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.