The debate over Medicare payments for graduate medical education has been c
onducted under the premise that such payments cover the added costs of trai
ning. Standard economic theory suggests that residents bear the costs of th
eir training, implying that the additional costs of teaching hospitals are
not attributable to training per se but to some combination of a different
patient care product, unmeasured case-mix differences, and the costs of cli
nical research. As a result, payment for the additional patient care costs
at teaching hospitals should come from the Medicare trust fund; any subsidi
es for training should come from general revenues.