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Equal Pay for Equal Work?

Everyone suffers when residents’ pay falls short

The New Physician January-February 2010
MoneyIndividuals who perform equal work on jobs that require substantially equal skill, effort and responsibility, are performed under similar working conditions, and are within the same establishment should receive equal compensation. This principle is embodied in the Equal Pay Act of 1963, which arose to address the power imbalance between women and their employers.

Today, teaching hospitals, as employers, pay resident physicians much less than physician assistants for very similar work. In 1999, the National Labor Relations Board ruled that while residents “may be students learning their chosen medical craft, [they] are also ‘employees.’” Residents bear responsibilities of employees, but teaching hospitals deny them fair compensation. Simultaneously, teaching hospitals receive multibillion-dollar taxpayer subsidies with limited accountability.

Through policy and cultural changes, teaching hospitals should be held accountable to provide equitable pay that will reduce the financial burden on residents, advance the profession and improve patient care.

Teaching hospitals have long paid resident physicians little. Over the last 15 years, the growth of resident compensation has minimally outpaced inflation and has been far surpassed by increases in medical school tuition. In response to Accreditation Council for Graduate Medical Education limits on resident work hours, teaching hospitals have hired physician assistants and other “replacement residents.” Under an attending physician’s supervision, physician assistants and residents frequently care for, manage or cover the same patients. Unlike physician assistants, residents quickly assume increasing levels of patient care responsibility such that by the end of their residencies they are overseeing other residents and, often, physician assistants.

Still, teaching hospitals pay physician assistants much more than residents. According to the American Academy of Physician Assistants, the average compensation for first-year physician assistants is $73,000. The average for all full-time physician assistants is $86,000. By comparison, the average compensation for first-year residents is $45,000, and $48,000 for third-year residents, according to the AAMC Survey of Housestaff Stipends, Benefits and Funding.

Economic theory holds that residents should implicitly pay for the cost of the training that they receive through residency. According to Becker’s theory of human capital, the wages of residents should be the value of the patient care they provide less the training costs that they receive. However, teaching hospitals frequently provide physician assistants with many of the same educational experiences that residents receive, including daily morning reports and the resident lecture series. More importantly, teaching hospitals receive large taxpayer subsidies explicitly to cover the costs of training residents. Through Medicare, teaching hospitals receive more than $8 billion a year in graduate medical education payments, which cover costs of training residents, including their salaries, faculty salaries and the administrative costs associated with running a residency program. Teaching hospitals receive an additional $3.5 billion annually from Medicaid and the Department of Veterans Affairs. Averaged over the approximately 100,000 resident physicians, teaching hospitals receive between $80,000 and $115,000 per resident per year from taxpayers.

In essence, teaching hospitals receive subsidies to cover the current salaries of residents and the costs of their training—and retain all of the value of the residents’ labor as surplus.

Low pay bars entry into medicine, affects residents, and drives health care inequalities. The financing requirements of medical education place the profession beyond the reach of middle-class and working-class families. Currently, more than 60 percent of medical students come from the wealthiest 20 percent of families, and less than 20 percent come from the poorest 60 percent. In 2008, according to the Association of American Medical Colleges’ (AAMC) 2008 Medical Student Questionnaire, the average income of parents of medical students was $164,000.

The high debt burden and limited ability to service it also influence residents’ decisions, frequently driving them away from primary care and contributing to the primary care shortage. Given that specialty choice is malleable during medical school and even during internal medicine residency, higher resident pay could free residents to make decisions about specialty choice, including primary care, that are less motivated by financial concerns.

Numerous studies have shown that physicians from underrepresented minorities and rural areas are the ones who are most likely to care for underserved populations, yet these are precisely the same individuals who lack the financial resources necessary to support themselves through medical school and residency. In an AAMC study, otherwise qualified minority college students indicated that the top two reasons for their decision not to pursue medicine are medical training’s cost and long duration.

The principal barrier to equal compensation is the asymmetric relationship between teaching hospitals (including their residency programs) and resident physicians. The National Resident Matching Program prohibits medical students and teaching hospitals from negotiating independently, precludes agreements on specific terms (such as compensation) prior to the Match, and eliminates competing offers for residents. Legal challenges, including the Jung v. AAMC decision in 2004, have made progress in the courts; however, in response Congress advanced teaching hospitals’ interests over those of residents by amending the Pension Fund Equity Act with the statement that “it shall not be unlawful under the antitrust laws to sponsor, conduct, or participate in a graduate medical education residency program.”

Residents also have limited freedom to leave their program and often must rely on their current program in securing a position at a different institution. Reflecting the overall power imbalance, a teaching hospital’s chief financial officer, in response to concerns about the low pay of residents, remarked, “What are they going to do? Leave?”

One solution is to end the anti-competitive Match and allow residents to negotiate among different hospitals for higher pay. While the Match may have served some benefits a generation ago, its utility has long run its course. For example, both higher education and other professions successfully “match” much larger numbers of students to schools and graduates to jobs in a competitive process without having to employ a restrictive matching system.

A second option is to require that teaching hospitals receiving taxpayer subsidies pay free-market wages for resident physicians’ labor. Given recent calls for greater accountability for how teaching hospitals spend public monies and the threats to reduce this funding, linking subsidies to competitive wages for residents or requiring that a certain proportion of graduate medical education payments go to the compensation of residents may be timely.

Teaching hospitals can afford equal pay for residents. A $20,000 increase in wage for the 100,000 resident physicians in the United States amounts to $2 billion per year. While large, $2 billion represents less than 1 percent of the annual budgets of teaching hospitals, a fraction of the subsidies hospitals currently receive; and a small proportion of the economic value of residents.

Higher pay for residents will enable future physicians to make decisions that are less tied to financial considerations, stem the migration of the most talented medical students to oversubscribed specialties, such as dermatology, and help renew interest in areas that are in greater need, such as primary care and geriatrics.

Notwithstanding these benefits, the heart of the argument for equal pay for equal work for resident physicians is fairness. The teaching hospitals’ unequal pay, subsidized by taxpayers, corrodes the souls of residents, undermines the profession and distorts health care. Current health care reform bills largely ignore this inequity and focus more on protecting teaching hospitals from reductions in Medicare-funded residency positions. Reform that addresses this long-ignored inequity can provide lasting benefits for future physicians, the profession, patients and taxpayers.

Dr. Ray Dorsey is an assistant professor in neurology at the University of Rochester. Send comments to