The federal government discourages this by paying hospitals for only 1 residency per resident. If a resident does a 2nd residency, the hospital still gets most of the money but not 100%. It's called direct and indirect funds and it establishes the number of years a person will be eligible for funds based on the minimum number of years to complete the 1st residency. Therefore, hospitals can get 5 years for funding for each PGY-1 year surgery resident (3 years for family practice). If the surgery program is 7 years, they get full funding for 5 years and nearly full (but not full) funding for 2 years. If the resident leaves after 1 year and goes to a family practice program for 3 years, it's still under 5 so the hospital gets all the money. If the resident leaves after 2 years and does OBGYN for 4 years, the last year of OBGYN is not fully funded.
Some programs use that as an excuse not to take someone but, in reality, the less than full funding is not much less.
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The pyramidal system is very hard on residents and exploits them. Why not have a system that 10% of residents who score low on a new test will have to serve the government for 10 years without pay on the guise of "re-education" (re-eduation is a term used by communist countries for forced labor and imprisonment).
Residents and MD's are professions who are ethical enough to try to learn as much as possible. If they really can't operate, then there can be counseling and extra training to either get them up to speed or to have them do another field. If there are, say, 5 PGY-1 categorical spots and 5 chief spots, then the incentive for a resident to finish is to do well and the incentive of the program is to work at training them because if they don't and the resident is fired, they will have fewer chiefs to do the work. If there are really too few chiefs, then the faculty will have to do more work. With the pyramidal system, it's too easy for the faculty to be dictators and unreasonable and for the residents to feel like they are living under Saddam.