Teaching hospitals have been put on notice: The time has come to close the open checkbook. The federal government, mostly through the Medicare program, currently pays hospitals $11 billion a year to train interns and residents. The states contribute another $4 billion through the Medicaid program.

“The scale of government support for this phase of physician education is unlike that given to any other profession,” according to a recent Institute of Medicine report (July 2014). The bipartisan IOM panel concluded that hospitals need to do a better job of producing well-trained physicians to meet today’s needs. The authors note that “a variety of surveys indicate that recently trained physicians in some specialties cannot perform simple procedures often required in office-based practice and lack sufficient training and experience in care coordination, team-based care, and quality improvement.”  To make matters worse, the report found ongoing problems with the unequal geographic distribution of physicians, an excess of specialists, too few primary care doctors, and an overall lack of cultural diversity in the physician workforce.

Instead of funneling money to any hospital with an accredited training program, the IOM panel recommends that funding be “performance-based” and distributed by a “graduate medical education transformation fund.” This GME fund would selectively finance training in “priority disciplines and geographic areas.” Teaching hospitals in the Northeast would be especially hard-hit since they currently receive a disproportionate share of Medicare funding for educating interns and residents.

The panel concludes that simply increasing the number of physicians “is not likely to solve important workforce issues, particularly with regard to specialty distribution or geography.”