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Tag: money
Protecting your financial future from other physicians
Unfortunately, hospitals and healthcare systems are not the only ones that take advantage of doctors. Physicians in private practices are just as likely to take advantage of their colleagues, and sometimes the severity may be much greater than what you’d see in the hospital setting.
Those of you younger doctors in outpatient specialties, take note. This list includes gastroenterologists, ophthalmologists, vascular surgeons, oncologists, internists, or anyone who would join a medical practice with another doctor. Anytime there is a younger physician joining a practice run by senior physicians, there will always be potential for inequity. Why do these problems arise?
Greed.
Greed of money, and greed of exploiting someone else. It just happens. Perhaps the senior doctor thinks that she put in blood and sweat into a practice that a junior associate is simply getting in for free. Blood must be drawn in order for a new doctor to be accepted.
How you can get taken advantage of as a junior doctor
Most of us learn from getting burned ourselves. These situations can occur in any of the common three ways:
- Reneging on a prior promise — This is typically the most obvious scenario that younger doctors encounter. A new doctor joins a practice with the promise of partnership after a certain period of time. When that time is reached, the owner-physician declines the partnership offer for some infraction. The junior doctor is then stuck remaining as an employee indefinitely or move elsewhere. Sometimes this cycle repeats with a new hire.
- Withholding critical financial information — Sometimes a partnership isn’t really a partnership. Or maybe not all partners are created equal. The problem with healthcare is that there are business nuances that you will only learn with experience in your profession. This is where a less experienced physician can get taken advantage of during a partnership agreement.
- Exploiting mentorship role for financial gain — Greed. It never makes sense to me that a physician who has had an entire career of earnings would feel the need to maximize financial gain of a younger physician. Typically the amount of financial gain is quite negligible for the senior doctor’s retirement plan. I’ve seen instances where the senior doctor owns the building in which the practice rents from, and the lease arrangements benefit the landlord significantly. I’ve seen instances where the junior doctor is heavily dependent upon the senior doctor’s goodwill to refer patients over, but the senior doctor does nothing to help the cause.
Justification of greed
Why do we even see doctors getting exploited by others in their profession? The answer likely lies in the competitive nature of those who enter the profession. Look back to medical school—we all have been witnesses (or instigators) to cutthroat behavior in medical school. There is a desire to get ahead. These behaviors carry over onto everything we do.
Those of you just starting your careers will need to be aware that malfeasance can happen anywhere and anytime. Even if you ask the right questions and do all of the right things, you can still get swindled financially by a fellow physician.
Those of you who are senior physicians bringing on junior physicians, be mindful of what you went through and try to mentor your younger colleagues properly and fairly. Do the right thing. Our profession needs to stick together to fight the good fight.
Fundamental financial tips for the incoming resident
The transition from medical school to internship is both an exciting and traumatic period for doctors. As a fully anointed “M.D.” (or D.O.), the new doctor has a well-deserved and distinguished title to her name. No more “student doctor” anymore. Most orders won’t have to be cosigned anymore. Want to place an order for 100mg of lasix? Prime those kidneys, and have at it. On the flip side, being a doctor is stressful. Becoming a new doctor for most of us was hair-pulling-out stressful. Those who have not gone through the process will never truly understand how traumatic the beginning of internship or residency is.
Binge-eating, crying in the bathroom, retail therapy…if you can think of any self-abusive punishment you can better bet that at least one newly anointed physician has tried.
New residents also neglect their financial health too. Going from no salary to some salary impacts one’s psyche. If you add in a stressful environment then it’s pretty easy to start making bad financial choices. Predatory businesses who want your credit score will lend you more than you should ever incur to your name.
Whenever I am mentoring a new trainee, I try to distill the financial aspects of their training to a few fundamental steps. No new doctor should be spending hours of her free time during residency mastering financial matters anyway—you need to be mastering your profession. Below are a few of the pointers I try to highlight:
Assess your 401k/403b options
Die hard savers will browbeat you into maximizing all of your tax-advantaged space no matter what. As a resident you technically should have enough income to fully contribute to your employer’s retirement program. Many non-physician middle class households have comparable incomes to medical residents, and many still do contribute to their retirement accounts. In practice what you should do may not be as clear-cut. Some of you are probably training in high cost of living cities where your trainee stipend will not get you far. Some of you will have certain family obligations that limit what you can squirrel away even though all objective financial advice tells you that the longer you have something invested into the market, the longer you can allow for it to grow.
I certainly did not maximize my 401k/403b options during my training, although I was not well-equipped to manage my finances either. My training program did not offer any matching options, so I figured that I would have been better off either keeping my earnings in a savings account as an emergency fund or using excess funds to repay my student loans. The interest rate in savings accounts were atrocious, but it allowed me to keep around emergency money.
The bottom line on whether to maximize your retirement accounts during your training ultimately depends on how much you can budget. Most medical residents are going to be in the lowest tax bracket ever in their training so the savings will come only in retirement when you start withdrawing.
Track your loans
It is not difficult to lose track of what you owe and when your payments are due. It is always easy to apply for deferral or forbearance, but eventually that will catch up to you as well. Update your mailing address if you have moved recently. I’ve lost count of the number of times that my mail was misplaced after changing addresses. Even though most transactions are conducted online now, it still is good practice to minimize the chance that you lose any important mail.
Watch out for credit card debt
When I started residency, I started receiving all sorts of flyers for credit applications. It’s as if someone knew that I suddenly came into a windfall with a real job. Perhaps the student loan companies sold my information to lenders. While lenders are generally more cautious about extending too much credit in recent years, it’s not difficult for most people to open too many lines of credit especially if you are in a stable profession.
You might think that credit card debt is something that only others would get caught up in. Think again. It’s just as easy for doctors to become deep in credit card debt as anyone else. The problem with doctors being too busy is that less important matters can become forgotten. I’ve embarrassingly forgotten to pay bills even though I had the funds to do so. I’ve had co-residents who set their payments only for the minimum amount due each month not realizing that they were paying interest rates up to 25%!
Don’t buy that house
No matter how you justify it, owning a condominium or house during your residency probably isn’t going to give you any financial brownie points. The biggest hassle with owning property at this stage in your life is that there isn’t any guarantee how long you will benefit from owning it.
There are plenty of residents who purchase condominiums during their training with the intention of renting the units out to future trainees. This could be lucrative only in a high cost of living area where the property value will actually appreciate. Sure, rental income is all about cash flow but there is a good chance that the work that you’d have to put into managing or outsourcing the maintenance will offset much of the financial gain.
Think about it. How much are you willing to put up with in taxes, maintenance issues, and heartburn for a rental that goes for $1000 a month? How about $1500 a month? $2000 a month? What if your day job as an attending physician paid you $300,000 while your residency rental was 1000 miles away?
What other suggestions do you have for residents in training?
Are doctors overpaid?
I would have thought that all doctors are on the same page about being overworked and underpaid, but I was surprised to read on a recent physician forum that some doctors claim that our profession overall is compensated adequately.
Why doctors aren’t entrepreneurial
The Hippocratic oath says nothing about taking out a bank loan to outfit your own office to start your practice, nor does it include investing in real estate to diversify your income. Of course, most doctors didn’t opt to enter medicine with the intention of building an empire of medical care (although some end up doing so anyway). Large hospitals, insurance-run medical groups, and entities that operate with high revenue healthcare dollars all consider this perceived aversion to business an advantage for them—if doctors or “providers” don’t want to worry about running the business side of medicine, then it is the role of the entities to handle the “grungy” part. The cynical side of me keeps reminding me that much of healthcare functions on the backs of the physicians.
Student loans plant the seed for debt aversion
It would be unfathomable for a business owner to fund a venture entirely out of her own savings. Our tax system is structured to allow businesses to leverage and borrow. Cash flow allows these financial structures to self sustain. Medicine, on the other hand, is a conservative field. Doctors are debt averse. Look at all of the articles on Public Service Loan Forgiveness (PSLF). If you can strategize and plan meticulously where you train and work, you can find ways for Uncle Sam to pay for your education.
Sure, we’ve all had patients who seem to take advantage of our health insurance system and other social support systems. There are people who have a seven-figure net worth who pay zero taxes or are able to structure their taxable income to allow for federal support services. It would only seem fair that doctors try to use PSLF to help the cause, especially if that is the only tax strategy we have.
Most business types wouldn’t bat an eye going into a low six-figure debt in order to build up their entities. Many businessmen/women leverage far more than that without the concern that doctors have about debt. Doctors? No way! Most of us will cringe at five-figure loans and will try to find ways to get that number to zero. There’s nothing wrong with hating debt, but this might also prevent you from making the appropriate decisions to become a successful entrepreneur.
What about other health professions?
There are many health professions who are also “doctors”. Some of them are very good at business. Dentists, chiropractors, and optometrists are a few groups that come to mind who are incredibly politically and financially savvy. These guys also rack up a huge amount of educational debt but they aren’t afraid of going more into debt to build up their practices. This business success comes in part from a strong professional organization that encourages practice building outside of mastery of the science as well as the nature of the profession.
These health professions are largely outpatient based without having to rely on unwieldy equipment or hospitals. Some of these doctor professions don’t even deal with medical insurance, which allows them to offer services without full constraints of the healthcare system. Who knows.
Overall risk aversion
The reasons why doctors shy away from business in general are nuanced and complex, but common barriers include:
- Variability in practice modality among specialties — This prevents you from getting adequate business training from medical school. In residency, you are likely too busy to be able to learn anything outside of the medical knowledge. You might not have had access to the right mentors either.
- Health insurance complexity — This may indirectly limit doctors from being their own bosses in their practices.
- Fear — No one likes to be put outside of her comfort zone. What’s it feel like owing a huge chunk of change in student loans, and taking even more risk in real estate, outside investments, or other gambles that might amount to total loss?
- Stable income in context of employment — We went into medicine to run a stable career. Why risk blowing the earnings so that you could do something outside of what you already know?
- Lack of [perceived] time and/or ability — Unfortunately our profession tends to leave little time left to do anything outside of medical practice. Most doctors would prefer to do their work and spend the rest of their free time with their families.
What other reasons make it difficult for doctors to become entrepreneurs?
Doctors need to understand their worth
There was a recent news brief stating that the average internist generates about $2.4 million annually for the hospitals that they work for. While it’s no surprise that doctors help others make money, seeing a figure to your worth hammers home how much we sustain the healthcare system, often at our own expense.
This basically means that a Hospitalist making $240,000 a year doing average work for the hospital is working with a 90% overhead! This is not just a matter of robbing Peter to pay Paul—this is robbing Peter, Paul, and their children to pay the king! I certainly wouldn’t want to be running a business with a 90% overhead. Those of you who are hospitalists probably know of the various incentive programs that your hospital offers to its doctors for good work:
- A $10,000 annual bonus for twelve consecutive months of good patient satisfaction scores.
- A $5,000 quarterly bonus for handling more admissions from the ER.
- An invitation-only steak dinner catered by the hospital for a year of prompt charting.
Now this article is not intended to get all doctors to strike, but we do have to sit back and realize that we’re getting moldy carrots for a whole lot of work. In case you were wondering, those fat cats occupying the C-suite are getting steak dinners more than once a year.
How does a Hospitalist bring in $2.4 million to the hospital?
This is more of a thought exercise, but I’ve had colleagues tell me that their RVUs amount to a fraction of this $2.4 million figure. Sometimes, hospitals show doctors their RVUs simply to shame them into working harder—maybe comparing them to each other or showing that a particular doctor isn’t meeting the baseline number of admissions. Not all RVUs are created equal, but that will be a discussion in another article.
In order to follow the dollar signs, you have to look at what can happen with every hospital admission:
Even though the primary doctor only brings in direct revenue from daily exams, labs, and diagnostics, all of the consultants downstream generate even more money for the hospital. Remember that revenue comes both in the form of professional and technical charges. The technical and facilities charges bring in serious amounts of money into the system. Just look at some of the bigger hospitals in metropolitan areas—they are all renovating their facades and public spaces in order to attract more patients. The money is coming in somewhere, and doctors play an integral role in capturing that revenue for the hospital.
The conundrum of the doctor
Unfortunately understanding the money trail isn’t going to get your hospital to pay you more. The issue has to do with numbers. Just as hospitals are trying to supplant M.D.’s with physician extenders who can follow protocols at a lower salary, the more doctors of your “type” there are, the easier it is for the hospital to hire. In the medicine world, internists are a dime a dozen—you can always be replaceable if there is someone out there willing to do your job for less pay. More specialized doctors may have more leverage in the health system, they are still replaceable. I’ve seen highly trained specialists in metropolitan areas become replaced by hospitals when they gripe about work hours or inadequate salaries.
The more work for less pay issue doesn’t sit well with me—we all obviously have different thresholds on our worth, but the lack of uniformity among our profession contributes to our downfall. I’d imagine that starting debt after our training contributes to our willingness to negotiate higher salaries, as does our starting net worth.
Until we find a more unified front to combat the system, I simply continue to tell my trainees to learn as much about the healthcare system as they can if they intend to practice medicine.
What would you suggest doctors should do to qualify our worth?
Doctors net worth strategized
There’s a fetish in the financial world to track one’s net worth. Maybe it’s a chauvinistic means to compare one’s success to others’, or simply a means to build accountability to reach one’s goals. I certainly felt great looking at a line graph with a positive slope documenting my net worth when I became interested in the subject. The years that the bull market plowed ahead produced very steep slopes, while more recently the growth has been mostly stagnant. Whether any of the positive slopes were related to my own doing, I sure felt great about it.
We should all strive to have net worth graphs with positive slopes. Most doctors’ net worth line graphs should have positive slopes—the only time should be if there is no income, working or from investments. Either way, it’s not good for anyone to have a stagnant net worth slope.
One interesting discussion that we often hear from the doctor’s lounge how one’s life would have progressed differently if we had opted for a career outside of medicine. These conversions materialize so often that sometimes it seems that all doctors are disgruntled about their jobs. The reality, unfortunately, is that these conversions stem from burnout or some aspect of our jobs that we don’t enjoy.
One interesting thought exercise that is often discussed is how life would be if said doctor opted for a career outside of medicine. Let’s take a look at the financial differences in one scenario:
Software developer vs Hospitalist
These projections are relatively broad in assuming that the software developer is moderately successful in her field of choice, since her alter ego in another life ends up becoming a doctor. Both cases do assume relatively intelligent but not necessarily draconian financial comprehension.
The software developer begins her career with only a Bachelor’s degree, although this field typically doesn’t necessarily require an advanced degree to move up the ladder. What one can conclude on this is that you don’t have to be a doctor to become a millionaire, and all that it takes is a good steady income and time. It doesn’t hurt that a career that only requires a Bachelor’s degree will allow an individual to enter the workforce in her early twenties, effectively adding nearly a decade to the working career. This financially mindful software developer is able to build a net worth of $1 million before the age of 40! With tactful financial planning and grinding away over time anyone with moderately good financial firepower ought to build a healthy net worth.
Let’s take a look at the Hospitalist financial trajectory:
You can see that the doctor has to start her career later and with a hefty student loan balance compared to her software engineer alter ego. The financial trajectory will depend largely on the doctor’s specialty and income potential—the Hospitalist in this example likely has longer hours than the software developer and only has marginally higher net income during her peak years. I chose this example to show that your income range as a doctor really determines how much spending power you have. There are plenty of medical specialties whose income is comparable to that of many other non-healthcare professions.
A doctor household with a stay-at-home spouse will have less financial firepower than a household of, say, two mid-career upper management engineers.
What this means is that just because you are a doctor, you still shouldn’t spend more than what you income allows. This means that Pediatricians shouldn’t be buying as much as Neurosurgeons (Sorry Peds! We will keep fighting to make sure that your profession becomes better recognized for your care!)
Conclusion
If you look back at the Hospitalist net worth trajectory, she will still be able to hit a seven-figure net worth before the age of 50. With either more income or strategic financial planning, she can still live a comfortable, but busy, lifestyle that rewards her for spending her twenties in the basement library of her medical school. The next time you roll your eyes when the ER calls you for your eleventh admission of the evening when you have no cap on admissions, remember that as a doctor you can still build up your net worth, piece by piece.
Don’t know where to start? Consider going through some of our previous articles: