States do fund residency. This site says that state matching of federal Medicaid funds is ~12% of the total funding: https://mostpolicyinitiative.org/science-note/state-supporte....

Interesting related thread: https://www.reddit.com/r/Residency/comments/a01cfr/funding_y...

they contribute already, but it's more challenging than federal. many residents do not stick around in the state they train in, so states have less incentive to fund this