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Complexities of a two physician household

Posted on June 1, 2015May 30, 2015 by SmartMoneyMD

Previously we discussed a pros/cons list of a two physician household. In this article, we discuss financial considerations for a two physician household.

Doctors are busy. Most established doctors I know work at least 40 hours a week. Those running their own business tell me that their hours range from 45-55 hours a week in the office, but many of them also handle business matters after hours (in addition to taking call). Surgeons or specialists can clock 60-80 hours a week. This doesn’t even include commute time to work or the time spent between waking up and seeing the first patient of the day.

With such a hectic work life, there are limited hours left to care for errands or everything else. Traditionally, such families have a non-working spouse who can take care of bills, repairs, and kids. As family compositions have evolved over the past decade, a larger percentage of doctor households have working spouses as well.

Obviously having a working spouse (better yet, a working doctor spouse) will add to the net income. But a dual income family does introduce both financial and logistical complexities. I have a few examples of colleagues that I know and the situations that they face:

Surgeon and School Teacher

This household has two young kids. The surgeon works 50 hours a week plus call. The school teacher works in Grades 3-5. There is a constant struggle to decide whether the school teacher should be working or staying at home. A teacher who makes $35,000 a year with a spouse who makes enough to put them in the 39+% federal marginal tax bracket will essentially give half of his earnings to federal, state, and local taxes. Ouch. Try to calculate that hourly rate. It won’t look good.

If this family has to hire a nanny for childcare, then it is a financial no brainer for the school teacher spouse to stay at home and care for the kids. It doesn’t matter if you live in Omaha or San Francisco–the nanny will more than offset the teacher’s income. At this point, the school teacher spouse could even consider home schooling the kids as a way to apply her education or branch out into alternative sources of income (a la MoneySavingMom).

Neurologist and Cardiologist

This couple also has one young child and a second along the way. While the neurologist’s salary will be in the six figure range if the job is full-time, it will still likely be taxed in the top marginal tax bracket if the cardiologist has a decent practice. In this situation, the financial options can include a part-time job for the Neurologist to keep the skills sharp while having part-time daycare. Alternatively, both spouses could consider a part-time or 0.8 status equivalent to spend some time with the children.

Another caveat for a two physician household is that it becomes harder for household chores to get done. Home maintenance, yard maintenance, dishes, laundry, cleaning, grocery shopping, and other simple tasks become exceedingly difficult to be performed during free time especially if both spouses are exhausted in the evenings. They could all be outsourced at a cost but still may be practical for the busy couple. In Thomas Stanley’s Millionaire Mind, one of the characteristics of millionaires is that they are NOT DIY-er’s and outsource tasks that aren’t directly related to advancing their net worth.

This family has more flexibility than the doctor/teacher couple mainly because their higher earning potential, but the work-lifestyle arrangement options are identical in both cases. Does the family want to focus their time on their careers? How much time does each spouse wish to spend with the children, at home, or with other secondary income streams? Would it be a waste of your many years of hard work and earning potential to give up your career?

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Do you have any working tips for a two physician household? Comment below!

Physician non-compete laws state by state

Posted on April 18, 2015April 11, 2015 by SmartMoneyMD

We’ve previously discussed how to determine how much you are worth as a physician and RVUs. You are presented with a contract with a restrictive covenant, or non-compete clause. A restrictive covenant clause often stipulates that if you leave the hospital that recruited you, you may be prohibited from practicing in a certain geography from the hospital for a period of time. Essentially it prevents you from competing with the employer for the same group of patients.

The enforceability of these clauses vary by state. You should check with a legal counsel who is familiar with your state’s laws before you consider signing any contracts. At last that I had checked, the following states deem non-competes to be not enforceable:

Alabama
Arizona (maybe)
California
Delaware
Illinois
Iowa (maybe)
Massachusetts
Montana
North Dakota
Tennessee (maybe)
Texas (maybe)

Questions or any other suggestions to add? Sound out below!

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Assessing how much a doctor is worth

Posted on April 11, 2015April 4, 2015 by SmartMoneyMD

In previous posts we discussed the basics of doctor reimbursement. How does that translate into your take-home income? In this case, how much you get paid as a doctor is exactly how any other business works.

In the broadest sense, the owner gets the leftover sum after all of the employees are paid and all operational expenses are paid (rent, utilities, supply costs, equipment rentals…etc). If the doctor is the owner of an outpatient practice, it pays to watch expenses especially since the revenue a practice is pegged against insurance reimbursements (unless you run a cash practice or have ancillary income). Since insurance reimbursements aren’t really going to rise, the only way you can truly earn more is to work more.

In a hospital setting, the physicians are generally employees or contractors of the hospital. The hospital will often set a fixed salary for its employee physicians with the understanding that each physician will be able to generate a certain number of RVUs (and revenue). As contractors to a hospital, a physician group also negotiates a set income for a contracted number of RVUs generated.

The first step in understanding how much you are worth goes along with how much revenue you can generate in your field, the general operational costs required to run your practice, and/or the going rate for physicians in your region of the country. If you are an employed physician, understand that the owner of a practice will charge you an “opportunity cost” for having support facilities and patients that you don’t have to recruit.

Take home points:

Learn how much revenue you can bring into the practice given the hours worked.
Figure out the average revenue a specialist in your field brings in.
Learn about the operational costs that an average practice in your field incurs.
Compare that operational cost to a practice that you are negotiating with.

Questions? Sound out below!

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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!

Basics of job hunting for the new doctor

Posted on March 28, 2015March 21, 2015 by SmartMoneyMD

Unless we decide to open up our own medical practice, most of us end up seeking out employment after a decade of medical training. There are fundamental questions that we should ask ourselves, our family, and our potential employer before agreeing on employment. This will be the first of several entries dedicated to the greenhorn doctor.

While these suggestions are written from the perspective of a medical doctor, they are applicable to most medical professions (dentristy, nursing, physician assistants…etc) and even to other professions.

1. Geography. Do we need to live close to our extended family? Do you need to be in California? Do you want to pay for $4/gal gasoline? Do you need family help for childcare? In some ways, being tied to a certain region can make subsequent decision making easier. As we probably have already experienced during training, being near family and friends can determine the difference between happiness and misery.

2. Do you want to conduct research? Traditionally, research opportunities have been tied down to large university settings, but many hospitals and medical practices have their own research departments. This question has become less clear cut over the years. Obviously if you wanted to conduct advanced basic science or obscure research, you’d want to stick with a university setting.

3. Realize that perfect jobs rarely exist. Your dream career job might exist, but maybe you have to move Alaska to do so! (Nothing wrong with Alaska)

4. Realize that even though you may be a scientist, clinician, or healthcare worker, finances dictate our existence (to a certain extent). Make sure that you are getting compensated adequately for your level of education and time. (More on this topic in future posts).

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5. Travel. If you are taking a travelling nursing position, consider the importance of family and how often you will need to travel, and how you travel (do you drive, do you fly, or take a ferry?). Such opportunities may be exciting initially, but may burn you out after years of it.

6. Realize that experience belies every opportunity. It might take two or ten jobs before you find a perfect one. In the process of finding a perfect career, you will make mistakes but you will also learn from them.

Questions? Sound out below!