It’s not that “incredibly weird.” Medicare doesn’t reimburse for residents unless a teaching physician is also present. Because that dramatically limits hospitals’ incentives to train physicians, Medicare pays hospitals a certain amount to support training residents. To limit how much is paid under that program, the number of residents Medicare will pay for is capped.

It’s not irrational, but an example of how a series of government interventions, each seemingly rational on its own and aimed at reducing costs, can end up creating a systematic problem.