers, another venue for training clinical professionals, also received a funding extension.

However, the 2025 reconciliation law known as the One Big Beautiful Bill Act included constraints on student loans, such as phasing out a loan program that historically allowed medical students to borrow up to the full cost of attending medical school. There also are newly instituted caps of $50,000 annually and $200,000 lifetime on unsubsidized federal loans.

“That doesn’t even cover the cost of medical school in most cases,” Rep. Judy Chu (D-Calif.) said during the hearing.

The changes will be applied in regulations issued by the Department of Education, which published a proposed rule to that effect in late January.

In addition to the tighter loan limits, a concern for healthcare stakeholders with the rule is the more restrictive definition of who qualifies for the loan amounts available to students pursuing professional degrees. Registered nursing and other non-physician clinical fields do not qualify as professional degrees, but instead as graduate degrees, for which the limits are $20,500 annually and $100,000 in aggregate.

The prospective legislative picture for GME

Among the pending legislative activity in GME, a proposed bill would add 14,000 new Medicare-supported residency slots over seven years, with priority for rural and underserved areas, HPSAs, states with new or expanding medical schools, and hospitals training over their current caps. The result would be a relative shift in slots away from academic medical centers (AMCs) and toward community and rural sites.

“The hope here is that we’re going to be able to have more clarity and certainty in the funding sources that will allow programs and hospitals like Phelps that have a very low margin to say, ‘I’m willing to take the risk because I have a little bit more certainty as far as where that goes,’” Mohr said when asked about the legislation.

Legislative reform of existing rules for the distribution of GME caps should be considered to reduce situations where academic hubs capture dollars tied to rural training sites (e.g., in some rural training track arrangements), Mohr and Hawes indicated.

AMCs “are great and we need them, but it’s not filling in those gaps that you need in Missouri and that I need in Texas,” Mohr said.

Rep. Aaron Bean (R-Fla.) touted an approach of periodically reshuffling GME slots, linking them to the decennial census. Panelists said the idea could have merit but would require studying unintended consequences, especially since building a GME program “takes years of infrastructure,” Hawes said.