Category: finance

How much income do you need to stick through your doctor job?

How much income do you need to stick through your doctor job?

Side income is the wave of the new generation. Having multiple income streams is sexy. If you are not bound by a single means to survive, then psychologically the stressors of a particular job may not affect you as much. In medicine it is becoming more popular to have additional income, passive or active, so that the goal of reaching financial freedom comes sooner.

The stress of your day job matters

Most doctors like what they do, but there are probably some aspects of our jobs that we would rather do without. Callbacks, charting, meetings, insurance denials, disgruntled patients, midnight calls…they’re all synonymous with our jobs but it’s truly not common that any of us actually likes the nitty gritty annoyances of the profession.

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Medicine inherently is a stressful profession–many of our decisions and actions can determine life or death. In our society, there is a big emphasis on malpractice. The premiums on some medical professions range in the six figures–this certainly can add indirectly to the stress of the job.

Certainly how stressful your profession is and how much your tolerance level is will contribute to your desire to find a change.

How much control do you have in your job?

Even though the premise of medicine is to take care of patients, how a clinic or hospital is structured makes all the difference in the world with physician autonomy. Employment through a large hospital system or managed healthcare group often translates to standardized benefits and expectations (i.e. it would be difficult to reschedule a patient clinic in two days–some manager will hear about it and probably intervene). But you probably won’t have to directly deal with any logistics of letting go a low-performing staff member or most issues that a human resources department would be responsible for.
If you are a self-employed physician or a physician-owner of a medical practice, the onus falls on you to handle everything. Sure, you might have an office manager handling the dirty work but in the end you fit the bill, and you lose the sleep if things don’t function smoothly. Many physicians are okay with these responsibilities, and they want to have the control.

How much you make matters

There is more to life than money, but we all have a certain expectation of our worth that interplays with career satisfaction.
I once knew of an anesthesiologist who quit her academic position to develop a medical spa and infusion clinic empire. While I do not have exact numbers, but I suspect that the business likely produces a multiple seven-figure net income. I have no doubt that the business empire checks off many needs and desires: high income, satisfaction that you’ve created a wildly successful business, freedom to spend more time with family and friends, and simply a validated means of success.

Would she have chosen a different path if her academic clinical position was different? Let’s look through some hard numbers. An academic anesthesiologist might have a salary of $250,000-$300,000 working 55 hours a week. This would include uncompensated time to prepare lectures or administrative roles. Would she have started her business if she worked in private practice 40 hours a week earning $450,000? What about $450,000 working 32 hours a week? Or $800,000 working 35 hours a week?

It is a fascinating thought exercise to see how each person would react to a given scenario. Maybe she would have started her business anyway even if she made $1 million a year at her day job, but many of us would probably opt not to rock the boat if our clinical job gave us career satisfaction, a comfortable income, and time for family.

Our final choice also depends on our view on risk

Doctors, in general, are risk adverse. Some of you might be comfortable handling seven to eight figure+ commercial real estate, but the reality is that most people in the medical field want to make a good living and not get ripped off by the system. If you had your dream medical job, how likely would you opt to have additional income?

If your clinical job had tolerable hours, above what salary would you not consider another career path?

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Cost disease in medical education

Cost disease in medical education

There is a famous economic analysis by William Baumol on the incongruous rise of costs in certain service industries.  The original study analyzed the cost of performing a Beethoven string quartet in the 19th century compared to today—it arguable takes the same amount of productivity to practice and perform the piece after two centuries but the cost of performing it has risen by several fold even after accounting for inflation.

There is a similar correlation in education. We’ve seen five-fold increases in many state school tuition costs over the last 20 years, and roughly a two-fold increase in private college tuition in the same time.  College itself is big business, with schools in an arms race of accouterments like meal plans, climbing walls, and fancy housing that all contribute to the bottom line of education cost.  Have these increases translated to greater productivity in its graduates? Many would argue not.

There are a number of factors contributing to this discrepancy, but many blame the cost problem on the ease of obtaining student loans.  Just look at those art history majors who graduate from college with $160,000 in debt and a nice Ivy League diploma with Latin inscription—it might take a bit of time to repay the cost of that degree.  

Medical school or mortgage?
Well, it took one of my friends with that art history major twelve years to repay that loan: one year of post baccalaureate studies, four years of medical school, five years of Otolaryngology residency, one year of facial plastics fellowship, and one year of medical practice.  In that time, she accrued an extra $200,000 of medical school loan debt!
Medical education, along with dentistry, veterinary, and even some allied health professions tend to lead the pack in having most expensive cost for degree.  It’s no longer unusual for medical students now to finish with over $400,000 of educational debt.  That amount easily exceeds what most people borrow for their first home mortgage!  Some medical residents end up adding insult to injury by taking out a home mortgage during residency.  That loan amount will only go up in time, and physician salaries aren’t exactly keeping up.

One of the headaches with such a long incubation period of becoming a fully licensed doctor is that the financial burden compounds.  Educational debt doesn’t get forgiven with bankruptcy either.  The earnings that doctors eventually achieve are offset by years of accumulating debt.  It’s not fun becoming a doctor if you think about the number of years of financial indentured servitude that one commits their entire youth too.

Fighting the cost disease

The healthcare system is struggling to find ways to reduce debt burden.  I have had one colleague who tried going through the PSLF program only to make a mistake in calculating what hospitals counted for public service!     Another doctor initially going for PSLF ended up having to move his family elsewhere and forfeit the time only paying interest.  More recently a bill is being considered in Congress to overhaul the program to simplify requirements.  Let’s hope that this will be for the better.  

There is an independent movement to get physicians to spend less while saving more, all in the name of sticking it to the man.  In principle this is a good move.  Medical students and residents who are in the debt accumulation mode have the most control to limit how much they borrow, although it is not easy to expend what little extra energy medical students have left to management of loans.  The less that a student could limit borrowing the better control she has to preventing uncontrollable debt from accruing.

This medical school has a high tuition
An example of a high-tuition medical school

In practice, all doctors will face cost disease of life itself in some form in addition to educational debt:

  • moving the family while taking a new job
  • credentialing costs
  • acclimating to a new workplace
  • lifestyle creep as outlet from stress

Sometimes the only thing you want to do after an eleven-hour workday is veg out while eating take-out.  Imagine having these days two to three nights a week—it suddenly becomes pretty easy using retail therapy to make your life easier.  If you are still burdened by your loans, then it becomes more difficult to repay your debt the further out you are from training.

Eliminate your debt quickly

Lifestyle creep will likely happen no matter what.  The key is to knock out the big ticket debt (or control it) as soon as you finish your training before the real lifestyle creep settles in.  Even after contributing to retirement accounts, most doctors within their first five years out of residency ought to be able to carve out $40-50k of after-tax money to pay down their loans.  If you were living on $60k a year during residency, you ought to be able to have some room to go on a $240k salary.  Put that towards your debt, and you will have made a sizable dent in your debt in five years.  Until the cost disease of education is curbed, it is up to you and you alone to get yourself out of debt.

The number 1 way to make your medical practice more profitable without working harder

The number 1 way to make your medical practice more profitable without working harder

Ten years ago, a giant slice of pizza at my favorite pizza stand on Broadway was $2.50.  It’s up to $5.00 now.  The cost of doing business goes up, and naturally the cost of services goes up too.  The healthcare business, somehow, has its own broken rules.  Our reimbursements tend to trend downward over time but the cost of doing business continues to rise over time.

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For instance, the professional fees for a carpal tunnel release have gradually drifted downward over the last decade, and it’s insulting how little it was reimbursed to begin with. It doesn’t matter how quickly the surgery could be performed or how “easy” a skilled hand surgeon could perform it–just look at how many years of training it actually takes to get to the point to offer the surgery! The cost of delivery of healthcare goes up over time, so our net income gets eroded.

Recent years have shown that many smaller medical practices have been absorbed by large healthcare systems or sold to private equity. Some of you in private practice might even be thinking that selling out is the way to survive. But that notion is economically incorrect.

Small medical practicesought to be significantly more nimble than their larger counterparts.

One important factor in the plight of medical practices is that not all doctors have the time and energy to pay attention to optimizing their business practices, and that is where problems arise. What I’ve found to be most effective in increasing the bottom line in a medical practice while not having to see more patients is to lower your overhead.

Those of you in private practice have the opportunity to increase your bottom line without seeing more patients or doing more work. The name of the game is controlling your own costs.

Lower your overhead

The biggest confusion I see about business expenses is that they can be “written off”.  It’s a common word that sometimes is used to imply that some sort of cost isn’t hurting the business.  Some doctors even erroneously use “write off” to mean that they didn’t bill the patient.

Wrong. Wrong.  Wrong.

There is only one good business definition of “write off”, and it means that an expense to a business can be an “above the line deduction” from the revenue for tax purposes.  For example, if you collect $100 from a day of selling lemonade and the cost of the lemons, cups, sugar, and water cost you $20, your net profit to be taxed is $80. Your $20 is a business “write off” but it’s easier to comprehend if you called it a business expense. In medicine you can also refer to unpaid/unreimbursed services as write offs too, but that’s not going to increase your income.

A medical practice will have significant expenses to deduct from its revenue, and many doctors take pride in their crafty accountants (sorry, no offense to accountants!) that find interesting expenses to deduct.

Sorry folks, but finding extra deductions isn’t going to make your richer.

It’s like buying an $80 juice mixer (thrown away after using, of course) to make lemonade in the example above.  You’ve effectively deducted your entire gross revenue of $100 so that you aren’t going to pay taxes.  You’re also not going to make money.

Lowering overhead means buying lemons on discount or using bottled EZ-lemon juice.
The problem with most physician practices and overhead is that physicians are too busy to handle the details outside of the medicine.  Some doctors think that they can overcome bad overhead by seeing more patients, but that is the wrong move.  At some point, you’re going to break down from working harder or longer hours. 

The larger the practice is, the harder it is to limit expenses and observe the problems that will increase the bottom line.  We often delegate these tasks to the practice manager or whoever is in charge of operations.  Sometimes you’re going to have a superstar who can micromanage these details better than anyone else, but you’re really rolling the dice. 

If you have a competent manager that you want to delegate your expenses to, you could incentivize your manager to lower expenses.  However, if you can spare the time and effort it is best to learn about the expenses yourself so that you can audit the books or handle some of these responsibilities if your manager is out.

The easiest targets of lowering overhead is to assess all of the recurrent costs.  Cable and Internet companies are notorious about ratcheting up prices after the promotional period, and you shouldn’t have to be the sucker.  All of these prices can be negotiated down or even cut, and will save significant dollars over the lifetime of a medical practice.  Other recurrent expenses include:

  • Utilities – find the culprits like air conditioning or leaky toilets to save money and the environment. Many larger offices will have multiple heating and cooling units, so these expenses are not trivial.
  • Telephone lines – These are often costs that medical practices are hesitant to tweak because we don’t want our phone lines down, but these are also reliable cheaper solutions.
  • Landscaping
  • Pest control – Don’t cut the pest control completely, but sometimes there are competing companies that want your business more than your existing guy.
  • Office items – copier paper, printer toner, folders.  Just because you might have a purchasing plan through your favorite office superstore doesn’t mean that you’re going to save money through them. Shop around.   Not everyone needs to have a desk calendar at work either!
  • Service contracts – medical device companies are notorious for gouging doctors just because they are doctors.  Sometimes companies aren’t willing to budge, but befriending your rep or finding a reason for them to discount for you is key (maybe you’re the highest volume user of their device…)
  • Marketing expenses – These expenses consume significant dollars especially in practices that offer elective services. Make sure that they are giving you appropriate ROI.

Every single one of your recurrent services will eventually raise its prices, and paying attention to some of these costs can amount to a five figure monthly expense (sometimes even six figures). Remember, your reimbursement schedule through Medicare isn’t going up, so something has to give so that you don’t make less money in future years. In a practice with $1 million revenue, a 5% reduction in overhead is going to save you $50,000! Many medical practices have significantly higher revenue than this. Over the course of a career, this can add up.

Remember. Just like your lemonade stand, paying attention to your overhead is the key to running a successful medical practice.

What aspects of your private practice have helped you financially?

Medicare 2021 wRVUs are up, but you’re not getting a raise

Medicare 2021 wRVUs are up, but you’re not getting a raise

One of the many polarizing aspects of healthcare reimbursement has long been RVUs (relative value units).  We’ve all heard the term thrown around in those quarterly productivity reports or budget meetings.   Without going into too much of a digression, RVUs can simply be summed up as a measure of how productive a healthcare worker is, and serve as a basis for getting paid.
The big news for RVUs in 2021 is that many E/M codes–these are the five-digit numbers that we assign to patient visits to get paid by the insurance company–are now assigned to higher RVUs under Medicare.  In lay-doctor’s terms, it means that you are going to get credited for doing more work for the work that you already do.

More RVUs generally equals more pay.

This is important, because many large medical groups and hospitals pay their employees by the number of RVUs that are generated.  If you, the doctor, don’t meet the RVU requirements you can get a pay cut.  If you do more work you hopefully will get a raise.  The problem is that despite an RVU increase for 2021, your employer isn’t likely going to give you a raise
In fact if your hospital is giving you a raise in 2021 because of the increased productivity in Medicare codes, I want to hear from you.  You are the outlier.

The healthcare payment system is complicated

We know that the healthcare system is too complicated.  So complicated that many people push for a single payor system as a solution to simplify the system.  That would certainly eliminate some existing issues, but we simply don’t know enough about the workings, politics, and finances to make an objective assessment of our situation. 

Let’s take a step back and look at the system in a simplified model.

Medicare basically has a framework that assigns a numerical RVU value to any healthcare service or procedure we provide.  Generally the higher the RVU, the more skill or difficulty was required for the service.   A dollar value is set to an RVU to establish a basis for reimbursement.  Think of this like a currency exchange.  One RVU could be worth $32.  The conversion factor is actually adjusted annually to account for budgeting and other factors.  The final reimbursement formula includes this conversion factor that is slightly adjusted based on cost of living (geographical factor) depending on where you practice.  A hip replacement might/will cost more in New York City than in Omaha.

Within the RVU system, there are work RVUs and technical RVUsWork RVUs essentially define the productivity of the physician (read: provider) while technical (practice expense) RVUs account for the cost of ancillary equipment or staffing required for you to perform the service.  In a crudely simplified model for this article, you could lump in facility reimbursements with the technical component too.

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So in this model, if a hospital-employed orthopedic surgeon does a hip replacement on a Medicare patient, the hospital gets reimbursed a certain amount based on the surgeon’s work, the technical costs of the procedure, along with some geographical value. 

How does the hospital pay the surgeon? The conversion factor for an RVU in 2021 is like $32.  Let’s say the surgeon generates 10,000 RVU’s a year.  Does she get paid ($32 * 10,000 =) $320,000?

No!

The surgeon might actually get paid $500,000 or more, but where does this extra money come from?  This is the part that most doctors don’t realize.  That technical component to the procedure may generate a multiple more than what the physician component alone would.  This would contribute to the pot that a hospital could use to pay all of its staff and expenses.  There are also also intrinsic money-generating call contracts, trauma designations, and federal monies that a hospital might receive simply by having an orthopedic department on staff.  This pooled money is allocated to compensate employed workers to a level that a hospital might consider to be fair.

How does this play into increased RVUs and why doctors aren’t getting paid more?

There is likely a logistical side to this, and a strictly business side to this discussion.

Logistically, the term that no doctor wants to hear is budget neutrality.  There is only so much money in the pot, and there is a mandate that there can’t be an increase in expenditures in the system by more than $20 million.

You’re robbing Peter to pay Paul.

With the case of increasing RVUs for the E/M services, there is actually a decrease in the conversion factor ($36 to like $32.41 in 2021) for RVUs.  Crazy right?

So despite what we see in increased RVUs, there might not actually be more to share!

The Business side of medicine is ugly

The business side of medicine is not readily transparent.  We can also have differing opinions with any variable that comes to play.  What is not obvious (but somewhat predictable given historic data) is the payor mix in a given health system.  Medicare is typically the major insurer for many specialties but it is not the only one.  

Some commercial insurers reimburse at a greater rate than Medicare while others, less.  Knowing the exact reimbursement schedule for a given procedure for a given insurer ought to be mandatory, but quite common for a hospital or medical practice not to have any of these data on hand.  If they do, it might not be verifiable. 

What this means is that an employer’s budget might not actually be accurately determined even if the RVU changes are known.  The prior year’s budget may have been grossly incorrect due to pandemic related costs, decreased patient volumes, and a number of outside variables. 

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No employed physician wants to hear that their hospital won’t give them a raise even though on paper their productivity will likely increase.  But no administrator also wants to tell her shareholders or investors that the hospital’s operating income is not adequate to sustain operations, and one factor is that they are paying their doctors more. 

Don’t hold your breath for a raise

The healthcare system has many illogical components.  This is one of them.  You’re not likely to get a raise if your employer compensates you on RVU productivity.  If you don’t like what you see, then this is even more reason to get your finances in order and be willing to find ways to improve your situation. 

What are your thoughts on the increased RVUs in 2021?

5 Reasons Training is the Best Time to Purchase Disability Insurance

5 Reasons Training is the Best Time to Purchase Disability Insurance

[The following article is written by one of our supporters, Pattern. They specialize in providing true-own occupation disability insurance as well as term life insurance. All physicians need to consider this coverage up until they are financially independent. -Ed]

Protecting your income is important. We can all agree on that. Although insurance isn’t always the first priority on your list it is crucial to your financial plan. Disability insurance replaces a portion of your income if you are unable to work due to illness or injury. When looking at protecting your income, it can be so complicated and expensive. So when you’re deciding when to purchase your policy training may not seem like the ideal time to consider that obligation.

With the end of training approaching, here are 5 reasons why it is important that you obtain disability insurance before the end of your training program.

1.   Lowest Premium Rates

You’ll never be as young as you are now–getting disability insurance as a resident will keep your premiums low.

One of the biggest determining factors for your insurance prices is your age. Typically speaking the younger you are, the healthier you are.

Not only may you get a lower rate because of your age, but you may also be less likely to have health conditions that could result in policy exclusions of coverage.

Since disability insurance rates never change, you want to secure your policy as early in your career as possible. Don’t wait until you are in your forties or fifties to get disability insurance, since premiums will be much higher than in your twenties or thirties.

2.   Protect Your Entire Income

You have spent thousands of dollars and hours investing in medical school and your training. After all, is said and done, your career is dependent on you.

Your future earnings ability is your most valuable asset.

By purchasing disability insurance at the beginning of your career you are protecting your entire income. With the risk of injury or accident that could hinder your capabilities to perform your duties, disability insurance is vital to your financial security as it is the replacement of income in the event that you are not able to work.

3.   DISCOUNTS!!

Obtaining disability insurance as a resident means you’re eligible for discounts.

This discount option is available in most cases to individuals who purchase their policy in medical school or training prior to graduation, which is why it is important to lock those discounts in before you graduate and become ineligible.

Training program discounts can bring down your premiums by up to 40%. These discounts can save you thousands of dollars as they will last the lifetime of your policy.

4.   Protect Yourself from Health Risks

Your health is something that determines your cost. The healthier you are, the lower your cost will be. Injuries and/or chronic conditions could prevent you from getting covered in the future.

If you get medical approval for coverage now, you will protect yourself from the impact of potential injuries and chronic ailments in the future.

5.   Security in the Current Market

The insurance marketplace is volatile–getting disability insurance now will make sure that the provisions you have will not change, no matter the changes in the market.

There are currently favorable contracts specifically available to residents that protect their occupation and medical specialty. As we’ve seen recently, however, the insurance market may suddenly end the availability of certain plans, which further limits the options for medical professionals.

Getting a policy while you are still in training can save you a lot of money in the long run.

So when considering the best price and the best time to buy your policy, keep this in mind. By taking five minutes to fill out a quote request you can see what you would pay for your medical professional specific policy. If you are ready to get your quotes, fill out a quote request here!