Necessity is the mother of invention. If you need something badly enough, you are more likely to find a way to obtain it. This proverb clearly rings true in all aspects of life. The key is really knowing how badly we need it. I knew someone who wanted to
Weighing the geographical arbitrage scale for doctors
Large cities with robust public transit and cultural hotspots are the ideal place for some of us. Vast nature and open spaces will appeal to others. Some of us can only imagine living in warm weather next to sandy beaches. Fortunately all three of these locations need healthcare. As physicians, we are likely to be able to find a job nearly anywhere we’d like. Unfortunately some more coveted regions of the country come at a cost. This cost can manifest in several aspects:
- high cost of living
- low wages
- competitive market
- extenuating commute times / traffic
- natural disasters (read: southern California)
For those doctors graduating with an average debt in the six-figure range, the lifestyle of where we choose to work can strongly influence where we decide to settle. How much of a range can we expect to see? Let’s take a look at a few cities:
Who doesn’t like beautiful beaches, tropical weather, and poke all year round? There are aspects of your life that you will have to compromise on if you decide to live there.
Median home price in Oahu in 2018: $810,000
Average physician salary in Hawaii in 2018: $241,000
Pros: Great climate, natural landscape, paradise in what people otherwise would vacation
Cons: bad traffic, high cost of living, rock fever
Unless you have family in this area, it is unlikely that any physician would consider moving there for career reasons (other than potentially high pay/opportunity).
Median home price: $68,000
Average physician salary in Ohio: $275,480
Pros: High salary/housing ratio, no traffic, low cost of living, proximity to a Great Lake
Cons: limited culture, relatively isolated area of the country, cold, snowy winters
If your main goal in choosing between Honolulu and Toledo is to get out of debt and build up your net worth as quickly as possible, then there is no comparison. There is a good chance that in Toledo you will find a better paying job with less work, less demanding clientele, higher reimbursement schedules, and lower living costs on all accounts. Yet, there are still people who will opt to practice medicine in Honolulu over Toledo…
According to a recent Doximity poll, the majority of the income-favorable metro areas aren’t in the coasts:
San Jose may actually be an outlier on the map, but the Bay Area poses challenges mentioned above that aren’t necessarily compensated by a marginally higher doctor salary. What polls typically don’t reflect is the rigor of the daily grind. For instance, one of my colleagues currently works in a six-physician group in the Bay Area. His group has five offices and two surgical centers to commute among during the week. He takes practice call every three weeks since the practice has a rule that the senior three doctors do not have to take call. In addition, he takes shared call for five regional hospital every five weeks. Practice building events include lectures at monthly seminars and trade shows.
Using the Geographical Arbitrage Scale in job selection
I define the Geographical Arbitrage Scale (GAS) to be graded with five variables, each with a maximum score of two points (decimal points are okay!). These are common variables that physicians consider when taking a job:
- Income — earning potential includes retirement options and benefits
- Work/life balance — includes access to family and friends
- Environment outside of work — weather and activities that you’d enjoy
- Career satisfaction — opportunities to innovate or lack thereof, depending on physician preference
- Cost of living — higher score means lower cost of living
The GAS comparison between Honolulu and Toledo might look like the following:
Find out what situation you are in, and adjust your career goals accordingly:
It would be interesting to see how long one could tolerate a low GAS score that might offer a very high income potential. In a case like that, one could “rebalance” the GAS score after five years to achieve a happier medium.
What is your GAS score?
The real financial cost of taking research years in medical school
About 15% of my medical school class decided to take at least one research year during medical school. This was in addition to the 8% of the class who enrolled as MD/PhD candidates, the five who already held PhD degrees before enrolling in medical school, and another two that I know of who ended up obtaining a PhD after medical school. Roughly another 3% spent extra time during residency or fellowship to conduct research. Based on these figures, one could conclude that my medical school was heavily research oriented.
The majority of medical schools don’t graduate students with such high frequency of extended academic training, and most medical students aren’t going to be interested in a career in research either. There are plenty of doctors who have a PhD degree who also practice strictly clinical medicine, and many who hold many research grants without ever holding any additional advanced research degrees.
What isn’t really a surprise but often gets neglected when future doctors make career decisions is how their financial future is impacted by extending their education.
Time is money
We all understand that the longer that we have investments into the market, the more likely it will have time to grow. This finding has been modeled repeatedly in the financial world—if you invest while in your twenties, you will likely have a greater net worth than your counterpart to only starts in their thirties even if she can save twice as much. We frontload our Roth IRAs and 401ks for the same reason.
Delaying your career by a few years will likely shorten your overall working career. All things being equal, this might cut out a few years of your peak income. This could be perhaps a quarter million dollars for every “lost” year for internists or double that for high-income specialists. If you consider inflation adjustment, then the absolute difference will be even more.
The argument for taking additional time
Obviously one’s career shouldn’t only be about getting ahead financially, although we’ve all made choices to help improve our own situation in life one way or another. Ultimately, it is you alone who will determine what you consider to be successful.
Taking a research year during medical school has many benefits, the most important of which is to have dedicated time to reflect what the essence of a particular field has to offer. There is often limited time during clinical rotations to explore subjects in depth, as we are subjected to tests, presentations, and simply reading condensed summaries on topics at hand. With limited direction and time, medical students essentially make career-impacting decisions. I have plenty of coworkers and students who decided to pursue other specialties after spending a year conducting research in another. What’s the ROI on spending a year to decide what to do with the rest of your life?
Dedicated research in a particular field will also strengthen one’s application for residency. For some students, this might determine whether they’d enter a high-paying competitive specialty. In this case, there is a financial advantage to taking additional time to make a career choice.
The bottom line
Clearly there are many roads to Rome. The end goal in life shouldn’t be to have the biggest bank account either. For such a complex profession such as medicine, the path is not always going to be clear. The advice that I give my medical students is that we should all be aware of the financial ramifications of our decisions, but we’re also in the business of improving lives. If it takes an extra year or two for a future doctor to identify what she will be comfortable with doing for the rest of her career, then so be it.
What are your thoughts on taking research years in medicine?
Can the health system afford to give doctors raises?
The business of medicine is unlike any other type of standard “business” in that health insurance and hospitals confound what would appear to be a simple exchange of services for a set price. You know that the confusion is bad when neither doctors nor the patients fully understand how the insurance system works. I have seen patients going into surgery for a lap chole being quoted a price that ended up being off by a few hundred dollars (at least it wasn’t off by thousands!). Sometimes the patient won’t get a bill until months later. Sometimes this spans a new calendar year where certain FSA’s don’t roll over and the expenses have to come out of pocket.
I’ve seen doctors’ offices receive unwarranted clawbacks by insurance companies claiming that the patient had secondary insurances that should have covered what the insurance company mistakenly paid! Sometimes these notices come long after the accepted period of restitution. All of these notices are written with the threat of legal action for those who do not comply. Many of these doctors are too busy to research the claims and simply “pay up” in hopes of making problems go away even though they aren’t even the ones at fault.
The complexity of the health system is sort of like a convoluted financial investment scheme—the party that controls the plan is the only one who benefits!
Why is healthcare complex?
The answer to this question requires at least a dozen doctoral theses in healthcare economics plus several lifetimes of healthcare experience. However, from a layperson perspective, there are several reasons why health insurance is difficult to understand:
- The system is structured with deductibles, copays, coinsurance, and secondary coverage. This means that there are many flowcharts with too many decision points.
- Managed care, fee for service, and capitated care are just some buzzwords that aim to cut costs. Some of these systems convolute an already complex system.
- There are state, federal, private, and federal/private (Medicare replacement plans) insurance coverage systems. Each one has different rules. Again, complexity favors the party who makes the rules.
How are doctors screwed?
Within this system, doctors, nurses, and those directly “generating services” are not the ones who manage resources, make the rules, or decide how to share the pie. There are many mouths to feed but only a limited amount of pie to share. The complexity of the system makes it near impossible to track where all of the pie slices even go.
Many medical groups now are transitioning towards “value-based care”, as a means of cutting costs. The goal appears to combine high quality medicine while saving costs. Unfortunately it is near impossible to envision great ways to cut costs without reducing physician compensation or creating hurdles to healthcare delivery. Both of these seem like a special recipe to cause physician burnout.
Unfortunately, patients don’t understand the system either and often blame doctors for problems that they experience in the healthcare system. Some of the common situations that I’ve seen doctors mistakenly blamed include:
- Billing complaints tied to patient satisfaction scores — Not a week goes by that I don’t hear about my colleagues who work in a large medical group getting low patient satisfaction survey ratings because a patient decided to vent about a bill that they didn’t understand. Guess what? These doctors get hurt the most because there is a good chance that their compensation is tied to these surveys.
- Lack of patient understanding of copays or patient financial responsibilities during visits — Every few months I hear stories from doctors that an unruly patient refuses to pay a $25 copay or complains through predatory online social media channels that the care was not worth the “$50” that they had to pay. The fact that a patient thinks that a physician is compensated $50 for a patient visit grossly reflects how skewed anyone’s understanding of how much a doctor should be compensated.
- Complaints about unacceptable wait times in a doctor’s office — Many multi specialty medical groups have centralized scheduling services that dictate a clinician’s schedule without any input from the doctors themselves! Inevitably some of the complaints erroneously blame doctors for being “too greedy” by over scheduling patients.
The fact that much of the lay public thinks that doctors earn too much money and that doctors don’t manage the flow of revenue in healthcare makes it problematic for doctors to win any argument involving money.
Where does compensation come in?
It seems like a faux paux for anyone in medicine to ask for a raise when health experts are trying to cut costs across the board. After all, the federal healthcare system only has a finite amount of funds and it is clear that this amount doesn’t keep up with inflation—if you want to learn more, start reading about the Medicare Sustainable Growth Rate (SGR) issues.
What is interesting is that hospital administrators don’t seem to have many qualms about asking for more money for themselves. Many hospital administrators also don’t seem to have qualms about offering highly competitive or even highball offers to many allied workers—I’ve seen discussions during medical staff meetings where board members peg nursing salaries at nearly 75% of what the hospitals pay their hospitalists!
Now the point is not to start any turf war within the medicine community, but to realize that the pot has a fixed amount of funding. As much as equality should be heeded in our society, most people would agree that professions with different responsibilities, qualifications, and tasks should have different means of compensation. When the rewards no longer outweigh the challenges of a field, you will not have too many qualified people opting for the more challenging jobs.
What should doctors do?
While we shouldn’t all go out on strike (maybe that isn’t a bad idea!), it is important to realize that we have to play by the rules of the system if we are to remain in the game. Doctors need to understand their worth in order to assess their work situation. As with any occupation, we need to assess whether there are alternatives that would improve our situation and what is negotiable. Realize that if you are able to negotiate a highly salary, it means that the margin of profit that was already there wasn’t going to you to begin with. Since there is a fixed amount of healthcare dollars floating around, the number of dollars set aside to pay doctors is “set” unless you are able to increase productivity. Realize that if you are able to negotiate a highly salary without working more, it means that the margin of profit that was already there wasn’t going to you to begin with.
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If you don’t like how the system rewards productivity or skill, then it behooves all of us to take initiatives to improve how the system functions.
What has been your experience with your hospital or medical group with compensating doctors appropriately?
Photo courtesy of The Simpsons, Copyright 20th Century Fox.
Is Anesthesia the best field for early retirement?
Two of the biggest hitters in the physician finance online world are both anesthesiologists (PoF and PassiveincomeMD). Both of them are masters of side income by approaching money in completely different directions. Is it sheer randomness that out of dozens of possible medical fields, both of these successful money-oriented doctors are in the same specialty? Or is there a particular personality or mindset that lends itself to both anesthesia and successful money management?
The chicken comes first
The field of anesthesiology has quite a few characteristics that allow its doctors to become financially successful more easily than other fields. Let’s take a look at some of them:
High earning potential
The median annual income for anesthesiologists hovers in the high $300,000 range. I know plenty of anesthesiologists who earn at least 25% more than that. Some anesthesiologists living in a strategic part of the country who have the ability to add in shifts/cases can earn 100% more than that. High earning potential gives anesthesiologists fundamentally greater financial firepower than internists or family practitioners. We all know that compound interest is king, so those who are able to amass a larger nest egg early career will have a longer trajectory for the money to grow.
Anesthesiologists are a dime a dozen in hospital rosters, and they can slide under the radar. Most patients meet their anesthesiologist in the preoperative area, and never see them beyond the postoperative area. Patients looking to have their gallbladders removed don’t typically seek second opinions on who is going to intubate them—wouldn’t you think that the gal running your ventilator ought to be scrutinized just as much as the gal who is going to take out your gallbladder?
What this means is that work for anesthesiologists tends to be relatively stable. As long as there are surgeries being performed and hospital contracts to be honored, the revenue will come. Patients won’t go out of their way looking for a different anesthesiologist to manage their surgery.
Relatively inconspicuous specialty
Likewise, patients don’t seek out particular anesthesiologists to participate in their care. Aside from pain management clinic, there is no clinic component in the anesthesiologist’s daily routine. In contrast, patients wanting elective mastopexy surgery, rhinoplasty, or LASIK have certain expectations of how their doctor appears. There is doctor shopping in these fields, and a dissatisfied patient will look elsewhere for care or even demand a refund on surgery!
That’s right. Belligerent patients can demand a refund for a rhinoplasty but I’ve never heard of a patient demanding refund on a “bad intubation”!
In some ways, it may be financially advantageous to stay out of the spotlight.
Financial success is contingent upon both work and non-work hours. If you spend 90 hours a week at the hospital, you will likely be inclined to make decisions that simplify your life but perhaps at the expense of your wallet.
Anesthesia tends to have relatively controlled work hours, and most on-call schedules have expected outcomes (doctors at busy hospitals will definitely get called to go in while on call and vise versa). The work to income ratio often is balanced enough so that there can be ample time to pursue hobbies or ventures to increase net worth. Medical students take note!
The egg comes first
Every medical specialty lends itself to a particular personality, and anesthesia is no different. The field requires a good deal of attention to detail at the beginning and end of a case, and perhaps a more laid back personality with interests in outside hobbies. If the outside hobby happens to be involved with finance, then the field allows for successful ventures with money. Perhaps we are self-selecting those who are already financially-inclined and noted that they work in identical professions.
Beware of your job
While the intent of this website focuses on finance, there are quite a few political and economic factors that directly impact the earning power of physicians. We all know about reimbursement cuts and increasing costs of doing business, but the elephant in the room is the increasing popularity of replacement of doctors by physician extenders.
It is a very well known fact that nurse anesthetists have worked alongside anesthesiologists to increase the throughput of medical care. However, lobbying powers have enabled many of these paramedical fields to work independently of any medical doctor supervision. Interestingly, reimbursement schedules for these two fields with completely different rigor and demand are disturbingly identical.
What does this mean for anesthesiologists? Please stay active with your board society, and make sure that you take part in helping your profession remain solvent! Political factors may not necessarily be as logical as healthcare should be. Other medical specialties should also be aware of similar encroachments in their profession as well.
The bottom line
What does this all mean? If you pay attention to finance, maybe you’d enjoy being an anesthesiologist? Or maybe becoming an anesthesiologist will confer you advantages to becoming financially secure? Either way you look at it, anesthesiologists will have a bright future.
What specialties do you think are more favorable for early financial independence?
Photo courtesy of Flickr
What hospital statistics don’t reveal about doctor salaries
I came across a heated newsgroup thread related to a recent survey comparison of medical specialty salaries and the revenue that each specialty generates for hospitals. Overall there is a general correlation between higher hospital revenue and higher salaries, but there are some outliers. According to the data, ophthalmologists generated one of the least amount of revenue for hospital yet reported income that was in the middle of the pack. You can read the official survey data on Merritt-Hawkins.
Naturally, there was some animosity from those specialties who felt short-changed by the system. Why would a certain field be compensated more for contributing less to the system? The devil in the detail, of course.
This topic presents a good learning opportunity for all doctors.
A study is only as good as the data given
We’ve all taken part in clinical or laboratory research at some point in our lives. Some of us conduct research in our jobs. We all know that variables need to be controlled, and shoddy survey research is only as good as the respondents’ responses.
In this survey, both hospital and office-based specialties are lumped together. Certain medical fields like dermatology, ophthalmology, and psychiatry are office-based fields. For the most part they function independently of hospitals, and generate revenue from professional charges as well as ancillary services. They do not typically bring in much revenue to hospitals.
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Why? These specialties are unique:
- These specialties typically do not consult other specialties, so the referral chain ends with them.
- These specialties typically do not order high volumes of ancillary testing such as lab work or imaging.
- Procedures that these specialties perform can typically be conducted outside of the hospital. Anything done outside of the hospital translates to zero revenue to the hospital.
- They’re also not likely to be employed by the hospital either.
If you look back at the survey, a field like ophthalmology isn’t going to bring much revenue into the hospital. An ophthalmologist isn’t likely to be employed by a hospital either. So the reported salary of an ophthalmologist isn’t likely to have any correlation with hospital revenue at all.
In contrast, neurosurgeons employed by a hospital are going to be more common. Most of their surgeries are performed in the hospital, and their work brings in significant technical revenue to the hospital. A hospital could contract with independent neurosurgeons for their services, but from a business standpoint employing the neurosurgeon would give the hospital much more control.
Key points in the business of medicine
It’s never a good idea to make career decisions based on money especially in medicine. What might be a hot field with great compensation may no longer be the case your entire career. The key points I impress upon my students to assess are the following:
- You need to choose a field that you enjoy.
- Once you’ve narrowed down your potential options, get a sense of what you can do with your expertise. Inpatient, outpatient care? Lifestyle?
- Understand how one’s skills within a profession translates into income. You don’t have to understand everything, but getting a head start will allow you enough time [read: years] to synthesize the right questions to ask in the future.
If your career specialty is already set, it’s not too late to reassess what you understand or not about your field. If you are an internist, you probably already have a good sense of job options available like outpatient care or hospital medicine. Study how revenue stream occurs. Figure out where the middlemen are, and ask yourself if you are okay with how the system you are in works. Realize that not every one of your peers will share the same values that you do. Make sure that whatever you decide to do helps to preserve your profession. I’ve seen plenty of doctors “sell out” their profession to make a quick buck. Don’t be that gal. We’ve worked too hard to throw away everything.
The bottom line? Don’t get mad if someone else seems to work less and earn more! If that is important to you, figure out what you can do to make it right! You’ve got an entire career to do it.
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Financial conundrums of dual income doctor households
Two incomes are better than one, right? As we all know, the answer isn’t clear cut. If we have to actively “work” to generate income (shout out to @PassiveIncomeMD), we have to balance exchanging time for money. Nothing comes for free. When you throw in a tax system to convolute matters, certain households are actually punished for going into the workforce. There is a delicate balance between each income-earning member and what each profession entails. Some households are hit harder financially than others due to the income situations of each spouse, but hey, we don’t choose our partners based on their incomes right? ?
This conundrum isn’t limited to doctor households or families with a high-income earner. One of my neighbors is a financial analyst with a stay-at-home wife and two kids. The wife opted resign from her previous job as a teacher because her entire income would have gone towards child care. That’s just how life plays out sometimes.
The tax man punishes disproportionate incomes
The U.S. tax system almost always “punishes” the spouse with a lower income. Two main reasons:
- The tax system is progressive, just like how the jackpot in those slot machines keep on growing. The higher your income, the more likely you will get pushed toward a higher marginal tax bracket. Suppose a dual income household has a physician earning $350,000 a year and an IT customer support specialist earning $60,000 a year. The physician income alone puts the family in the 32% marginal tax bracket. If the IT professional were single, he’d only be in the 22% bracket. If he were the sole breadwinner in the family, they’d be in the 12% marginal bracket. Instead, the family will be in the 35% marginal bracket. This means that a good portion of his income will be taxed at 32% (until the family income reaches the 35% threshold) and the rest at 35%! Perhaps that is the penalty one pays for being in a high-income household. For some households, giving up 35 cents for every dollar you earn on a $60,000 might not be worth it.
- Social Security and Medicare taxes get taken out “twice” in a dual working household. This is a system that you pay into while working and will receive some repayment in retirement. But one could argue that it’s still potentially less money in your pocket. A family with spouses earning $350,000 and $60,000 a year will potentially take home less than another family with a single earner with a $410,000 income.
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Whether the lower income producing spouse remains in the workforce ultimately depends on what is most important to the family. Interestingly, most of my colleagues in this situation made their decisions based on finances. Essentially all of the lower income spouses ended up leaving the workforce to care for their children until the kids became old enough to enter school. Some of the spouses re-entered the workforce. One wife of a couple I know actually worked side gigs with Instacart and Rover while the kids were in school!
Spouses with similar incomes fare better
Our tax system tends to be more forgiving when each member of a dual income household has similar incomes. Each member still needs to pay into Social Security and Medicare separately, but they would have been required to do so even if they were unmarried. These households are undoubtedly more equipped to reach their financial goals more quickly, but are also susceptible to overextending their earnings because they have higher earnings.
Most of my experience with dual income households is with dual doctor households. Since medicine is a relatively time-demanding profession, I find that most dual doctor households are obligated to outsource many tasks. Instances include:
- Utilization of grocery delivery services or grocery pick-up services.
- Utilization of Uber Eats, Seamless, or other restaurant delivery services.
- Utilization of dry cleaning services with pick-up services.
- Nanny or Montessori schooling for young children. Some nannies command salaries in the $70k range, more than what most medical residents earn! I once knew a doctor household who kept their nanny until the kids were well into high school!
- Utilization of lawn and home cleaning services.
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There is no end to what you can outsource. While the income levels of dual doctor households may be higher, their taxes are higher, and the expenditures tend to be higher as well. Are these families actually better off financially than single doctor households? I would suspect that the split is actually more even than we would expect. There are a handful of dual doctor families I’ve seen that completely outspend their earnings. Shocking? Not anymore.
How to be a winner
There isn’t a single best answer to handle the finance implications of dual income households. The bottom line is that some of us are going to get the short end of the U.S. tax system. We might not have a choice in the matter. What we do have control over is how much we save and invest.