Navigating your noncompete

Popular TV shows can help you understand how to make sure your employment contract is solid.

By Bruce Armon | Fall 2020 | Financial Fitness

 

One of the most important (and most overlooked) elements of the physician’s employment arrangement is the noncompete clause. A noncompete clause essentially prohibits you from working within a certain radius—blocks, miles, zip codes or counties—for a defined period of time, usually months or years.

Told with the help of TV shows, this overview will help you understand the importance of addressing noncompetition clauses at all stages of your career.

Survivor

Your career should not only survive as you switch from one job to the next, but thrive. Each employment contract sets you up for—or hinders you from—going from one job to the next. It is very important to be always looking ahead and thinking about your next career opportunity and how best to accomplish your professional goals.

You don’t have to outwit, outlast or outplay a colleague or an employer to be successful. Being a physician is a team endeavor. At the end of the day, however, each physician needs to look out for his or her own individual short-term and long-term goals to be the sole survivor and help ensure appropriate career opportunities can be achieved.

The Apprentice

This long-running TV show addressed many of the same elements more junior physicians may encounter early in their careers or in any new job setting: practicing independently for the first time, working with new colleagues, asserting yourself, confronting difficult patient encounters in the board room … err, M&M conference. And no physician (or any professional) ever wants to hear the dreaded words, “You’re fired.”

If you’re only one or two years into the job with an employer, how damaging will it be for you to become a “competitor” of the soon-to-be former employer and stay in that particular community? You may be well-served by including exceptions to your noncompete clause depending on how long you work for an employer before termination and the reason for the employment separation.

Some physicians are very entrepreneurial. They want to do multiple activities in addition to their full-time employment duties. They have (America’s Got) Talent and want to showcase their professional skills to different audiences in different venues.

Carving out exceptions in your employment agreement to allow you to share these talents—and keep any compensation earned and protection of any intellectual property created—are important considerations that need to be properly and clearly addressed.

The Bachelor and The Bachelorette

Switching from one job to another is never easy, even when it is by your own choice. Depending upon supply and demand, you may have many attractive suitors for your next job.

It is critical to understand as much as you can about your prospective employer before tying the proverbial knot. Before accepting the “rose” from an organization, dig into its leadership strengths, short and long-term institutional goals, challenges confronting the community, and the scope of the noncompete, nonsolicit and noninterference clauses.

Use The Voice you’ve been given to express the most important priorities and deal breakers in an employment agreement before signing. An employer can’t read your mind—so advocate for yourself or hire someone to do so on your behalf to make sure the judge…err, employer, knows why an issue is a priority for you.

American Ninja Warrior

Throughout the course of your career, you may feel like an American Ninja Warrior moving from one challenging impediment to another in pursuit of a better job opportunity.

The obstacles of a very restrictive noncompete clause can mean you have to move entirely out of the community or potentially face expensive and time-consuming litigation. Before making a jump, understand whether your current employer will see that opportunity as a threat and if there are mutually satisfactory outcomes possible, such as staying in the employment for a certain amount of time to ensure a smooth transition for a replacement hire.

Top Chef

Most every physician wants to succeed in their job and potentially become the Top Chef. There is, of course, no guarantee this will occur. A carefully crafted noncompete may void the noncompete if the physician is getting a promotion in the “new” job, even if that job is within the noncompete radius. This exclusion should be negotiated in advance before a disagreement can occur with respect to what qualifies as a promotion.

The goal for each physician, and each employment agreement a physician signs, is to have Happy Days for everyone involved without the need for lawyers in Suits arguing before someone like Judge Judy.

Competition can be healthy. Properly crafting and addressing noncompete issues with specific language in your employment agreement can and should protect you and your employer so that, in the ideal world, everyone can be Friends.

Bruce Armon is a partner and chair of the health care group at Saul Ewing Arnstein & Lehr LLP. He advises physicians, medical practices, hospitals and health care facilities and providers generally on contractual, compliance, regulatory and transactional aspects of health care legal issues.

 

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Negotiating your next contract

5 questions to consider between interview and acceptance.

By Jeff Hinds, MHA | Financial Fitness | Summer 2020

 

Just the thought of negotiating an employment agreement can be quite intimidating for many physicians—particularly if it’s your first position coming out of residency or fellowship training. Fears of tension-filled, adversarial negotiations with a significantly more experienced physician or executive sitting across the table are prevalent, as are fears of overstepping one’s bounds and potentially losing the offer. These fears often lead to many physicians simply signing the contract as is, with no attempt at negotiating better terms.

The reality is that negotiations are rarely contentious, and you can inquire about improved terms with minimal risk of the offer being pulled. Entering negotiations with that mindset, along with possessing a basic understanding of the process, will have you more than prepared to tackle this not-so-daunting (yet very important) task.

1 When is the right time to negotiate?

Refrain from any negotiations until you have received the actual offer. Initiate this conversation too early, and you run the risk of coming across as being too aggressive or money motivated if negotiating compensation—traits that could deter an employer from seriously considering you. An employer is more invested in you after an offer is extended and potentially more likely to make concessions in order to “get the deal done.” Thus, your leverage and ability to negotiate are greater at that point than they were early in the interview process.

2 Should I use an attorney?

The answer to this question requires self-reflection. Will you be able to clearly articulate any desired changes and stand firm on requests if necessary without becoming too emotionally involved? If the answer is questionable, then it may be in your best interest to consider using an attorney for negotiation assistance.

You will find that most attorneys who offer contract review services also offer some form of negotiation assistance. Some will offer to speak with the prospective employer directly to negotiate on your behalf, while others may provide you with their suggested revisions and then it is up to you to communicate the requests on your own. Ask about these services in your initial attorney selection process. But in the end, do not be worried about inserting an attorney into the process. You’re reviewing a legal document that was written by an attorney to protect the employer’s interests. You should be doing the same.

3 What negotiable items are most important to me?

Knowledge of what contractual items are actually negotiable is paramount. Though most physician contracts are similar nationwide from a structural standpoint, there are some key provisions and terms that vary by organization and affect the overall quality of the offer.

Compensation is commonly at the forefront, as those are more easily recognizable items that tend to vary the most from organization to organization. However, do not overlook the many other variables that may also be negotiable. Those could include call expectations, paid time off (PTO) and research/administrative time. Lastly, are you protected should this position not work out for whatever reason? Is the termination and non-compete language fair and equitable? Will the provided malpractice insurance require you to purchase tail coverage upon departure, and is that something for which you’re prepared?

4 How aggressive should I be?

Your approach can dictate how receptive the employer will be during negotiations. If you’re concerned about losing an offer, you can be extremely soft in your negotiations and simply pose your requests as “would you consider…” type questions. That allows the employer the opportunity to simply say “no” without you being too aggressive and risking an offer being pulled—but at least you asked the question.

On the opposite end of the spectrum, there may be items that would lead you to turning down the offer if they are not changed. In that scenario, your ability to walk away from the offer allows you to be the most aggressive. Either way, it is important that you also learn as much as you can about the prospective employer’s process in order to adequately assess your leverage and ability to negotiate. For example, are you the only candidate they are interviewing, or do they have multiple candidates they are considering for this opening? As you can guess, you are taking more risk in being too aggressive in negotiations if they can easily move on to another candidate. Ensure your negotiations will make a long-term relationship a favorable prospect for all.

5 How can I be sure an offer is fair?

For compensation specifically, surveys from the Medical Management Group Association (MGMA), the American Medical Group Association (AMGA) and Sullivan Cotter can provide you with market data relevant to your specialty and practice location.

An attorney skilled in reviewing physician contracts can also help you determine if an offer is acceptable. In addition, there is great benefit in going on multiple interviews and collecting multiple offers. Doing so enables you to make an informed decision while comparing compensation, clauses and language throughout your ultimate negotiation.

Jeff Hinds, MHA, is president at Premier Physician Agency, LLC, a national consulting firm specializing in personalized physician job search and contract assistance.

 

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Navigating student loan repayment

These resources can help ensure you’re taking advantage of any and all available opportunities to reduce your debt.

By Jason Dilorenzo | Financial Fitness | Spring 2020

 

As a student debt advocate for graduate health professionals going on 10 years, I’ve seen myriad changes in the student loan marketplace in recent years. Today, there are more than 10 federal repayment plans available, including several income-driven repayment (IDR) plans that offer affordable loan payments and potential forgiveness, most generously through an increasingly-utilized Public Service Loan Forgiveness (PSLF) program.

We’ve also seen the growth of a private refinancing marketplace and more than 75 federal and state loan repayment programs to those who work in select rural or underserved areas for specified amounts of time.

In addition to the federal and private options available, physician employers are increasingly offering their own student loan benefits in the form of upfront bonuses for student loan repayment, annual repayment and, most recently, “contribution” platforms that pay down student debt monthly.

Physicians today are finishing up medical training with an average of over $200,000 in debt, and many of you are carrying twice this amount. So how do you make sense of all these repayment and forgiveness options to ensure you’re maximizing your savings opportunities?

Federal loan forgiveness

The average medical resident earns slightly more than $50,000 per year, and the average monthly payment on a 10-year Standard plan at $250,000 in debt is around $2,800 per month. It’s clear to see then why payment relief is needed during training. This relief often best comes in the form of one of the federal Income-Driven Repayment (IDR) plans. These plans offer reduced payments along with generous interest and forgiveness benefits.

There’s a “fork in the road” often reached when you’re transitioning to practice, because until you know you no longer qualify for federal forgiveness and earn enough income to pay down debt more ambitiously, refinancing your loans to a private lender is often not appropriate.

In a majority of projections I run for graduates who qualify for the PSLF program, after 10 years of qualified employment including residency and fellowship, the amount paid is $150,000 or more less than what they borrowed.

Note that residency and fellowship programs are typically nonprofit and PSLF-qualified, so borrowers are able to count these years toward the 10 required for PSLF.

For-profit employers

Employees at for-profit organizations and independent contractors do not qualify for PSLF. Some employers in these situations may offer upfront or monthly student loan repayment as a benefit. Refinancing is almost always appropriate if available, but a borrower’s underwriting profile will ultimately dictate how competitive rates will be.

Nonprofit and public service employers

Employees at nonprofit organizations and in the private sector uniquely qualify for PSLF. Approved by Congress in 2007, this program provides a path to tax-free loan forgiveness for anyone directly employed by a federal, state or local government organization, or directly by a 501c(3) nonprofit.

PSLF “salary boost”

But not all nonprofit employees should be pursuing PSLF. If the payments required in an IDR would pay off all eligible federal loan debt in 10 years, there’s no benefit and refinancing would be appropriate.

A critical consideration is what we call the “PSLF Salary Boost.” In a sample candidate analysis, we calculated that for the six years following a four-year training term, a nonprofit employment offer was worth an additional $72,000 per year in salary when the reduction in payments from PSLF was contemplated. (Determine your “boost” with the free tool at bit.ly/3506Hrf.)

Federal and state repayment programs

The AAMC publishes a comprehensive list of available federal and state loan repayment programs at bit.ly/39n3k1a.

It’s important to note that PSLF can also be used if a federal or state repayment program qualifies and doesn’t eliminate all of your debt, but there is an overlap of benefit in that the repayment amounts reduce debt positioned for forgiveness through PSLF.

Employer benefits

Some employers will offer upfront money or annual payments (such as $20,000 per year for up to five years) to be allocated toward student debt, which is considered taxable income. Increasingly common are “contribution” plans, where an employer makes a pre-determined monthly payment to an employee’s student debt servicer. Proposed legislation may allow both employer and employee to receive a tax break when a student loan benefit is offered, and I’d expect this type of offering to grow exponentially if such legislation is passed.

You won’t know what student loan benefits might be available to you if you don’t ask!

Jason DiLorenzo is executive director of Doctors Without Quarters, which serves as a bridge between transitioning physicians and their potential employers, and PSLFjobs.

 

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How to approach your first big paycheck

Establishing a strong financial health starts by easing (not jumping) in to an upgraded lifestyle.

By Jeff Hinds, MHA | Financial Fitness | Winter 2020

 

Throughout the past seven to 10 (or more) years, you’ve learned the art of living frugally while working for a fraction of your worth during all those years of training. Then, the end of training nears. You are about to embark on a new journey with greater responsibilities…and a much larger paycheck.

You likely won’t receive much sympathy from your non-physician peers or family as you face this reality; a significant increase in income sounds like a good problem to have. In fact, it doesn’t actually sound like a problem at all. The reality is that the sudden influx of cash can be quite daunting and stressful, and for young physicians, it often leads to lessons learned the hard way.

The missing course in medical school

One major issue is that any formal education relating to finance or other business topics didn’t exist during all your years in training. The amount of medical knowledge crammed into your training years leaves little to no spare time for non-medical topics. However, with so many financial variables prevalent in both your professional and personal lives post-training, this lack of exposure to basic financial principles during training is troubling.

Late to the game

While many of your closest friends from high school or undergrad have already been in the workforce for a decade with the ability to start their long-term financial planning and investing strategies, odds are that you have been moving in the opposite direction: increasing your debt via student loans. In addition, few forces have as big of an impact upon your wealth as does the length of time you’ve invested.

Temptations galore

Fortunately, you have the ability to earn a higher paycheck than most, which can help offset some of your delay into saving and investing. Unfortunately, the temptation to purchase items that were unrealistic during training (luxury cars, large house, etc.) can be overwhelming. You are certainly entitled to reward yourself for the years of training you’ve endured. But the good news is that, by exercising some common sense and restraint in your immediate spending, you can help make up for a portion of the aforementioned lost time. Maintaining the resident/fellow lifestyle (or allowing only a modest increase) for only one or two additional years could provide you a significant jumpstart versus assuming the attending lifestyle immediately.

Create a budget

Creating a budget is a great idea for two reasons. First, it will give you an idea of how much you will be spending on necessities—the things you need to live. Second, it will determine your discretionary income or surplus after your necessities. For example, if you create a monthly budget to include all fixed monthly expenses, it can even help determine how much you can realistically afford to allocate toward items such as a mortgage or car loan.

Use a financial adviser

Consider working with a professional adviser. Similar to the medical profession, the financial industry offers an array of designations. The term “financial adviser” can be used to describe a very diverse field of individuals. It is best to educate yourself on these designations and the requirements and training needed to obtain.

Jeff Hinds, MHA, is president at, LLC Premier Physician Agency, a national consulting firm specializing in physician job search and contracts.

 

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A physician’s billing primer

What you need to know to understand about how you’ll get paid.

By Jeff Hinds | Fall 2019 | Financial Fitness

 

To provide the most advanced care for your patients, you’ve spent years of grueling study and practice in preparation for a future in health care. You’ve learned life-saving techniques, researched complex diseases, and perfected your listening skills to become a better diagnostician. Completion of your medical training nears, and at this point you feel medically groomed and ready to develop your own practice. Screech, halt, back up the bus.

For physicians, business billing acumen is another critical area of knowledge needed to evaluate an employment contract and to run a successful practice. Unfortunately, acquiring business knowledge is often sidelined until the ball is in play and headed down field.

As with any business, success in a medical practice is defined numerically—amount billed and amount collected. Physicians who don’t get the first down in understanding medical billing rules, regulations and collections are setting themselves up for serious financial challenges; the consequences are even more dire if you are embarking upon a solo practice.

Why billing matters

Just as medicine has a language of its own, accounting also has terminology specific to its practice. As a physician, you straddle the fence between learning the first extremely well, while understanding enough of the second so that you can impart financial information to all stakeholders.

Becoming knowledgeable in the “foreign language” of accounting ensures that you know enough to limit practice losses from patients who are uninsured or underinsured, while still providing the patient care that’s needed.

In a business where medical professionals want to care for individuals without regard to economics, keeping the balance sheet in the black becomes even more critical. Approximately $125 billion goes uncollected by U.S. medical providers each year. Part of that delta comes from individual health care consumers who have been handed a heftier financial burden from insurance companies due to rising out-of-pocket costs.

As a result, the payment shift has altered financial policies at most medical practices; physicians now place even greater emphasis on patient communications, while the practice has an eagle eye on revenue cycle management.

Because billing and collections are crucial for practice sustainability, expect that your salary and compensation as a physician will likely be tied to this accounting quagmire in one of three ways.

1 Billings or Accounts Payable (A/P): The process of submission, follow up and appeal of claims with health insurance companies used to obtain payment for medical testing, treatments and procedures.

Payment formulas based on billings will likely pay you a percentage of the money billed for the work you have performed.

2 Collections or Accounts Receivable (A/R): The amount of money your practice has a right to collect in return for services rendered and billed. The medical care, already provided to the patient, is given on credit and will be paid at a later date, hopefully sooner rather than later.

Considering the recent payment shift where individuals shoulder more of the cost of care, a collection-based payment formula requires more due diligence because your pay will be dependent upon the employer’s billing capabilities. In this scenario, the practice must first be paid, before you receive compensation for your work.

3 Relative Value Units (RVUs): A value assigned by the Centers for Medicaid & Medicare Services (CMS) to each CPT/HCPCS code. That value represents the cost for providing the service.

RVUs represent a combined total of three components, each individually adjusted based upon geographic location. As such, these units require more calculations and can often overwhelm those first exposed to them. Those three components are:

  • Physician work: Time and clinical skill for treating a patient during a visit
  • Practice expense: Labor costs, administrative costs, building expense
  • Professional liability insurance expense: Malpractice insurance premium costs

RVU-based compensation formulas only count patient encounters. For physicians practicing in a hospital setting, the amount of required administrative duties, all unpaid under this payment structure, must be weighed carefully.

Most employers don’t place physicians in an “eat what you kill” position for pay. Instead, productivity compensation is provided as additional incentives on top of base pay. Therefore, understanding how these numbers are calculated, knowing the history and average of practice collections, as well as the nuance involved in A/R numbers, will help you weigh one job offer against the next and have a financially healthier practice as your medical career blossoms.

Net 30/60/90­—or never

One thing is known about spreadsheets and balance sheets: You don’t get a full picture from only one number. In evaluating the financial health of a practice, you must look at several A/R variables.

Days in A/R: This number results from dividing the total A/R by the average daily charges for the practice. (For example: 30 days in A/R means that the practice is due payment for the equivalent of 30 days of work.) One caveat: This number does not include the age of any payment.

A/R by Age: This number represents the time since billing for a particular service. Bookkeepers and accountants place payments due for services in specific buckets. You’ll find a 0 to 30-day bucket, 31 to 60-day bucket, a 61 to 90-day bucket and so on. Once a bill passes 90 days, the chances that a practice will receive full (or any payment) significantly declines. To calculate ongoing collection performance, divide the A/R in each bucket by the total A/R to get a percentage.

Bucketed A/R month over month: Monitoring the percentage of total A/R in each bucket every 30 days and comparing it to prior monthly performance will give you a landscape view of the practice’s financial health.

For new physicians who want to dig deeper into this “business of the business” area, check out the Healthcare Financial Management Association (HFMA). The organization’s website provides a wealth of information from its members, comprised of health care executives and financial managers from provider organizations, physician practices and health plan markets.

By investing the time now to learn about cash flow, balance sheets and accounts receivable, you will be in a better position to stay in control of working capital wherever your medical career takes you. 

Jeff Hinds, MHA is president of Premier Physician Agency, and has guided hundreds of physicians through the dizzying job search process. He helps secure ideal practice opportunities for physicians, and with the help of a team of experts, provides security for physician contracts worth millions.

 

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Money talks

How to address the compensation discussion with prospective employers.

By Jeff Hinds, MHA & Justin Mongler | Financial Fitness | Summer 2019

 

“Do you have any salary expectations or requirements that we should know about?”

Conversations about compensation expectations or requirements are some of the most difficult (albeit some of the most important) topics to be discussed with a potential employer—and you can bet they’ll come up during the interview process.

As the interviewee hoping to secure the coveted job offer, it’s crucial that you fully understand the dynamics surrounding this question and the potential ramifications that exist regarding how and when the discussion occurs.

When to talk money

The general rule is to let the potential employer initiate the compensation discussion. A candidate initiating this conversation too early may run the risk of coming across as being too aggressive or motivated only by money—traits that could deter the employer from seriously considering you.

Though it does vary by employer, it is not uncommon for some variation of the compensation question to arise as early as the initial phone interview. While the specific numbers are not likely to be discussed or disclosed that early in the process, the question is typically used as a screening mechanism to filter out any candidates up front that may not be a viable option.

Candidates expressing unrealistic expectations can be eliminated earlier in the process before the employer has to spend additional time and resources to bring that candidate onsite. Regardless of how early the question arises, you should be prepared to respond accordingly.

How to best answer

To determine your best response, you must consider both the employer’s motive for asking this question, and how your answer may affect the eventual offer.

Any number you throw out has the potential to be too high or too low. If you disclose a number that is too high, they may immediately dismiss you from consideration if they have other candidates of equal caliber with lower expectations. Conversely, if you disclose a number that is too low, you could significantly decrease your potential offer if they were initially prepared to offer more than what you disclosed.

As such, your primary goal is to attempt to get the employer to disclose their number (or range) first. This can be accomplished in many cases by simply turning the question back around to the employer. The response could be as simple as: “This is my first position out of training, and I’m not entirely sure what I should be expecting or what is appropriate in your area. What should I be expecting?” Or: “Compensation is not my top priority; I do not have a specific number in mind, as I am more concerned with finding the best fit.” Some variation of that approach can help you avoid the risks associated with disclosing a number too early and allow you the opportunity to move forward in the process while also buying time to research or discover your actual worth prior to an offer being extended.

How to determine what’s an appropriate offer

There are a number of ways to research and uncover relevant compensation data to determine market value for your specific specialty. Possessing this data is invaluable after you have received the offer and proceed with the final compensation discussion and contract negotiation.

Employers will be much more receptive to compensation negotiations when you have the data to support your request versus throwing out random numbers. Employers will typically have a range within which they have budgeted for this position. Possessing the market data could help you maximize your position within this range. Employers commonly use compensation surveys from the Medical Group Management Association (MGMA), the American Medical Group Association (AMGA) and Sullivan Cotter, among others, to determine market value for their providers. These are great resources for you to use, too, as part of your market evaluation.

In addition, there is great benefit to going on multiple interviews and collecting multiple offers. Not only are you then able to make the most informed decision, but you’ll also have multiple options to use as part of your negotiations.

In short, your leverage and ability to negotiate compensation on the back end is greatly influenced by the market data you possess. However, this data/leverage may become insignificant if you fail to approach compensation discussions appropriately from the onset of your search.

Jeff Hinds, MHA is president and Justin Mongler is vice president of Premier Physician Agency, LLC, a national consulting firm specializing in personalized physician job search and contract assistance.

 

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Upping your income (and $ know-how)

How to successfully transition from the salary of a resident to that of a practicing physician.

By Christian Claudio | Financial Fitness | Spring 2019

 

The transition from residency to becoming a fully licensed physician is an exciting one that typically includes a significant financial increase. Invest the time now in managing your new financial situation, and you’ll likely reap rewards both in the short- and long-term.

So what are some of the basic issues that newly-graduated residents should be contemplating? I asked Jerret Sykes, CFP, a Northwestern Mutual financial advisor who has been counseling new physicians for years.

Claudio: What is the most important first step physicians should take following graduation from their residency program?

Sykes: The first step, which is perhaps the most important, is preparing a financial plan.

You’ve been living like a pauper for the last several years, working your fingers to the bone and not getting compensated adequately for it. You’ve no doubt seen all your non-resident friends from high school and college buying homes and taking bucket-list vacations. Your income is about to increase significantly, and the temptation is to try and catch up with them as quickly as possible.

This instinct, while understandable, can lead you to make a string of poor financial decisions. The solution is, instead, to work with a trusted financial adviser to develop a proper financial plan.

Claudio: One of the biggest issues new physicians have to contend with is student loan debt. What’s your advice for dealing with student loans?

Sykes: You’re likely entering your career with six figures of student loan debt. There are multiple options that you can look into in order to efficiently pay these down or have them forgiven altogether.

One of the best things to do now is to look into whether it makes sense to refinance your loans to get a more favorable interest rate. If you’ll be working for a 501(c)3 (and still have federal loans), you’ll want to understand how to qualify for PSLF (Public Service Loan Forgiveness).

A couple of really good resources to get educated on student loan options are whitecoatinvestor.com and nerdwallet.com.

Claudio: What’s another building block of financial security that physicians should consider?

Sykes: Risk management is the foundation of your financial future. You’ve worked tirelessly to get to this point, where your income is going to finally match your efforts. Protecting your future unearned income is essential.

Risk management includes:

  • 3 to 6 months of cash (emergency fund)
  • Maximum disability policy to help protect your income
  • Life insurance that totals 12 to 16 years worth of salary

Most physicians will probably earn more than $10 million over the course of their careers. What could derail this earning potential is premature death or a disability that prevents you from practicing medicine. To mitigate these risks, consider purchasing a strong life and disability insurance program.

Claudio: Should retirement planning be a consideration at this point?

Sykes: Absolutely. What we typically see with physicians reaching the end of their residency or fellowship and who are experiencing a big jump in income is that they immediately start putting a massive amount toward their student loan and/or credit card debt and spend the remainder on the “fun stuff” that they’ve been deprived of for so many years.

While being debt-free is a great objective, it’s also important to understand the power of compound interest. Money doubles every 10 years if you average 7.2 percent returns on your investments. Your college friends have been funding their retirement accounts for eight to 10 years already; they have a big head start on you. The runway for you to be financially secure by age 60, 65 or even 70 is much shorter than most professionals. However, the good news is that catching up is still a definite possibility.

In order to catch up, you should probably be maxing out your qualified retirement accounts, such as a 401(k) or 403(b). Begin maxing those out on day one if you can.

The challenge for physicians with these retirement accounts is that there’s only so many pretax dollars you are allowed to contribute on an annual basis. This will require you to look outside into the “non-qualified” arena to find good places for long-term dollars such as investments, annuities, and cash value life insurance.

Creating a financial plan, developing risk management strategies, maxing out pre-tax retirement contributions, and paying down debt should be the very first steps graduating residents consider in order to create a path to financial security.

Christian Claudio is a Regional Director of Physician Recruiting with Envision Physician Services. Jerret Sykes, CFP, is a certified financial planner at Northwestern Mutual in Dallas.

 

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To buy or not to buy…

Moving for work? Here are the options physicians consider.

By Karen Landry | Financial Fitness | Winter 2019

 

Cardboard boxes in room

Signing an employment contract doesn’t always come easy for physicians. The stress of a move, along with the decision of whether or not to purchase a home, can be daunting. Add to that the student debt held by today’s graduating medical students and new attending physicians, and many think the dream of home ownership is years away. Here are some of the options physicians face.

Buying a house

When comparing a purchase rather than a lease, it’s important to obtain information about the area based on sales trends. When a market is experiencing growth and an upswing in pricing, it’s a good time to buy. This is especially true if the physician plans to live in the property three or more years.

If the market is declining, the most important factor would be the net mortgage payment taking into consideration the tax advantage of home ownership. Communicate your purchase plans with a trusted financial adviser, local real estate agent or CPA to accurately determine net costs.

Deciding to rent

If renting is a consideration, consider the customary upfront fees in that particular area. Many times the costs can include first and last month’s rent, security deposit and one month’s rent for a broker’s fee. This can become a very expensive feat.

Other options

Many new residents choose to purchase a condo rather than a single-family home, allowing for a smaller mortgage, ease of maintenance and the potential to use the property for future rental income. In many areas, this is a more affordable option than renting. There are also unique health care provider lending services and loans specifically for practicing physicians, dentists, residents and fellows. Some of the benefits include up to 100 percent mortgage financing (varies by state and price range), waived private mortgage insurance, and fixed or adjustable rate mortgages to reduce monthly payments. Student loans that are deferred or in forbearance are not considered in the qualifying ratios, which allows for more purchase power.

Physicians have worked for years to join the ranks of an elite few and deserve to have the best financial resources available for one of the biggest decisions they will make.

Karen Landry is a licensed real estate agent and is the owner of Pulse Concierge Services for Providers. She specializes in physician relocation with in-depth resources for specialized physician loans.

 

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5 common student loan questions

Being strategic about your student loans and repayment will help you maximize your compensation.

By Jason DiLorenzo | Fall 2018 | Financial Fitness

 

Loan Repayment

As founder of the company Doctors Without Quarters (DWOQ), I speak to residents and fellows often about their financial goals—and how to get there. The answers to these five common questions can help you, too, manage your debt and maximize your income.

1 Most of my federal student loans are between 5.4 and 8.5 percent. Are there opportunities to refinance to lower rates, and if so, does that make sense?

This is an important question, as many students and graduates are being approached or seeing advertising for lower rates available from companies like SoFi, Laurel Road, Credible, CommonBond, Earnest and many others.

The private lending marketplace has become increasingly crowded and competitive over the last year, which is good for borrowers. The issue to consider is suitability, as lenders tend to be transaction-focused and refinancing isn’t always the best option for you.

Once you refinance federal loans to a private lender, you lose all of the federal benefits. Though a 3 percent rate might seem attractive, if it comes with a high origination fee and is a variable rate loan, you might find yourself in a more costly loan if rates go up from their current historic lows.

Even more importantly, a refinanced loan will also not be eligible for Income-Driven Repayment (IDR) plans or the substantial loan forgiveness available through these programs for those who work in nonprofits or public service.

2 Are public service and federal loan forgiveness really viable options?

I’ll assume that most of you at this point are familiar with the PSLF program (if you aren’t, please contact me), and that your residency/fellowship can count toward this 10-year clock if you’re utilizing an IDR. Some people don’t believe that this program will exist as it does currently, and in fact recently proposed legislation suggests considerable changes.

But housestaff at nonprofit programs should be reassured by a few things. For one, the Master Promissory Notes created a legal contract between you and the federal government saying that you borrowed under the assumption you’d be able to utilize the PSLF program under the terms of the program at the time you took out the loan.

Secondly, if you’re actively working toward repaying your loans through the PSLF program and have made economic decisions based on the program’s details, you’ve demonstrated a reliance on the terms as they exist today. As such, the federal government may be obligated to grandfather you in through any changes to the laws. In summary, we hope this means you’re unlikely to be affected by the proposed changes.

3 When and why would it make sense to consolidate my loans?

In July 2010, Direct Loans became the lender for all federal student loans. Stafford and Grad PLUS loans borrowed prior to this time may have been originated by a private lender (Sallie Mae, Wells Fargo, etc.) under the FFEL program. These loans need to first be consolidated to Direct Loans before making IDR payments on them will qualify for PSLF.

Furthermore, Perkins and select need-based loans are not eligible for an IDR on a stand-alone basis, but they can be consolidated to Direct Loans for eligibility. Variable rate loans originated before July of 2006 can also be fixed at extremely low rates through consolidation.

If you’ve yet to enter an IDR, the first step in your action plan is to review all of your loans and determine if a consolidation is necessary to maximize your savings opportunity.

If you have already completed qualifying payments towards PSLF, consolidating to a new loan will actually create a new loan and erase your progress toward PSLF. Don’t do this!

4 What is loan forbearance, and why might using it be a bad idea during my training? Isn’t that what residents used to do?

In forbearance, no loan payments are required, but interest continues to accrue. It’s true that in past years, many residents did not pay on their loans during training. But times have changed, and loan forbearance is typically the most costly option for today’s residents.

Though forbearance allows you more access to your modest training income, it is important to note that ALL of this interest accrues with no federal subsidy or forgiveness opportunity. Furthermore, interest can capitalize in each year that forbearance is renewed. A resident with $220,000 of federal student loan debt will accumulate almost $65,000 in additional interest over the course of a four-year residency by using forbearance.

Choosing among the available IDR plans is likely a superior alternative, as they require affordable loan payments during training, provide an interest subsidy, and can position many residents and fellows for significant loan forgiveness.

5 How should my loan repayment strategy change after training?

This is the most critical loan decision you’ll make if you’ve been using available IDRs strategically during training, particularly if you’re deciding between offers from a PSLF-qualified employer and a private sector employer after training.

In one of our case studies, a graduating resident after four years of training with $250,000 in federal student loan debt was comparing a $150,000 salary directly by a nonprofit hospital and a $205,000 salary from a for-profit program.

After contemplating the after-tax impact of PSLF and the corresponding reduction in payments required for the next six years, the $150,000 salary was actually worth over $240,000 on average for that six-year period. Only by utilizing an IDR during training can you position yourself for this opportunity.

Jason DiLorenzo is founder and executive director of Doctors Without Quarters, which helps physicians strategically manage their student loans. Since 2010, he has spoken at medical schools, hospitals and conferences nationally on the topic of student loan legislation and its impact on early-career physicians.

 

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What’s your student loan strategy?

Managing your student loans effectively takes an understanding of the payback programs available.

By Jason Dilorenzo | Financial Fitness | Summer 2018

 

 

College debt

When it comes to practicing medicine, you’re an expert. When it comes to providing strategic repayment guidance for your student loans, you might need some help.

Of the five income-driven repayment (IDR) plans available today, there are really three that are most suitable for today’s house staff with federal student loan debt:

  • Income-Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)

Income-based repayment (IBR)

IBR was launched in 2009. It’s a federal repayment program that limits monthly loan payments to 15 percent of your discretionary income. To be eligible, a partial financial hardship must exist, meaning that 15 percent of your discretionary income, calculated on a monthly basis, is less than what you’d be required to pay on a 10-year standard repayment plan.

This hardship exists for most trainees with federal student loan debt, as 15 percent of the discretionary income of a single resident with a $50,000 salary would result in a roughly $400/month payment. The 10-year standard monthly payment on $220,000 of debt, by comparison, would cost about $2,500/month. Clearly, a hardship exists.

IBR is also a qualifying repayment plan for the Public Service Loan Forgiveness (PSLF) program. Taxable loan forgiveness is granted through IBR after 25 years of repayment. However, payments in IBR are capped at the 10-year standard payment amount established when the borrower entered IBR. Because of this cap, many attending physicians would pay off their loans through IBR before the 25-year forgiveness period expires.

IBR is the least-used IDR plan by today’s graduates since the introduction of the following programs.

Pay As You Earn (PAYE)

PAYE was launched in 2012. Similar to IBR, PAYE limits payments—but to 10 percent of a borrower’s discretionary income instead of IBR’s 15 percent. Under PAYE, taxable loan forgiveness is granted after 20 years of repayment. The payment cap is also the borrower’s 10-year standard repayment amount. PAYE is a qualifying repayment plan for PSLF as well.

Only borrowers who have no outstanding balance on a federal student loan issued prior to October 1, 2007, and who took out a federal student loan on or after October 1, 2011, are eligible.

Revised Pay As You Earn (REPAYE)

REPAYE became available in December of 2015, and it may make sense for continuing house staff to consider entering the program. Here’s a brief summary of its features:

  • 50 percent of accruing interest is paid by the government (making unsubsidized loans partially subsidized)
  • Payments of 10 percent of discretionary income required (just like PAYE)
  • PSLF eligible
  • If you switch into REPAYE from IBR, the 10-year forgiveness clock won’t reset (unless you consolidate)
  • Household income will be used regardless of how you file taxes
  • 25-year taxable forgiveness for graduate students
  • No cap to payments (10-year standard in IBR & PAYE)

A note about enrolling

Once you enter one of these IDR plans, you cannot be removed from them (although you can switch between them as appropriate), even if the hardship that qualified you does not exist after training, when you’re making more income.

Therefore, a critical part of your repayment strategy is to perform an analysis and determine the best course of action based on your salary and sector of employment AFTER training.

Paying it back

I’m often asked: “If I can afford to make larger payments than required in an IDR plan while I’m in residency, should I?” This is an extremely important question, and my answer is somewhat counterintuitive.

I generally believe you should not pay more than required through an IDR during residency, because those overpayments likely compromise both your subsidy savings and your potential loan forgiveness.

In addition, unlike in forbearance, interest is not capitalized while you’re in training and have the hardship that qualifies you for these programs.

If you’re an intern or a PGY2 and your required payment is less than $100/month, you might be able to afford $400/month. But instead of overpaying on your loans, I would suggest placing that extra in a money market or savings account. Even if you get 1 percent return on those funds, it’s actually outperforming the accruing interest on your loans because the interest isn’t capitalizing during your training.

If your employment after training no longer positions you for significant loan forgiveness, you’ll be able to apply this savings toward the repayment of accrued interest before it capitalizes. If you remain employed by a non-profit or government entity after training, you can retain this savings and allocate it to other vehicles.

Refinancing is an option

In addition to the opportunity for savings available through federal programs, the private refinancing marketplace has recently become both crowded and competitive for many graduate health professionals. Refinancing reduces the interest rate on the loan portfolio, saving the borrower a substantial amount of interest cost over the life of the loan.

In order to achieve these savings, however, you must forgo all federal loan benefits, including forgiveness. As such, a suitability analysis should be conducted in order to assess the applicability of those benefits for each borrower. Only once suitability has been determined and the risks are understood should an application be submitted.

Jason DiLorenzo is founder and executive director of Doctors Without Quarters, which helps physicians strategically manage their student loans. Since 2010, he has spoken at medical schools, hospitals and conferences nationally on the topic of student loan legislation and its impact on early-career physicians.

 

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