How physicians get paid

Before you can evaluate your offers, you need to understand the lingo used.

By Matt Wiggins | Fall 2016 | Financial Fitness

 

“Why is it that so many of us think that compensation is only about numbers?” asked one internal medicine resident recently. I stared, not knowing how to immediately answer. After helping thousands of physicians with their contracts through the years, I should have a great answer. Then it struck me!

My answer: Most doctors are led to believe that their struggles through training are due to a number, their training program salary, and that everything will be solved by a new number, their attending income.

This means that many physicians probably focus on the numbers in their contracts without understanding the legal apparatus around them. After all, won’t it be the attending income number that helps you pay off your debt? Won’t it be the sign-on bonus number that allows you to cover the expenses during your transition into this next (or first) job?

Compensation types

The best place to start is by understanding the different types of compensation.

Sign-On Bonuses. A true sign-on bonus is given to you within a short amount of time after you sign the contract. A commencement bonus is given to you within a short amount of time after starting your work with the new employer. A sign-on bonus is often preferred as it may give you some cash during a period when you may not be earning any money. A commencement bonus is often preferred by employers since they don’t have to pay it until you are actually working. If you find yourself negotiating between the two, you may have to compromise and take half after you sign and half once you start.

Guaranteed Salary. When it comes to physicians and finances, this is one of the all-time favorite word combinations. Think about it: You have the word “salary” preceded by the word “guaranteed.” Both are good words, and both connote “security.” This is simply a number that is guaranteed by the employer to be paid to you over the course of the contract. Once the contract is signed, it typically can’t be altered by performance or changes within the employer for the duration of the contract. As specialization increases, it seems that guaranteed salaries are less prevalent. Family practice and general internal medicine doctors will most likely see this type of compensation while interventional cardiologists and neurosurgeons will most likely see the next type of compensation: productivity-based.

Productivity-Based Salary. This is when compensation gets exciting and scary altogether. If you are or will be working for an employer that pays you based on your production, you may have the ability to make more money than if you were on a guaranteed salary. However, you also have more risk. If your production is higher than expected, you will be compensated for it and earn more than some of your guaranteed-salary counterparts. If your performance lags behind expectations, so will your income. The most common metrics for evaluating performance are net collections and RVUs although other models, such as capitation methods, are also used.

Productivity Bonuses. By now, some of you are probably thinking that productivity-based income sounds scary and complicated and you will be glad to not have to keep up with such a thing. However, even those of you on guaranteed salaries may have bonuses tied to some production metric. These bonuses are similar to the salary formulas above in that you will only be paid a bonus if your production exceeds the expected metric and covers the base guaranteed salary you are being paid.

Traps and Pitfalls to Avoid

Now I’ll share with you some of the frequent compensation traps and pitfalls we find in physician contracts.

Repayment Obligations. Several years ago, a doctor came to us and told us a story that should cause trepidation in every physician. He had signed his first contract out of training and was looking forward to moving back to his hometown and working as an orthopedic surgeon with the only practice in town. His salary was stated as $500,000 a year. He thought it was a fair offer and signed without much analysis. However, during the course of his first year in practice, some unforeseen matters arose, and he was unable to work as much as was expected. He kept getting paid his salary, for which he was very grateful. However, at the end of the year, the practice sent him a notification that he owed them $300,000! His salary had a repayment obligation on it and, at the end of the year, they would pay him or require from him a surplus or shortfall based on his production. He did not have $300,000 in his checking account and had to borrow the money on top of his already burdensome student debt.

This story is not uncommon and applies to salaries, bonuses and other benefits. Anything you receive from the employer could be required to be paid back in part or full if you are unable to satisfy certain terms of your contract. It’s worth noting that this doctor was savvier than most we encounter and still made this mistake.

Not Knowing or Tracking the Metric. One of the necessities of all sporting events is that the score be kept by an impartial observer or equally by a party from each participating person or team. In the case of production-based salaries or bonuses, many doctors allow one team, the employer, to make the point system and keep score without the doctor, or a representative of the doctor (CPA, attorney, etc.), understanding the system or keeping score simultaneously. One of the top reasons physicians leave their current employers is due to unmet expectations. One of the most prevalent unmet expectations is income and comes from physicians not understanding or keeping track of the variable parts of their compensation.

Assuming the Best. We all know what assuming does … and it can be costly when it involves physician compensation. Don’t assume anything when it comes to your compensation. There is much more than just numbers that impact your income. Miss those items, and your bank account may have the right to sue you for financial malpractice.

Matt Wiggins (mwiggins@oncalladvisors.com) is the lead advisor and partner at OnCall Advisors, which helps physicians educate themselves on the non-clinical aspects of their lives. For more information like this on other life in medicine topics, check out their “Attending Life” online video curriculum.

 

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Your nose, your tail, and what’s in between

A malpractice insurance primer for job-seeking physicians

By Colin Nabity | Financial Fitness | Winter 2017

 

They may sound a little off-the-wall, but the terms used for medical malpractice insurance were designed to help professionals easily remember which types of coverage relates to which period of time. You only need one—nose or tail—and the main difference relates to whether the coverage for prior acts is purchased from your new insurance provider or your old one.

Your nose: Purchased from the new carrier

Nose coverage refers to the period that you were covered under a claims-made malpractice policy that was terminated at the same time a new policy with a different carrier was issued. With this coverage, incidents that occurred during the nose period (your prior policy), but were not reported until the new policy started, are covered by the new carrier.

This coverage is needed since the typical professional liability policy is issued on a claims-made rather than an “occurrence” basis. This means that coverage must be available when the claim is reported instead of when the claim occurred. When it comes to medical malpractice, it is not unusual for an incident to be discovered years after a procedure took place.

If you decide to change insurance carriers, your new carrier is going to require a list of all procedures performed before the requested issue date of the new policy. They will ask for loss runs from the prior carrier to determine if any prior claims are open or have been closed. If you want your new carrier to offer coverage for your nose period, be prepared to provide a lot of information about your practice during that time.

Your tail: Purchased from the old carrier

Tail coverage is important because claims may be reported long after a procedure or service. The tail option in your liability policy allows you to extend coverage from your old carrier for a number of years when you cancel your insurance because you are closing your practice or switching employers.

When applying for coverage, it is critical to determine what tail coverage options are available, especially when it comes to the cost of coverage and the time limit available. Your tail coverage provides protection if there is an incident related to a procedure or service you performed during the policy period, but a claim was not filed until after the policy period. Tail coverage is typically required when you are closing or selling your practice.

Example 1. You have decided to retire and close your practice that has been in business for 30 years and has been insured the entire time. However, you are still liable for all procedures performed during those 30 years (depending on your state’s statute of limitations) and must remain covered for as long as possible after you close your practice. With the appropriate tail coverage, any claim brought for past procedures will be covered under the last carrier that provided your malpractice insurance.

Example 2. You have decided to retire and sell your practice. The buyer has requested that you provide tail coverage for three years so that your patients can be transitioned into the new practice. Even if the buyer doesn’t require the tail coverage, you should ask for tail coverage just in case you are named in a malpractice suit so you will have defense costs coverage available.

Lapse in coverage

A lapse is a period when you continue to provide services without being insured under a professional liability (malpractice) policy. This is not only financially dangerous to your practice, but will also cause problems when you do get a policy in place. Since the insurance carriers have no way of properly underwriting for the period of lapsed coverage, they will typically not offer coverage for that period, or they will apply a significant surcharge.

Know if your defense costs are inside or outside

Your malpractice coverage will pay for defense costs, settlement costs and judgments awarded by a court. It is important to know whether your defense costs are inside or outside the policy limits.

Inside the policy limits: Defense costs inside the policy limits are deducted from your policy limit first and can significantly reduce the amount left over to pay judgments and settlements. These costs include attorney’s fees and general court costs that occur before a judgment or settlement is reached. You should consider that your defense can be the costliest part of a malpractice claim.

Outside the policy limits: With defense costs paid outside the policy limit, the significant cost of defending your case will not impact the limit available for settlement costs and judgments.

Your malpractice insurance can stand between a claim and financial devastation. It’s extremely important to make an informed decision before committing to a purchase rather than at the time of a claim.

Colin Nabity is the founder and CEO of LeverageRx, an online financial help desk for physicians, dentists and other medical professionals looking for personal financial guidance.

 

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Which employer type is best for you as a physician?

Trying to decide which interviews to pursue, which to take and which to turn down? One way to narrow your focus is to evaluate employer types and determine which one is best for you.

By Matt Wiggins | Financial Fitness | Summer 2016

 

Residents and fellows come in two breeds: Those who, after training, pursue the job they want and those who take what comes their way. After years working with OnCall Advisors to help thousands of physicians transitioning from training to practice, I am convinced of one thing: A passive approach toward interviewing leads to problematic employment situations, discontentment on the part of both the employer and the physician, and early termination.

Of the physicians we’ve worked with, most who’ve faced the early demise of their first practicing positions don’t completely understand what happened. How did these jobs they’d worked toward for so long go so badly? What happened after they were hired that caused such rapid deterioration of their situations?

The truth is that the fissures probably didn’t start after they were hired. Most likely, the problems started during the interview process. These physicians weren’t actively engaged in determining where they wanted to work, so they failed to identify potential problems that should have steered them away from specific employers. Therefore, a mismatch was more likely, and the groundwork for a career detour was laid.

But you’re not destined to make the same mistake. In fact, one way to avoid it is to understand some of the basic differences among employer types. I’ve written an overview that will give you a good starting point to identify which employers would be a good fit for you. This overview provides a framework within which to evaluate them. Once you know more about each type, you will be able to seek and take interviews with the employers whose opportunities would most likely result in a successful fit.

Understanding the employer types

I caution you against viewing this as an absolute benchmark for all similar employers. Each employer is different, and you will need to evaluate each on its own. Also remember that there are other criteria to evaluate, such as average turnover, technology and flexibility.

Small Private Practices. First, allow me to state the obvious: There is a wide range of private practices, and they are as unique and varied as physicians in a practice. I will merely point to common financial strengths and weaknesses across most small private practice situations without addressing the myriad other differences and nuances.

Small private practices tend to offer the most potential financial rewards, opportunities for partnership, fewest bureaucratic speed bumps, and greatest flexibility for schedules and workplace autonomy. They also, however, come with the greatest degree of potential risk. Because they don’t have the protection of large institutions or corporations, any problems, even small ones, could wreak havoc on the practice. A few years ago, for example, we worked with a small private practice that went out of business simply due to basic financial mismanagement by a key partner. In this case, one of the strengths of small private practices, less bureaucracy, also led to a single person’s actions taking the company down. Therefore, if you are risk-averse, this may not be the route to go. If you can tolerate more risk for more potential rewards, however, you may want to pursue interviewing with small private practices.

Large Private Practices. Large private practices have some of the same dynamics as small private practices but lack the extremes. Due to their size and numbers, these large groups can offer better benefits and pose less risk, but they also offer slightly lower potential for financial reward. Your salary may be competitive, and you may be offered a small stake as a minor partner, but your chance for dynamic income growth is lower than it would be in a smaller group that could double its revenue in any given year. If you like the idea of small private practice but want lower risk and better benefits, you may want to interview with large private practices.

Hospitals. On the risk scale, hospitals are far from almost any type of private practice. This will vary greatly due to the size and location of each hospital, of course, but hospitals are typically slower-moving and prone to fewer big mistakes. The day-to-day changes don’t normally have drastic effects on your employment. Also, turnover can be lower because you may receive less individualized attention on a month-to-month basis. In general, however, pay is lower in hospital settings than in private practices, and benefits are average.

Government. Being employed as a physician by the U.S. government is the ultimate safety play. There is no threat of the government going out of business, and it has taxing authority, if necessary, to raise revenue to pay your salary. The tradeoff is often a significantly lower salary. The government does, however, typically offer a slate of fairly good benefits, and if you remain in government employ until you retire, or if you suffer a catastrophe or disability, the government will take good care of you. For these reasons, if you want very little risk and can live with less pay and pretty good benefits, you may want to interview for a government-employed physician position.

Applying the evaluations

After reviewing the evaluations of each option, I trust you will be more informed about some of the benefits and drawbacks of these major types of employers. If you feel that one is better suited for you than others, pursue employment with that type of employer and minimize the amount of time and focus you give to the others. If you’re still unsure, begin considering other factors like location, schedule autonomy and career advancement opportunities, and other preferences like your desire to do research, have your own practice or see patients in only one location.

I hope that by being judicious in whom you interview with in the first place, you will land in a more favorable position and will experience longer-lived success in your next or first job!

Matt Wiggins is the lead advisor and partner at OnCall Advisors, which helps physicians educate themselves on the non-clinical aspects of their lives. For more information like this on other life in medicine topics, check out their “Attending Life” online video curriculum at AttendingLife.com/PracticeLink.

 

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Is it time for a financial self-exam?

Use your last year of residency or fellowship to develop a game plan for your financial future.

By James McNaughton, CFP | Financial Fitness | PracticeLink Tips | Spring 2016

 

Contract negotiations. Family considerations. Personal finances. Your anticipation of the end of residency can easily be stymied by the overwhelming stress of finding a job and all that it entails.

Understanding the basic financial planning concepts for physicians will arm you with the knowledge you need to conduct an efficient interview with a financial professional and hopefully minimize any mistakes or unnecessary products or fees. In this Financial Fitness article, we’ll touch on some general concepts of retirement planning, life insurance, disability insurance and recommended estate documents.

Retirement planning

There are three phases of an individual’s financial life cycle: asset accumulation, conservation or protection, and distribution.

For most professionals, asset accumulation begins in their early- to mid-20s and tends to last 25 to 30 years. Physicians start their asset accumulation phase much later than the average person—in some cases as late as their mid-30s. To overcome the late start, it is important to understand the value of compounding interest over time. Allow yourself to reap the rewards of your hard work, but understand that time is your best asset.

Most people will require 60 to 80 percent of their preretirement income to maintain a similar lifestyle in retirement. Work with an adviser who will assist you in calculating your future nest egg, and remain proactive with your plan. At a minimum, request annual or semi-annual meetings to review performance. It is much easier to alter your plan early in your career than a few years before retirement.

Life insurance

One of the most common questions I encounter from young physicians is, “How much life insurance do I need?” Unfortunately, there is no simple answer to that question. The amount of coverage needed depends on factors such as income or cash flow needs; expenses and debts; and spousal or dependents’ needs.

One of the most popular approaches used to determine an amount is the capital retention approach.

This method provides a death benefit amount that, along with other assets, is sufficient in providing a level of investment income that covers the projected needs of the family without invading the death benefit principal. If other income-producing assets are available, this would reduce the required death benefit.

“Term” is usually the most appropriate type of life insurance for young physicians, as it allows you to purchase the most death benefit while minimizing your premium. For example, if you purchased a $2.5 million term policy and your spouse could safely withdraw 4 percent ($100,000) without invading principal, would this amount of income be adequate to maintain a comfortable lifestyle? The ability to communicate between spouses regarding a gloomy topic is important.

Disability insurance

Disability insurance is a way for you to insure one of your most valuable assets: your income. After years of medical education and training, you now have the ability to maximize your income.

Disability insurance will pay if you meet the insurance company’s definition of disabled. This is very important for a young physician who has not had the time to save for retirement.

As you interview for jobs, your prospective employer may or may not offer disability insurance. Most employer-offered policies are “plain vanilla” policies that may not contain language needed for your specialty.

For example, if you’re interviewing as an orthopedic surgeon and your employer does not offer an own-occupation disability policy, it may be in your best interest to purchase one. This will allow you to receive benefits if you are no longer able to perform the duties of an orthopedic surgeon but still earn income while working in another occupation or medical specialty. Generally, disability insurance should replace 60 to 70 percent of your gross income.

Estate documents

One of the most overlooked aspects of financial planning is the creating or updating of simple estate documents, all of which can be drafted by an attorney. Three documents to consider are:

Wills. This is a legal document that provides the will maker (the “testator”) the opportunity to control the distribution of property. This document is extremely important for young families as it can name a guardian for minor children.

Living will or advance directive. This document can be drafted when in full capacity, giving personal directions to a physician regarding health care in the event of being severely disabled or suffering from a terminal illness.

Durable power of attorney for health care. This is a written document executed by one person (the principal) authorizing someone else to make medical decisions on the principal’s behalf. This power takes effect when the principal cannot give informed consent to a medical decision and not just in the event that the principal has a terminal illness.

Before you leave residency, examine your existing situation to establish a starting point. Educate yourself on the products and services you’ll need, and find an adviser who can help guide you through these decisions.

James McNaughton, CFP, is a partner at Siouxland Investment Group, LLP and financial adviser for Premier Physician Agency, LLC, a national consulting firm specializing in physician job search and contracts.

(Disclosure: James McNaughton is a registered representative and registered investment adviser representative of SWS Financial Services, Inc., a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Views and opinions expressed herein are solely the author’s, and SWS Financial Services, a member of FINRA and SIPC and a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH), with headquarters at 1201 Elm St., Ste 3500, Dallas, TX 75270 (214-859-1800). Premier Physician Agency, LLC is not affiliated with SWS Financial Services, Inc.)

 

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Do you qualify for student loan forgiveness?

Determine your eligibility to participate in Public Service Loan Forgiveness programs.

By Joy Sorensen Navarre | Financial Fitness | Winter 2016

 

Student loan debt is like an iceberg that has the potential to sink physicians financially unless they figure out how to manage it. Public Service Loan Forgiveness (PSLF) is a radar-like management tool for physician borrowers.

PSLF is a free federal program that started in 2007 and allows certain federal student loans to be forgiven after 10 years of on-time monthly payments, often at a reduced monthly payment amount, for physicians employed by nonprofit or public health systems.

In order to gain a better understanding of the program and how it works, here are the most common questions we receive from new physicians when they are deciding if PSLF is a fit for them.

How can I find out if my hospital qualifies?

The first thing to do is to identify who is paying you—are you an employee of the hospital or another entity? Some physicians are employees of the hospital. In many cases, physicians are employed by a physician group or a university. Your most recent IRS Form W-2 will identify your employer.

Second, determine the nonprofit status of your employer. Hospitals and physician groups may be nonprofit or for-profit. In some cases the status is unclear. Last year, a prestigious and profitable hospital told us their physician group was a for-profit entity. When we asked for confirmation, we learned their legal tax status was actually nonprofit. In order to figure out tax status, ask for the federal Employer Identification Number (EIN). By obtaining this information you can determine if the group is nonprofit and qualifies you for PSLF—or privately owned or for-profit, which would make you ineligible.

Will Congress change the program in the future? Or, if Congress changes it, what happens to me?

Because PSLF can be changed through an act of Congress, we find that physicians have questions about the future of the program. There are a few reasons why we recommend physician borrowers consider PSLF as a viable option now for loan forgiveness.

First, experts believe that the high cost of medical education and the growing physician shortage create compelling public policy reasons to continue the program into the future. In addition, the original purposes of the law still exist. PSLF was created by The College Cost Reduction and Access Act of 2007 to protect borrowers from excessive student loan repayment burdens and to encourage employment in the public and nonprofit sectors. The Act cut subsidies to private student loan lenders estimated to cost U.S. taxpayers $87 billion. Those savings are redirected to programs to help borrowers.

Second, precedents exist for extending benefits to current participants in the event of future changes. According to university financial aid officers, when changes are made to federal student loan programs, existing participants have been grandfathered in.

Finally, a borrower ultimately remains responsible for the repayment of student loans, so we recommend that our clients work with a financial advisor to establish and make regular contributions to a contingency fund to serve in the case of adverse changes.

I heard there is a $57,000 cap on amount forgiven. Is that true?

No. There is no cap on forgiveness with PSLF. This figure was proposed in President Obama’s 2015 budget proposal as a possible cap, but Congress took no action.

I made payments during residency. Do they count toward the 120 required for forgiveness?

The earlier physicians start repayment, the more benefit they will attain. However, many residents and fellows don’t have the time to fully understand the options. Recently a physician finishing her training told us, “We are dying for good information on student loan forgiveness. You made it easy.”

If the payments were made after October 1, 2007, on Federal Direct Loans where the location that the residency occurred is a qualifying public service organization and payments were made under a qualifying repayment plan, then they qualify.

Should I consolidate my loans?

This depends on the loans you have. If some or all of your loans are not eligible for PSLF and you wish to participate in the program, you will have to consolidate into a Direct Consolidation Loan. Only loans received under the Direct Loan Program are eligible for PSLF. If you have loans from programs that are not eligible, such as the FFEL Program or Perkins Loan Program, you can consolidate them into a Direct Consolidation Loan in order to qualify for PSLF.

It’s our goal to raise awareness about Public Service Loan Forgiveness. When early-career physicians understand their student loan forgiveness options, they feel equipped to make informed decisions and avoid financial icebergs.

Joy Sorensen Navarre is the president and founder of Navigate LLC, which has helped hundreds of early-career physicians understand their student loan repayment options, evaluate the results and make solid decisions. She can be reached at (612) 209-2382.

 

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Key items of an employer’s benefits package

Understanding the basics of your benefits can help you prepare for interviews and contract negotiations.

By James McNaughton, Financial Advisor | Fall 2015 | Financial Fitness

 

The financial planning principles that make up an employer’s benefits package simply are not a part of the education or training that you have received.

However, these items will be a vital part of your contract and may be discussed in-person by your potential employer. It’s important that you arrive to your interviews or negotiations with a basic understanding of the following terms so you can fully evaluate opportunities from a financial perspective.

Retirement savings plans

When it comes to retirement planning, a young physician’s best ally is time.

As you come out of residency, you may have a 30- to 40-year timeline before retirement, so take advantage of any employer-offered plan and supplement that plan according to your needs or goals.

The most common retirement plans among employers are 401(k)s and 403(b)s. For 2015, an employee can make a maximum contribution of $18,000. Those over age 50 can make an additional catch-up contribution of $6,000.

Find out when you are eligible to participate. If you need to fulfill one year of employment before becoming eligible, you may consider doing some type of retirement planning on your own that first year. Some employers may match your contributions into these plans while others may make no contribution at all.

These are details for which you need answers. If your prospective employer does contribute, ask if a vesting schedule and terms exist for you to see.

Most importantly, be proactive in your retirement planning and take advantage of any employer benefits.

Disability insurance

Young physicians should give disability insurance extra scrutiny. Not only does it protect the investment and sacrifices you’ve already made, but it also protects your future income potential.

Many employers will offer some variation of short- and long-term disability. Will your employer pay the premiums? Find out when your coverage starts and what elimination period you must fulfill. Ask what triggers a benefit and the amount paid for a monthly benefit. To what age is the benefit payable? Do they also include “own occupation” language? Many employers offer group policies that may not include this language. Investigate to see if these policies would fulfill your “risk” need. Alone, these policies may not be sufficient, and a supplemental policy may be necessary. Calculate your needs and do what is best for you and your family.

Life insurance

In most cases, term insurance is the best recommendation for young physicians. It is inexpensive and can be purchased for a specific term (such as a 30-year term policy). This makes term insurance ideal for covering debt such as mortgages or business loans. Your employer may offer life insurance that is one or two times your salary, or instead offer a flat amount. More than likely, this may not be adequate coverage for you and your family. Before purchasing supplemental life insurance through your employer, shop rates with other companies for the most cost-efficient policy. Also ensure that beneficiaries can be named for any employer-paid life insurance policy.

If you remain unsure about the packages or policies offered by an employer and whether they meet your needs at this stage of your career, or wonder if you should consider the procurement of additional coverage, seek the opinion of a licensed financial advisor with experience in working with other physicians.

James McNaughton is a partner at Siouxland Investment Group, LLP and Financial Advisor for Premier Physician Agency, LLC, a national consulting firm specializing in physician job search and contracts.

(Disclosure: James McNaughton is a registered representative and registered investment adviser representative of SWS Financial Services, Inc., a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Views and opinions expressed herein are soley the author’s, and SWS Financial Services, a member of FINRA and SIPC and a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH), with headquarters at 1201 Elm St., Ste 3500, Dallas, TX 75270 (214-859-1800). Premier Physician Agency, LLC is not affiliated with SWS Financial Services, Inc.)

 

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First, build your foundation

Your future income is your greatest asset. Here’s how to protect it.

By David Mandell, JD, MBA and H. Michael Lewellen, CFP | Financial Fitness | Summer 2015

 

As advisors to young physicians across the country, we are often asked, “What is the most important thing I should be doing financially in the first years of practice?”

Our answer is simple: You need to build a solid foundation. But the application of this concept is different for each physician.

Foundation building for young physicians depends on where they are in their personal lives (single, married, kids, etc.). Also, ideally it begins before you even leave training because, like most things, establishing the right habits is a key to building a financial foundation.

Most young physicians will see a significant increase in their incomes when they begin their practice. Up to this point, they have typically been living paycheck to paycheck, and a jump in income by five-fold or more can be a bit euphoric. With a “spend now and plan later” attitude, many young physicians will indulge a bit and make large purchases. Often taken too far, they find themselves once again living paycheck to paycheck. The attitude then becomes, “Once I make partner in a few years, I’ll address my financial plan.”

Though some splurging is in order, we try to get our young clients to focus on getting into the right habits and shielding what they have already built.

Young physicians’ greatest asset

The most important factor in the building of a foundation is to protect what you have already built. For many young physicians with little savings and large student loans, the question is often, “What have I built? I am in severe debt!” The answer is that they have actually built a significant asset that needs protecting: the value of their future income.

Given the significant investment made to become a practicing physician, it should not be surprising that the value of your future income is also significant.

For example, let’s say an orthopedic surgeon is offered a starting salary of $300,000, including benefits. Assuming this physician plans on practicing for 30 years (and 3.5% inflation), the present value of this annual income is more than $5.5 million—even if that physician never makes more than $300,000 per year, including inflation.

Most people would think an asset this valuable is worth protecting.

What is needed to protect this asset? That depends on who they are protecting it for, if it’s for just themselves or for others dependent on them. For either scenario, physicians need to protect their ability to earn this income in the future. That is why disability income insurance is so critical, and is tool number one for young physicians to implement.

Disability insurance

Disability income insurance conceptually is straightforward: If you become disabled, it will pay you. For young physicians (and on into your 50s), this protection is critical because you have not accumulated the savings to support yourself and your family in case you can’t work as a physician.

When looking at purchasing individual disability income insurance, physicians need to determine what their true need is, not how much they can get. If monthly expenses are $3,000 a month, but an insurance salesman says you can get $5,000 a month, you are over-insuring yourself. Though having more coverage than what’s needed is not always wrong, controlling expenses in order to build the proper foundation is more important.

Physicians will also want to make sure they’re purchasing adequate coverage. The definition of disability should be occupation-specific; thus a physician cannot be forced to go back to work in another field. Residual or partial disability rider is another important part of the contract, which in case the physician suffers a partial disability, they can still work part-time in their occupation. Typically there has to be an income loss of 20 percent or greater. Also, in the event of a long-term disability, having a cost-of-living rider as an inflationary protector is important.

Young physicians should also beware of what is available through an employer. The issue with group insurance is that it covers the masses. This can lead to coverage that is not occupation specific, has short benefit periods, does not have a partial or inflation protection rider, and can be canceled at any time. While that is not the case with all hospitals, generally group insurance is not adequate for a young physician.

Often, there are discounts in place that are connected to hospitals that allow young physicians to purchase individual disability income insurance at a lower rate or with unisex rates. The unisex rate option is the most ideal and has the greatest positive impact on female physicians.

Life insurance

Young physicians with financial dependents—typically children or spouses, but sometimes other family members—need to focus on protecting their future income value not only against disability, but also against death. This is why life insurance is tool number two that we typically recommend.

Much like disability income insurance, you need to first determine what your need is from a death benefit perspective to make sure you are being cost efficient. The way to determine your need is to decide what expenses would need to be covered. For example: mortgage, education funding for children, car loans and other debts and income support for spouse.

Young physicians in a position of purchasing life insurance should probably consider term insurance as their best option.

Term insurance is inexpensive and provides a death benefit for a period of time (10, 20, 30 years). This does not mean term insurance is the only or best type of insurance; it is generally best for a young physician who has a specific need. Permanent life insurance can be a very tax efficient saving vehicle that provides tax-free growth and tax-free distributions, if structured properly, and can provide great asset protection depending on the state of residence. For these reasons, permanent (cash value) insurance is often selected even by young physicians as a wealth accumulation and protection vehicle.

At the outset of their medical career, physicians in training are told “first, do no harm.” As advisors to young physicians nationwide who are at the outset of their financial careers, we give similar advice: “First, build your foundation.”

David B. Mandell, JD, MBA, is a former attorney and author of 10 books for physicians, including For Doctors Only: A Guide to Working Less & Building More, as well a number of state books. He is a principal of the financial consulting firm OJM Group where H. Michael Lewellen, CFP serves as director of financial planning. They can be reached at (877) 656-4362.

 

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When to talk money?

Knowing how and when to bring up compensation discussions can affect the quality of life you enjoy as a new employee.

By Patrice Streicher | Financial Fitness | Winter 2015

 

The money section of the Wall Street Journal this September referenced a study by Northwestern Mutual Life Insurance in which it concluded that Americans would rather talk about sex than money.

Many of us have come to learn that it is impolite to discuss money, which may account for the reason that so many of us are uncomfortable with the topic—much less tackling salary negotiations.

Over the last two decades, I have served as a liaison between CEOs and physician candidates during the various stages of the recruitment process, including contract negotiations. Empowerment in salary negotiations comes from knowledge, strategic planning, timing and an understanding of the rules of engagement.

Money terms

Knowing the differences between salary, productivity and financial packages is important. They are not synonyms. Salary, along with the productivity piece, is income reported on your W2; a financial package includes your salary, productivity, signing bonus, CME allocation, benefits (i.e. insurances, retirement plans, etc.), relocation stipend and any other items assigned a dollar value. In layman’s terms, a financial package is akin to an employee’s hidden paycheck. Be advised that when it comes to financial packages, there are governing bodies that impose boundaries and mandates on salaries, benefits and incentives legally acceptable in a job offer to a physician candidate.

Knowledge is power

One the best pieces of advice is to become knowledgeable about salaries using data collated by reliable sources such as MGMA and other organizations offering compensation benchmarks by region, state, practice structure and setting. Also seek real-time salary benchmarks from colleagues who have recently accepted new positions. They can speak about their experiences in negotiating deals along with offers they received during their practice search. When the topic of salary is initiated by the prospective employer, it is advisable and reasonable for you to ask about the salary range of recently employed physicians working in the practice. Additionally, you may want to seek any documentation that substantiates your anticipated compensation, which is often derived from a medical staff plan conducted by the hospital.

Building a foundation

The first steps toward a successful salary discussion relies on the initial interactions between parties and their perceptions of each other.

Your ability to make a personal and professional connection with practice decision-makers is paramount. You must also have the ability to succinctly communicate your skill set in a way that aligns with the practice’s needs, yet in a way that doesn’t appear boastful. The end game for you is to build a foundation of respect, cohesiveness and mutual interest in taking next steps.

Salary discussions should be initiated by the practice, not you. For the prospective employer, recruiting new associates to a practice is expensive and one that requires a deliberate, cautious approach. The decision-maker must have confidence that you match the personality and culture of the practice before they will even utter a syllable about money to you.

Timing is everything

Despite etiquette debriefings with physician candidates about the appropriate timing to discuss salary, I have on occasion had physician candidates who have gone rogue during an initial conversation with a practice leader.

A common mistake made by these impatient candidates is positioning a premature salary discussion as a courtesy when their true agenda is transparently evident: “Before we begin, as I do not want to waste your time or mine, how much are you offering?” In post-interview conversations with medical directors and CEOs on the receiving end of this dialogue, I’ve learned that many not only eliminate these candidates from consideration, but also make comments such as, “They were too money motivated; we have decided to pass on this candidate, as they are not a match for our practice.” One physician leader asserted in a conversation with me, “…since when is it commonplace to offer a dollar amount before you know what you are buying?” When it comes to talking about compensation, patience, knowledge and timing are everything.

The idiom “all in good time” should be the mantra for physicians seeking new positions. Rest assured everyone in the process understands you are not a volunteer and expect a fair wage to share your talents. That said, your rushing or pressuring the salary conversation before the appropriate time is not only ill mannered but myopic. Successful negotiations require emotional intelligence combined with confidence supported by factual data and market information.

Conduct yourself in a calm, controlled and professional manner in all interactions with the practice. As is true in all negotiations, be prepared to walk away if discussions experience an impasse. Options are not only empowering, but also liberating. Have a minimum of two and no more than three positions as finalists. That’s not to suggest playing contracts against each other but rather giving yourself the option to negotiate in good faith effort with a safety net.

This brings me to another observation: When it comes to negotiating, people invest their egos into the interaction. Seems as though everyone wants a story to tell friends about how they outsmarted the opponent, which resulted in their being a master negotiator. This may work when buying a car, but when it comes to employment agreements, administrators and their board of directors, for the most part, have structured an approved financial package.

This is not to say that an offer should be taken at face value and that dollars cannot be moved from item one to item two in structuring your best deal. But there are legal and financial boundaries that confine all parties within a negotiation.

Rules of engagement

The conversation about salary and benefits is usually broached during your site interview by the practice. The initiator should be the practice representative who almost always is the practice’s decision-maker and is serving as the administrator or lead physician.

As a rule of thumb, confine compensation negotiations to your recruiter and the individual in the practice who possesses the authority to say “yes.”

As a recommendation, talk with your recruiter about your financial criteria before speaking with the practice. The recruiter should have insights about the group’s standard agreements, salary ranges, A/R, anticipated revenue and other vital information.

Patrice Streicher is an associate director at VISTA Physician Search & Consulting.

 

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Insurance: tails and types

It’s up to you to protect yourself and your estate when things go wrong.

By Marcia Hoyn Noyes | Fall 2014 | Financial Fitness

 

You’ve trained long and hard to practice medicine. You now strive to provide the best care for your patients. However, accidents happen. And when they do, you must be prepared for the legal entanglements that can arise, sometimes even after your death.

Medical malpractice defense attorney Elizabeth L.B. Greene, now a partner at Mirick O’Connell in Massachusetts, worked on a medical malpractice case filed against an estate almost 20 years ago. The physician, who had practiced for more than 50 years, had entered retirement prior to his death. After his passing, a patient filed a medical malpractice claim against his estate. Even though the doctor had no prior notice of the claim, the patient’s attorney filed within the applicable statute of limitations.

Unfortunately, the doctor did not have tail insurance.

Greene says if tail insurance had been in place at the time of his death, then the legal costs and the verdict against the physician would not have been borne by his estate nor impacted the administration of the estate.

“In addition, the lack of tail insurance required the physician’s family members to be more involved in the case than they would have been if a claims representative had been involved,” explains Greene.

Had the insurance been in place, the family would have still found the case to be a burden on top of their own personal loss. However, Greene says that the lack of tail insurance “had a more significant impact on [the family’s] time and emotions.”

With many family and friends as physicians, Greene says she understands the challenges and pain that a medical malpractice claim can cause. “It often attacks physicians to the core of their being.”

Hospice and palliative medicine physician Steve Grabowski, M.D., of Golden, Colorado, attended a medical conference with a session on malpractice issues a few years ago. “The session presenter asked everyone in the audience who had been sued sometime in the past to please stand; almost everyone in the room stood up.” Grabowski says he saw tears in the eyes of most of the doctors when they suddenly realized they were not alone. “It’s this dirty little secret that doctors carry with them, because the first thing doctors are told by attorneys after a suit is filed is to not talk about it to anyone,” he says. “While good legal advice, talking to friends and colleagues can be personally helpful in working through a difficult situation.”

Malpractice insurance, also known as professional liability coverage, encompasses much more than medical errors or omissions. It also covers breach of duty, misstatements, negligence and wrongful acts. Whether a claim is valid or not, without insurance you’d still spend a great deal defending yourself.

So how much do you actually need? Greene says that in her experience, the answer differs based on several factors: geographic location, practice setting and area of medical specialty. Kathy Brown, COPIC Insurance’s vice president of corporate marketing and communications, says hospitals also have requirements regarding the limits of liability a physician must carry in order to be granted hospital privileges.

“In addition, most state regulations include financial responsibility and/or minimum requirements for limits of liability. In highly litigious states, physicians often carry higher limits than those required,” she says.

Types of malpractice coverage

Two types of professional liability coverage are available to most doctors: occurrence and claims-made policies.

Occurrence: You are covered for any incident that occurs while your policy is in force, despite when that claim may arise. Let’s say a patient comes forward with a claim that you were negligent in your medical diagnosis nine years ago while you were insured. Even though you may have moved on to another practice, stopped practicing, retired or died, you or your estate is still covered. Occurrence is the most expensive of the two types of malpractice insurance available, and many carriers are no longer carrying this type of coverage.

Claims-made: You are protected for any claim that is made during the term of the policy that is related to care that was provided while insured. Once the policy expires, you have no coverage, even if the claim happened while you were covered. One advantage of this type of policy is that it is discounted in the early years of a practice and then over time rises to better reflect the actual value—typically around the fifth year.

If you have claims-made insurance and want to ensure that you will be covered after the policy expires, you must purchase “tail” coverage.

Tail coverage: Protects you against claims that arise while the policy was in force but after the policy has expired. This coverage might be appropriate for any number of circumstances, including:

  • Disability
  • Quitting medical practice
  • Death
  • Retirement

Grabowski explains that prior to retirement, physicians may want to cut back their practice and just work part time. “At that point, a physician may be able to continue his or her coverage, but at a decreased premium,” he says. “I think going without tail coverage once you retire is foolish and quite risky.”

Nose coverage (also referred to as prior acts coverage): A supplemental insurance available for when you transition to another employer or want to change your insurance carrier. Much like “tail” coverage when you are winding down from your business, “nose” insurance protects you for unknown and unreported claims that occurred before the effective date of your new insurance.

Comprehensive liability insurance will protect you, your practice and family even after your life ends, so understanding the various types of insurance available will give you peace of mind in knowing that you are covered adequately.

Marcia Noyes is a frequent contributor to PracticeLink Magazine.

 

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What’s your exit strategy?

Before you join your next practice, give thought to how you’ll leave it.

By Steven Abernathy and Brian Luster | Financial Fitness | Spring 2014

 

When you’re considering an offer of employment, going over your exit strategy before you sign on the dotted line might be the last thing on your mind. However, paying attention to some of the more common issues can save you time and spare you undue stress.

These days, there is no question that changes throughout a physician’s career—moving from private practice to hospital or corporate employment, for example, can be stressful. What do you need to do to plan a smooth conversion or exit strategy before closing your office door one last time? How are loose ends resolved upon your departure? Is there a succession plan in place? If loyal patients wish to see you at the new practice, are you contracted to honor a pre-existing residual payment plan with your old employer?

Countless issues may rear their heads, including non-competes, buyouts, client communication and succession planning. Successful transitions begin with a sensible,  realistic outlook about your career path and careful planning from your early working life through retirement.

Of course, after you’ve signed on and helped build a thriving practice, you may not be the one leaving. A partner’s departure will greatly affect your professional situation—and also your financial one.

Imagine this example: One of your junior medical partners, enticed by a lucrative offer from a nearby university hospital, decides to jump ship. There’s nothing too controversial about this…until the defector begins not only to poach clients, but also to divulge certain trade secrets and procedures that you developed.

What could you learn from that example?

Lesson 1: When you or your medical partners are transitioning, properly drafted non-compete agreements are essential.

In the imagined example, if you had prepared such an agreement, you would have had leverage to fight against the departing physician’s actions. Though non-compete agreements are generally disfavored on public policy grounds, if they are necessary to protect business interests and limited in duration and geographic proximity, they can help preclude this type of issue.

Lesson 2: Put agreements in writing as soon as employment is confirmed.

Much like a prenuptial agreement, a well-drafted non-compete can serve as a blueprint delineating what type of post-employment behavior is or is not permitted.

If you are an employer, we recommend you also add the essential verbiage to your employee handbook.

If you still have years of work ahead of you, be advised to clarify the specifics around what “assets” are yours (patients, patient files, procedures/techniques, proprietary information) and what are not. Though your patients are free to visit any doctor they wish, an employer with foresight may write any number of “non-compete” type restrictions into your contract. For example: “For any patient who sees you at your new practice, you owe the old practice two times the cost of the office visit.”

This may not be top of mind for many new physicians; attractive salaries, employee benefits and an institution at-the-ready to handle insurance claims, EMR conversions and other pesky administrative and system tasks have led many physicians to sign on the dotted line. Be sure to know what you are to receive—and what you may be giving up.

Lesson 3: If you are planning to move to another practice, or you are retiring, let your patients know well ahead of time.

What constitutes ample notice varies around the country, but a good place to start would be your state’s licensing board or medical societies. Different notice requirements may be required for specific specialties, as well. According to The New England Journal of Medicine, internal medicine physicians are advised to provide at least three months of notice; psychiatrists are counseled to provide six.

The obvious import of providing notice is to both thank the patients and to ensure they understand they have the option of remaining with the practice. Patients will undoubtedly appreciate this courtesy.

Timely notification is not simply a manner of courtesy, but also of protection. Imagine that you’re about to retire. Eager to begin traveling the country with your wife, you neglect to arrange permission to access your patients’ records after retirement and, at least in one patient’s case, to release medical records. Three months later, your cross-country journey is rudely interrupted by a malpractice suit. Your failure to release the patient’s records was a major cornerstone of the suit; worse yet, your main line of defense is tied up in the patient’s medical records—records that you now have trouble accessing.

Lesson 4: Make sure you are not disqualified on careless technicalities.

Before leaving a practice, be aware of the type of malpractice insurance you’ll need. The amount of doctors who don’t know the difference between “claims made” and “occurrence” coverage is baffling. Such ignorance can be costly.

If our fictitious traveling retired physician, for example, had “claims made” coverage and neglected to purchase “tail insurance” for claims filed after the termination of his policy, he would be unprotected. This may have been the case if he mistakenly believed he had “occurrence” coverage, where his carrier would be responsible for claims that arose while he was being covered (which presumably would have been when he was practicing). Few things are more disconcerting than being sued after crossing the finish line.

Make sure you have the proper professionals handling the transaction to propose the right questions and get the answers you need to move forward worry-free. This is complicated work and the risks involved can be foreboding.

Steven Abernathy (sabernathy@abbygroup.com) is founder, principal and chairman of The Abernathy Group II where Brian Luster (bluster@abbygroup.com) is a principal. They can be reached at (888) 422-2947. The Abernathy Group II Family Office sells no products and receives no commissions. It is independent, employee-owned and governed by its Advisory Board comprised entirely of thought-leading physicians and professionals.

 

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