QUITE UNUSUALLY AMONG THE PROFESSIONS, physicians receive an education that is partly subsidized by the U.S. government—a subsidy to the tune of $15 billion per year, which is paid to hospitals to cover costs related to training residents. But that arrangement may be changing.

In July 2014, the Institute of Medicine (IOM) released a 200-page report on the governance and financing of graduate medical education (GME). It addressed a number of long-simmering debates about the current system. Is it producing doctors in the right places and specialties? Is its payment system fair? And should the public be paying for doctors’ education at all?

First there’s the matter of how funds are distributed. An institution’s check is calculated using a complicated formula that hinges upon annual days in the hospital for Medicare patients and the number of residents the institution trained in 1996, when the Balanced Budget Act put a freeze on the number of residency slots eligible for Medicare funding.

This current system is thought to influence where physicians end up and the specialties they choose. Funds that go to large, urban teaching hospitals produce mostly specialists and subspecialists, despite concerns about a growing shortage of primary care physicians and the need for more caregivers in underserved areas. The roots of this trend in specialization go beyond GME funding, however, and by most accounts will continue as a byproduct of an ever-increasing body of medical research that requires ever-more specialized training. But those who would reform the current GME system argue that public funds might be used to train more residents in primary care settings and geographic areas with insufficient access to care.

The IOM report calls for a more straightforward payment approach, and one that links payments to outcomes. Hospitals would receive one per-resident payment amount. A new “transformation fund” would be available to help develop ways to improve educational quality and efficiency, and to advance policy objectives. For instance, accredited residency programs could apply for funding for new resident slots, such as pediatric residencies, which had been underrepresented under the old system, or residencies in underserved areas.

The report also carries a distinct message that GME funds may not be around forever. President Obama has already sought to cut indirect payments—a sizable percentage of the federal funding intended to cover expenses associated with the GME programs—by about 10% a year for a period of 10 years. The report proposes capping Medicare’s GME funding at current levels for 10 years and then reassessing the provision of federal funds for GME. What happens in year 11 is anyone’s guess.

Critics of the IOM report—and there are many, including the Association of American Medical Colleges (AAMC) and the American Hospital Association (AHA)—are most worried about its grim implications for future funding. The AAMC also points out that the cost of training a resident is far greater than the federal government pays in GME funding, and that teaching hospitals already shoulder the majority of costs. Moreover, technically intensive specialties, such as thoracic surgery, require extensive training. Specialty certification groups fear that the IOM’s recommendations will dangerously shortchange future doctors and their patients.

Debate about the future of GME continues, and there is no ticking clock on the IOM’s proposal, meaning stakeholders will have time to continue to hash out their stances on what any future GME system will look like. “We need to compare different ideas and end up with an evidence-based approach for how we deliver this education and how we fund it,” says Debra Weinstein, vice president for GME at Partners HealthCare and a member of the IOM committee that issued the report. “We need to ensure that we are providing the best possible return on the public’s investment.”