SmartMoneyMD | Smart Money MD

Author: SmartMoneyMD

Why doctors aren’t entrepreneurial

Posted on March 23, 2019January 30, 2021 by SmartMoneyMD

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.

There is nothing wrong with marketing your own mustard.

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?

Financial implications of academic medicine

Posted on March 11, 2019January 30, 2021 by SmartMoneyMD

Apart from a minority number of academic physicians (a la @PassiveIncomeMD), nearly all of the physicians openly discussing finance matters online are either retired or in private practice. The data might be skewed since most practicing physicians don’t work in academia anyway. What might be interesting is to compare the percentage of financially literate academic physicians to that of those outside of academia. I would venture to surmise that academic physicians might be more financially literate than everyone else simply because they are likely a more analytic bunch—I guess it also ultimately depends on how we define financial literacy.

Now hold it right there buddy! My medical school classmates who work in academics know squat about money!

Why academic doctors might be less informed about finances
Doctors as a group are intelligent—you might argue that there is a difference between intelligence and common sense, but in order to get through the training process to become anointed with an “M.D” (or D.O) not only requires a long time but an ability to troubleshoot at least the medical aspects of our jobs.

You might also like: Are you turning away millions of dollars as an academic doctor?

Just as how any educator would assess her students, proficiency (or lack thereof) in a subject could be attributed to one reason:

Motivation — We’ve all known people who are gifted but don’t apply themselves. I would argue that most people who didn’t flunk out of medical school should have the chops to open a Roth IRA or decide whether they can afford a new yacht every five years. But no matter how much intelligence you have, going into a college final cold turkey can only get you so far.

Lack of motivation could be summed up by a multitude of reasons:

Too busy — This is not unique to academic medicine, but if your life doesn’t afford you the time to learn about finances you’re not going to understand it. The barrier to understanding money is somewhat low compared to understanding metabolic acidosis from oral hypoglycemics, but if you’ve spent no time learning you’re starting with an empty deck.
Pre-existing financial independence — It might be presumptuous to assume that one reason why you don’t spent time managing your finances is because you started out with a loaded deck. I know a few of those people in medicine, and we all wish that more people were as altruistic as these gals. Their trust funds are still being managed by somebody, however. It would be nice if all of us had this luxury.
Unawareness — A number of my colleagues simply think that their six-figure salaries can buy more than they can, so they don’t really pay attention to the details. Once the kids move off the waiting list for the highly competitive daycare that all of your coworkers send their kids to, the $50,000 a year nanny would start looking inexpensive.
Everything else — This is a catch-all bucket. Maybe the lack of financial motivation is due to a combination of the aspects mentioned above. Frankly, the norm is not to talk about finance as a doctor. If your colleagues don’t seem to be worried about it, why should you?

Academic medicine somewhat highlights being “too busy” to be deeply knowledgeable about finance. Aside from being a clinician, academic doctors may be responsible for a multitude of tasks:

Training residents, students, and fellows. This includes ACGME mandated roles for residency directors.
Drafting new grant requests, both within an institution or with the NIH.
Conducting either laboratory or clinical research, along with going through dozens of revisions on multiple papers.
Traveling to conferences across the globe to present their research.
Sitting in administrative meetings.
Participating in fund raisers for their departments.
Scut monkey for their departmental chair

There’s only so much you can throw onto your plate before it spills.

The financial ceiling of academic medicine
While most careers will have an income ceiling, it’s pretty well known that academic medicine will usually have a lower overall income ceiling over a normal career length compared to other clinical jobs. What this means is that those doctors whose incomes are in the lower range of physician incomes will need to be more conscientious about their finances as they might not have the financial firepower to get themselves out of negligent spending.

Conclusions

What does this mean if you are in a career in academic medicine or are considering it? All is not lost! You don’t have to resort to owning a dozen rental properties just to make ends meet. You do have be aware of the pros and cons that your career choice offers and make appropriate choices:

Be aware of your earning firepower, and make sure your lifestyle doesn’t exceed what your W2 shows.
Some academic arrangements are actually private practices with academic titles. This might confer the benefits of being in both academics and private practice.
If you are working in the public sector, consider PSLF. You could start the process while in residency and continue for a few years after you finish. It may not be as long as you think.
Don’t try to compare yourself with others not in your shoes. You will only be disappointed.
Make sure that you actually know what you want. Don’t make job choices based on what others think of you. Do it for yourself and your family.

What other financial suggestions do you have for the academic physician?

Doctors need to understand their worth

Posted on March 3, 2019January 30, 2021 by SmartMoneyMD

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, side hustles, and your time

Posted on February 23, 2019January 30, 2021 by SmartMoneyMD

Thanks to the Internet, collaboration has never been so easy. If you need to learn about how to install a new irrigation system in your lawn, the resources are a few clicks away. You just need the time and motivation to make happen. On the medicine front, there has never been a time in the recent past (aside from a failed managed care push in the 1990’s) that doctors have been as disgruntled. Perhaps it’s due to the ease of communication, but I’ve never realized the momentum of doctors out there wanting to find their golden parachute outside of medicine.

Reasons why doctors are unhappy

The sky is the limit as to why doctors are becoming more pissed off at the healthcare system. Some of the more common changes contributing to this mentality include:

Lumping doctors into the generic “provider” category. We all saw it coming—allied health workers getting all lumped into a single category with the doctor. While support staff is critical to the function of a medical practice or hospital, there are philosophical, practical, and safety issues with blurring the distinctions among all of the healthcare workers who touch the patient. Something just doesn’t sit well when the call operator, IT guy, medical assistant, and scrub tech are all “providers” in the system.
Increasing work that’s not related to direct patient care. Yes, who actually likes doing online training modules on privacy acts? How about patient satisfaction improvement projects? Or who likes to chart an extra two hours every day to finish documenting all of the diabetics in their clinic? Some medical professions are also stuck going over labs that they’ve ordered and calling patients every evening after clinic. This is where burnout happens—doing all of the things that didn’t require twelve years of medical training.
Ever-narrowing salary range among all healthcare workers. Sure, doctors are still compensated near the top of the healthcare chain (right behind that of administration and C-suite folks), but it’s amazing how much the salary gap is narrowing between doctors and everyone else. We all understand that other healthcare workers are spending more for their rising cost of education, but anecdotal evidence tells me that it’s not that common for doctors to actually get raises over a career. At the same time, physician extenders are being given more autonomy and compensated more (Sorry guys, I’m not throwing anyone under the bus. The problem is with our healthcare system). Several of my colleagues have continually reported having stagnant wages while nearly doubling their clinical volumes over the past decade.

The emergence of the side gig

I’d imagine that the motivation to find a side gig partly stems from the broken healthcare system and the possibility of no longer relying on our day job to sustain a living. Many of these side gigs stem from our pre-existing background in medicine; some of them are completely unrelated. I know cardiologists who have ventured into the restaurant business, and a pediatrician who decided to open his coffee stand at a sporting stadium. All of these ventures are time consuming and take energy away from their families. It impresses me that some of these guys can do this despite having young families or jobs that eat up 65 hours a week.

Many of these ventures turn out to be quite successful. Some of these guys end up generating enough income to sustain their lives outside of clinical practice, which I assume is the hope for many doctors. We really don’t hear about the ones that end up remaining as hobbies.

Doctors shouldn’t have to find side gigs

Look, it doesn’t matter how you spin it. If you want to be the next Doctor Oz, that’s great. But if your goal during your entire working medical career in medicine is to find an out, something is wrong. The problem could be you. The problem could be the system. The problem could be you in the system, and maybe the side gig is your way out.
I have many colleagues who incessantly whine about how horrible their medical practice is. Maybe the hospital is only giving them an extra $3/hr for working overnight shifts. Maybe they are outspending their ability to earn from their day job.

Image courtesy of Flickr: https://flic.kr/p/rrssT6 — Famous person or not?

Make sure your side gig has a purpose

Doctors need to have a purpose, whether it’s to come up with the next great product or to cure cancer. If having a side gig allows you become a better doctor, then that by itself is enough of a reason to venture out. Just be sure that you’re not doing it simply because all of your coworkers are.

How to burn through $5000 in a weekend

Posted on February 11, 2019January 30, 2021 by SmartMoneyMD

Some people go through a lot just to save $20. Others are willing to drop a few hundred bucks just to make life easier. The strategy in the financial game is actually to maximize your earnings with appropriate effort while judiciously managing expenses. There are some people who are willing to spend 30 minutes a year haggling with their internet company to reduce the bill to save $200. That’s a post-tax return of $400 an hour, which is a rate that would be difficult to match elsewhere. One would be foolhardy not to go for it, right? For some of us, that rate isn’t worth the induced hypertension going through an endless phone tree and dealing with a salesperson whose dialogue matches that of your most difficult (read: annoying) patient.

Is a $200 savings worth 30 minutes of effort, a twenty millimeters of mercury rise in your systolic blood pressure, and potentially an 8% increased risk of a myocardial infarction in ten years? This is a savings dilemma indeed.

An example involving an earnings dilemma includes deciding whether to pack your family up to the Yukon to become the territory’s only cardiologist? (Apologies to those living in the Yukon or if the aforementioned statement cannot be verified). A mid-seven-figure annual earnings would be guaranteed, but you’d be running the cath, EP, and diagnostics labs too. Don’t forget that you will be at the same latitude as Siberia. Oh, by the way, you will get run over by some elk at year five of your stint. Be sure to resign before then if you expect to live beyond that.
All morbid points aside, the earning and spending journey has obstacles, some expected, some not.

Some of the potential financial hiccups that doctors encounter include:

Not making partnership in a practice, resulting in job hunting with relocation.
Anesthesia group losing the hospital contract and dissolving.
Child turns out to have some chronic medical illnesses that will blow your medical bills out of the water.

Combined household and family emergency
Case in point: Let’s take a look at how easily one can burn through a good deal of money in a short amount of time, all without trying.

Thursday, 5:47am: There is no more hot water in the house. Maybe only one component to the heater stopped working, but you can’t be bothered—it’s a big operating room day today. Plumber bill: $1300

Friday, 2:22am: You get a call that your family member across the country is deathly ill. Your PA will see your postops, and you buy a one-way cross-country ticket. Airfare: $900.

Saturday, 7:30am: Morning joe with muffin: $8

Saturday, 11:20am: Hospital lunch: $18

Saturday, 2:12pm: Afternoon espresso: $4

Sunday, 12:18am: Family member expires.

Sunday, 03:10am: Order a casket from Costco: $1088

Sunday, 9:00am: Hospital breakfast: $13

Sunday, 11:20am: Cab to airport. $66

Sunday, 2:00pm: Flight back home, purchased one-way: $859.

Total damage: $4243

Sometimes you just have to bite the bullet no matter the cost.

You cannot avoid the unavoidable
Fortunately most doctors aren’t going to go broke with an emergency expense. The amount spent in this example might consume a paycheck or two (much less for some too). The principle, however, is that one cannot predict whether these situations will happen. These jabs to the wallet hurt, but they will hurt more if you didn’t have control of your finances beforehand. Sometimes if you run into a string of these unexpected events, they can start stinging.

So take control of your finances. Don’t allow these unexpected events take over your life. If this means making that call to your Internet provider annual plus other money hacks, so be it. If it means taking a few additional shifts in the ER, not getting that Maserati, or just acknowledging that your food will taste just fine without a kitchen renovation, so be it.

A dissection of a doctor’s food expenses

Posted on February 4, 2019January 30, 2021 by SmartMoneyMD

Spend less than you make—that is the motto in beating the financial game. Unfortunately as high-income earners, doctors can have more difficulty sticking to a budget than one would realize. The problem is that each one of our paychecks will typically cover most impulse purchases. If a purchase requires more than one paycheck, it also isn’t too difficult to string along a few paychecks to cover a bigger ticket item, like a fancy family vacation or a home remodel. You can see that once the ball starts rolling down the hill, it becomes harder to stop. Frankly, it’s not difficult for a high-earning professional to live paycheck to paycheck. Society simply makes it easy to consume. Work your way up on your expenditures, get a few extra credit cards along the way, and somehow you’re knee deep into a $2 million home mortgage and needing a means to moonlight simply to make ends meet.

A look inside the refrigerator

While we tend to focus on reducing large expenses as a means to control our wallet (you business types like to phrase this as low-hanging fruit), how we decide to fill our stomachs can constitute a good portion of our income.
I have been impressed how the grocery industry has adapted to busy lifestyles. Most stores will have shopping and delivery services for those who have no time to waste buying groceries. Leading the pack in high-end shopping is the ubiquitous Whole Foods, or how my friends in residency referred to it, Whole Paycheck. Most cities also have various organic farmer’s markets, Morton-Williams, West-side Markets, and Good Life Markets where you can do some serious damage to your wallet. Some of the wallet-busting consumables that my colleagues—I, too, have also been guilty of purchasing as well—have purchased include:

Manuka honey — This honey hails from New Zealand, and supposedly has great health benefits. If you haven’t seen this before, it is relatively high-end honey that you can buy pretty much anywhere.
Organic cotton candy grapes — I’ll admit, these types of grapes are some of the sweetest I’ve ever eaten. There is a vendor in San Francisco’s Ferry Plaza Farmer’s Market that deals these for $9.99/lb! You’d be surprised how many pounds of these grapes that your kids will be able to chow down.
Cold-pressed juices — While shopping for produce at the farmer’s market, don’t forget to pick up a cold one. This will set you back a few extra bucks or eight.

A family of four shopping for high-quality, low-volume grocery items can easily rack up a monthly grocery bill over a thousand dollars. I once had a coworker who told me how he scores premium class airfare by earning points through his grocery purchases! For those of you in the credit card know-how group, he earned his tickets purely from purchases and not sign-on bonuses. He spent nearly $20,000 a year at the grocery store! I guess that’s one way to score “free” luxury travel.

Restaurant and prepared food expenses

My colleague who spends $20,000 a year for grocery items swears that he actually saves money by not eating out as much. Who knows how much he actually spent before making that lifestyle change. Unfortunately a busy career is more conducive to both unhealthy eating as well as unrestrained food expenditures. Bars tend to be frequent stops to unwind with colleagues, and we all know that alcohol is not cheap. A modest week’s restaurant tab for a single person might look like this:

Monday – Quick sandwich and pressed juice for lunch: $16. Deli at the grocery store for dinner: $17
Tuesday – Grand rounds lunch: free. Grubhub for dinner: $22.
Wednesday – Pharma lunch: free. Bar with coworker: $36.
Thursday – Seamless for lunch: $21. Light dinner with college friend: $45.
Friday – Grocery store prepared lunch: $16. Dinner: $60. Bar tab afterward: $50.

Total: $273.

Eventually all of the happy hour bills will add up…

For a family with restaurant habits, the tab could easily triple without much effort. If you include take-out and restaurant delivery the monthly damage can easily fall into four figures. Anecdotally, we start seeing indiscriminate food bills rack up when the workweek starts exceeding 55 hours a week. This number is relatively frequent in the medical field.

Summary

It’s not common that a doctor household would spend $20,000 annually on grocery bills. It’s also not common for a restaurant-loving busy physician family would spend $35,0000 annually on restaurant bills either. However, it really doesn’t take much effort for a typical physician household to spend half that amount.

Only you will know whether that amount is actually sustainable based on your income. For many of us, this amount might amount to 15-20% of our post-tax income. That’s not chump change, especially if you take into account the mandatory living expenses such as mortgage, tuition for your kids, and basic costs.

How much of your earnings are you putting into you stomachs?

Doctors net worth strategized

Posted on January 28, 2019January 30, 2021 by SmartMoneyMD

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.

Getting a $1 million net worth by age 36 isn’t bad. Believe or not, many software developers hit seven figure before that without any chicanery…

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: