April, 2015 | Smart Money MD

Month: April 2015

RVUs translate into payments for doctors

Posted on April 6, 2015April 3, 2015 by SmartMoneyMD

We went over the basic categories that a doctor can be paid in the previous post (see How are doctors paid). If you decide to accept health insurance payments, understand that your reimbursements are usually based on relative value units (RVUs).

Each procedure or level of medical service a doctor provides is assigned a code for documentation (CPT). An RVU is then assigned to each CPT code. Reimbursement for each service is thus derived from a formula that is based from the RVU and the region in the country that you practice in:

Payment = GPCI(A + B + C)

A = physician work value

B = practice expense value

C = malpractice expense

GPCI = geographical practice cost index

The physician work value is a number derived from the difficulty and training required to perform a certain service. For instance, a cardiac bypass would have a higher value than an appendectomy, which would have a higher value than an in-office consultation for blood pressure management.

The practice expense value is quantifies the office costs needed for a physician to offer a service. For instance, there are costs to running an office (electricity, staffing…etc) to provide blood pressure checks. In contrast, an in-office stent procedure would have a higher practice expense value, since there are costs to maintaining a C-arm, equipment…etc.

The malpractice expense factor varies depending on the risk of malpractice and cost of coverage. Again, a cardiac procedure would have a higher value than an in-office consultation due to higher risks from the service.

The GPCI is a value to adjust for the cost of living that you are practicing medicine. For instance, the cost of living is higher in the Northeast compared to the Southeast, so the GPCI is higher in the Northeast. Note: even though the reimbursement may be higher in a certain region, this does not necessarily translate to equitable reimbursement. For instance, cost of living in Boston is about 35% higher than that of Charleston, SC. Your reimbursement in Boston may only be 15% higher.

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Stay tuned for future articles to beef up your financial knowledge and be smart with your money! Questions? Sound out below!

How doctors make money

Posted on April 5, 2015April 3, 2015 by SmartMoneyMD

You’ve just survived medical school, residency, and fellowship! Now you’re about to get your first job and are given a salary that you’ve only dreamed of for the past decade.

In actuality, you’ve been lowballed and are about to get churned and burned. How could you have prevented that?

Step one is to know how you are paid as a doctor. If you don’t know how you’re paid for your services, then you have no idea what you are worth.

In general, there are several fundamental categories of reimbursement for services. Know them:

Fee-for-service. This has been the traditional reimbursement scheme. The doctor or her medical group makes an agreement with the insurance companies to accept a certain rate for each type of service rendered. This scale is often determined as a percentage of Medicare rates (i.e. 80% Medicare or 125% Medicare). Obviously this does create a market in which larger practices or lowest bidders may be awarded contracts.
Capitated care. A medical group receives a lump sum payment for care of a sole patient population with the same insurance. Example: NaiveDoc Medical Group agrees to care for all individuals with RipOff insurance. The RipOff insurance company agrees to pay NaiveDoc $30 for each person who carries RipOff insurance. There are 100 individuals who have enrolled. NaiveDoc gets a lump sum of $3,000 from RipOff insurance. If no one with RipOff insurance sees any doctors, NaiveDoc has just gotten “free money” and gets to do whatever they wish with the payment (i.e. pay administration). Suppose one patient with RipOff insurance gets ill and is seen by a NaiveDoc provider every week for a year. NaiveDoc will have to decide how to distribute its reimbursement among the providers. In a captitated care model, you can run out of money quickly if you agree to care for a large group of very sick people.
Pay for performance. Pay the doctor according to how great her patient reviews are. Does not seem promising.
Cash pay. The patient pays the doctor a set fee schedule for services rendered. Definitely cuts out the middleman (insurance company and its administrators). In general, this is difficult to implement on a large scale. Your patient has to have a certain income level to be able to afford the doctor’s care.

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That’s it. Stay tuned for future tips to become a well-rounded doctor! Questions? Sound out below!

How I paid off $148,260 in student loan debt my first year in practice

Posted on April 4, 2015March 29, 2015 by SmartMoneyMD

It can be done. I did not think it could be accomplished. My net worth looked horrible during my first year of medical school. It looked even worse after 3 years of accrued interest during fourth year medical school when I was burning through my loans for my residency interviews. During residency and fellowship my mid 5-figure salary tempered the immediate pain of debt, but my net worth was still decidedly negative. At this time, I decided to take control of my debt and kick its ass. By the end of my first year of medical practice, that debt was gone.

Background:

Like many other aspiring doctors, I did not consider the price tag involved with getting a medical degree. I worked hard, and went to the best medical school that accepted me to become a super doctor. I had about $230 in my bank account when I enrolled, and my mother gave me $50 of “emergency money” in case I got into trouble. The tuition alone per year was around $50,000. With room and board, annual expenses were beyond $60,000. I even received a solid 5-figure scholarship to attend medical school. The rest of my expenses came out of governmental and private loans.

Debt:

According to my loan statements, I had the following principal loan amounts:

Federal Subsidized Stafford Loans: $17,000 @ 6.8%
Federal Unsubsidized Stafford Loans: $89,260. The majority was at 6.8%, with some at 4.75%, and about $10,000 at 2.8%
Federal Perkins loan: $23,000 @ 5%
University private loan: $19,000 @ 10%

The total principal loan debt amounted to $148,260. Including the years of interest accruing, I paid close to $190,000 in total.

Smart Money Tips to destroy your loans (simple in principle but challenging in practice):

Track how much is going in and leaving your bank account. You must spend less than you earn. Only then will you be able to take control of your debt. This means no credit card debt, pawn shop dealings, and no payday loans.
Live way below your means. With six-figure debts, you really have to make frugal decisions. MMM calls it “hair on fire debt”. For me, that meant limiting $5 lattes, excessive restaurant and bar expenses, and frivolous materialistic purchases. No yachts, new cars, fancy clothing, or accessories. I kept a respectable appearance for a physician but did not have any sign of wealth to flaunt. I brought my lunch to work, and ate dinner at home. I bought discount groceries and chose to eat what I considered inexpensive yet still healthy.
Funnel what you have left over to your loans, high interest loans first. Dave Ramsey refers to debt snowballing and eliminating the smallest debt first to achieve a psychological victory–B.S. With turbocharged debt elimination for doctors and professionals, we want to pay the least amount of interest. Period.

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That’s it. Three fundamental principles. In my five years of training, I commanded a $50,000 annual stipend. After taxes and living expenses, I was able to fund about $15,000-$17,000 annually toward my debt. I lived quite comfortably, although I was fortunate that I did not have extra mouths to feed. You can still sustain a family of four easily on that income, although you may have less leftover to contribute to loans. When I became an attending physician, my housing expenses decreased slightly since I moved to a lower cost of living area. I maintained a similar quality of living and chipped away the rest of the debt. By the end of my first year in practice, all of my student debt was paid off!

Bonus Tip:

Contribute to your Roth IRA fully if you can. I only funded it two out of five years. In retrospect, I wished that I contributed every year. There is a fine line between paying down a loan versus investing, but having a tax-drag free vehicle that you carry throughout your entire working career vs chipping away at a relatively low interest loan is a no brainer. For a simple interest loan at 5%, 6.8%, or even 10%, funding the Roth IRA is the better option if you know that your income will increase significantly within the next few years.

Good luck to those who were in my shoes! If you have any questions, sound out below!

How to replace the headlight bulbs on a 2006 Subaru Impreza

Posted on April 3, 2015March 29, 2015 by SmartMoneyMD

Welcome to installment #2 on basic handiwork tips that any professional (day trader, neurosurgeon, or even business analyst) can learn to do! The previous tutorial discussed how to replace the rear bulbs on the same car.

It turns out that my low beams on my 2006 Subaru Impreza wagon decided to burn out on the way to work one early morning. I stopped by AutoZone on the way home to pick up replacement bulbs and made the repair that evening. An upgraded pair of Xenon-like bulbs could be found on eBay for less than $20. Unfortunately I could not wait for the shipping and ended up picking a set of standard Halogen bulbs for $31 at the store. The dealer and typical garage would have charged around $50 for parts and another $70 for labor. The job took me approximately 10-15 minutes. This roughly translated to a “net gain” of $90 for 15 minutes of my time. That brings things to an untaxed hourly rate of $360. Not bad!

The headlights of the car look like this:

Subaru Impreza 2006 headlights — The high beam is medial to the low beam

The low and high beams are divided into separate housing compartments with a washer seal to keep moisture out. Access to the passenger side lights is easier than the driver’s side because the battery is situated adjacent to the lights on the driver’s side. I was fortunately able to replace the driver’s side bulb without removing the battery.

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For the passenger side, you will have to remove the air filter exhaust to gain access to the lights. There is a hex bolt that holds the housing in place:

Subaru Impreza Air Exhaust bolt — Size 10 hex bolt

On the driver’s side, there is a plastic fastener that holds the windshield washer fluid reservoir tube in place:

Subaru Impreza Windshield fluid fastener — Use a Phillips head screwdriver to unscrew and then a flat head screw driver to remove the plastic

The plastic screw with fastener can be removed by unscrewing the screw and then prying the fastener up with a offset spatula or a flat screwdriver. Be careful to pry gently to prevent snapping any of the plastic thread on the fastener.

The low beam housing assembly is then directly behind the bulb:

It can be removed by turning the cover counterclockwise:

Subaru Impreza headlight bulb assembly — Turn counterclockwise to unscrew

Underneath there is a bulb connector that also needs to be unscrewed counterclockwise:

Subaru Impreza 2006 headlight bulb connector — turn counterclockwise to loosen

The bulb itself is then held in place by a spring mechanism. This the the trickiest part of the disassembly because you don’t have a clear view of the spring, especially on the driver’s side. The spring is removed by squeezing the prongs together and unthreading it from the retaining ridge:

Subaru Impreza 2006 headlight spring thread

After you remove the spring, you will have clear access to the low beam bulb. The bulb is a 12V – 55W unit. The Subaru Impreza 2006-2007 low beam bulb is a sized H7 bulb.

AutoZone only had the Sylvania brand.

The disassembly process is identical for both headlights, although there is much less room to work with on the driver’s side due to the battery. Make sure that you wear gloves while removing and replacing the bulb. These bulbs run hot, and can be asymmetrically heated if there is oil or grease from your hands or grime from the engine. Oil and grease will shorten the life of the bulb.

Reassembly involves reversing the aforementioned steps. Take your time and make sure that the housing cover is screwed on appropriately and tightly. You do not want moisture getting into the electrical wiring.

Again, this is a relatively straightforward process and is low risk. If you wish to upgrade your headlights, you can even install an HID conversion kit (Xenon) to upgrade the quality of lighting. You can find plenty of videos online discussing this option.

If you have any questions, sound out below!

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Supercharge your net worth during residency

Posted on April 2, 2015March 29, 2015 by SmartMoneyMD

There are two essential financial differences between a resident and a medical student:

You will work more but have a stable (but low) income.
Your expenses will likely be higher as a resident.

Think about it. As a medical resident, you are not swimming in money. A medical resident’s salary is in the mid five figures. If you take into account the number of hours you spend working, studying, and preparing for conferences, your hourly rate is in the mid-low single digits. I calculated mine to be around $4/hour before taxes. At this wage, you’d better be living close to a medical student lifestyle. Be smart about your money.

Your expenses are likely higher as a resident too. Maybe you’ve moved away and no longer have roommates to share you housing expenses. If you have a family with a non-working spouse, you have to feed more mouths. Maybe you also have to use a car to commute to the various hospitals on rotation. With a single digit hourly wage and higher expenses, it behooves you to be financially savvy.

While many principles for medical student finance remain valid, there are some nuances. The following are power tips to increase your net worth during residency:

Try your best to minimize your furniture and material wealth. Downside more if you need to. Who knows where you might move to after residency for fellowship or a new job. My residency furniture consisted of Ikea products that were easily disposable via craigslist. I’ve actually kept a few of these items onward and used them until they broke.
Keep track of conference expenses. While most training programs offer a stipend, you can still itemize and deduct the expenses that exceed your allocated budget. Now is the time to maximize itemized deductions to reduce your already low tax burden.
Live below your means. The conservative approach is to continue this habit until you become financially independent. This means no new boats, no new cars, and avoid buying a home. You can’t go wrong with this approach.
Adapt your lifestyle to what you are comfortable with. If you are single and don’t mind having roommates, you can save a ton on rent and utilities. Live close to your workplace to minimize travel time and maximize sleep.
Roth IRA. The more you get into this tax shelter, the sooner it can grow. You can also contribute for your spouse too if there are enough funds.
401k/403b. If you really have extra money to squirrel away, you can consider contributing to your employers retirement accounts. I never had enough left over to contribute, but it can add to your nest egg. One caveat is that once you leave your program, you cannot contribute more to this account. At this point, you can either leave the investments in the account (and track them) until you start withdrawing in retirement or transfer the sum to an IRA or your new employer’s 401k/403b.
Watch your restaurant budget. You’re busy every day and want to unwind. Maybe have a few drinks on the weekends (or weeknights). Set a strict budget and try not to exceed it. Limit your latte habit.

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Remember, you’ve made it through medical school and are smart about medicine. Be smart about your money as well. Any other tips to add? Sound out below!

High Yield financial checklist for the busy medical student

Posted on April 1, 2015March 29, 2015 by SmartMoneyMD

This list serves as a financial checklist for the busy medical student, but can be certainly applied to other student roles where income is limited or non-existent:

Be aware of the true amount of student loans you really need to borrow. Federal student loan amounts are often based from anticipated tuition and living costs of a certain institution. You might not need the full amount depending on your spending habits. Look into the cost of books and food/entertainment. You might not need to borrow the full amount. Any unused money is basically your unused emergency fund that you’re paying interest on. Not the worst thing in the world to have a 6% interest loan sitting around, but you could do without it if you are careful.
Live modestly. A relatively large group of my medical school class took a trip to Costa Rica during spring break. I’ve seen some classmates fly to Europe for a long weekend. Fiji or VOSS bottled water? If you can afford it, great. Don’t convince yourself (or let others convince you either) that you can afford it if you really can’t.
If you need extra money and are willing to work, consider being a tutor or utilize any of your skills that can translate into higher pay.
If you have family who are willing to “match” your part-time income, put your taxed income into a Roth IRA. In fact, if you have excess funds from your student loans for daily living, put your secondary income into a Roth IRA. This concept is always debatable, but paying a 6.8% simple interest loan in exchange for decades of tax drag-free investment is worth the trade-off.
If you or your spouse has income and will be filing taxes, go ahead and pay down some of your student loan interest (up to $2500). It can be itemized during tax season for an income reduction. When you become a hotshot attending and make a gazillion dollars, your income will be too high to make that deduction. Continue doing so during residency if you can.

Any more to add to the list? Comment below!

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