How a doctor makes money (Part II)

[group_theory]

Given the overall positive responses to the first thread,
http://forums.studentdoctor.net/threads/how-a-doctor-makes-money.1170226/

We discussed in the first thread that ultimately doctors generate revenue by billing insurance companies/Medicare/Medicaid and collection is based on RVUs generated from your biling.

Let's continue with the discussion (stuff they don't teach you in medical school)

You are in your final year of residency OR fellowship ... you have $200k in loans that up until now have been a figment of your imagination, and you are eager to "get a real job and make real money" and reduce that student loan

You are a superstar in residency/fellowship, and have skills/talents highly sought after. You are weighing your future options:

You are being recruited by your residency to stay on as faculty at Academic University School of Medicine as a clinical assistant professor on the clinical educator track. They will pay you $150k/year + benefits. The health system is a 501(c) and you are eligible for PSLF after 6 years.

A recruiter have connected you with a private practice group. They like you and would like you to join them ... starting salary is $225k + bonus. There is potential for partnership in 3 years.

A hospital in another state has heard great things about you, and in desperate need of your skills. The local hospital is willing to underwrite your salary for the next 3 years - minimum guarantee salary of $350k. The compensation is productivity based, with 50% going to overhead.

A competing health system is also trying to recruit you. It is not an academic university. You would belong to a single group practice with exclusive rights and cover 2 hospitals. It is a complicated salary structure, but your base salary will be $250k. The health system is a for-profit health system so you will not be eligible for PSLF.

So let's discuss

1. From a purely financial perspective, would it make sense to pursue the PSLF option?

2. What does being a partner imply? What are the potential benefits? What are the pitfall?

3. What are the pros and cons of salary + incentives/bonus? What are the pros and cons of a production-based compensation model?

4. What does it mean when the hospital is willing to guarantee/underwrite a minimum salary? What are the potential benefits? What are the pitfalls?

5. Who are your "bosses" in each of the above options?

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[DetectiveAlonzo]

I'm in for this thread. Excited to see the gems and extensive knowledge that is dropped!

 

[SLC]

Looking forward to reading this thread

 

[Postictal Raiden]

I'm in for this thread. Excited to see the gems and extensive knowledge that is dropped!

Agreed. This is the type of knowledge we are missing out on during med school and residency. This knowledge is as vital to us as our medical knowledge. I'm very grateful for all of those who contribute to the enrichment of our knowledge on the economics of medicine.

 

[Postictal Raiden]

Given the overall positive responses to the first thread,

1. From a purely financial perspective, would it make sense to pursue the PSLF option?

Given the relatively low educational debt, I'd say going the academic route ($150k/year) is a terrible financial decision.

2. What does being a partner imply? What are the potential benefits? What are the pitfall?

Positives = eat what you kill + no one is stealing your hard earned $$$
Negatives = to maximize your profit, you need to be extremely efficient. You are constantly under the pressure of trying to cover your overhead costs because your employees and bills need to get paid regardless of how much you produce.

3. What are the pros and cons of salary + incentives/bonus? What are the pros and cons of a production-based compensation model?

Salary + incentives: the biggest positive thing about is knowing that you are at least making some money despite what goes on in the market. The negative thing is that you sometimes need to work a lot more to meet the threshold at which you start getting bonus.

Production-based: The positive about it is the ability to control your income. More work = more money. The negative is that the market and the payor mix have big influence on how much you ultimately make. This means that if medicare reimbursements get cut, your take home income will take a big hit.

4. What does it mean when the hospital is willing to guarantee/underwrite a minimum salary? What are the potential benefits? What are the pitfalls?

Potential benefits of having a guarantee salary is having the financial stability. However, sometimes the salary drops significantly once the guarantee-salary period is over.

 

[group_theory]

I've heard rumors that there are some medical school where their financial aid packages/presentations include PSLF as part of their "financial aid" ... and I've seen more than a few posts on SDN where the posters stated that that they will use PSLF to cover their loans.

Let's assume that Congress doesn't set an income ceiling/cap on PSLF. This also assumes you made PSLF-eligible payments during residency/fellowship.

In the above first scenario, you qualify for PSLF after 6 years working for the University Hospital. Most non-tenure track clinical positions in academic hospitals are usually for fixed appointments, with options to renew after that fixed term (like 3 years). Some academic health systems (the more prestigious ones) might not even offer you the rank of assistant professor but something like "instructor". As mentioned, it's usually for a fixed money plus bonus (ie if you generate RVU above a certain amount, you get a bonus/percentage). Overhead is huge since academic medical centers aren't really efficient ... in addition, there are institutional taxes that eat into your reimbursement - there's the "dean's tax" that can range from 0 - 16% of your income. There may be a separate "Institutional Overhead" charge as well as "President's Tax" These institutional taxes are used to cover General Medical School administration, Recruitment Packages for Department Chairs, New Clinician Faculty Start-up, Non-Clinical Activities of Dept Chairs (administrative), new research faculty start-up, Research Services, Social Functions, Faculty Incentives, etc. The "President's Taxes" are used to go to the main university to support university function.

*I don't know if stand-alone osteopathic medical school functions in similar fashion but I suspect the larger ones affiliated with larger universities function similarly

Expectations are that you work with residents, students, do didactic teachings, as well as administrative obligations (QA/QI projects, work to publish review articles, med school admission committee, residency promotion committee, your school's IRB, safety committee, etc). Usually there are no limits to how many times your terms can be renewed. If you happen to be hired onto a tenure-track position, you may be in a "up or out" status where if you don't get promoted by a certain time frame, you're out. Some universities will allow their clinicians to transition from a tenure-track to a non-tenure track clinical appointment, but some universities are moving away from this transition (under pressure from the tenured non-clinical faculty who thinks this option isn't fair)

Examples of academic ranks in medicine
https://medicine.yale.edu/facultyaffairs/appts/ranks_tracks/ranks.aspx#page1
http://www.fa.hms.harvard.edu/admin...nt-and-promotion/appointment-policies/#status

In the above example - you're doing great, well loved by your department chair. Your dean doesn't know you. And your non-tenured term has been renewed.

Believe it or not, as a single person making $150k/year and with $200k in loans, you still qualify for IBR. After 6 years of payments, you qualify for PSLF (before Congress gets rid of it or place an income cap on it). That $200k is now gone . PSLF was a great deal, right? Only if you wanted to work for a 501(c) to begin with. You took a reduction in income to work in academia. The difference between job 1 (academic) and job 2 (private practice) was $75k/year. $75k x 6 = $450k. The difference might be bigger if you became a partner after 3 years in Job #2. While your loans were forgiven after 6 years due to working for a 501(c), you could have made more money if you took any of the other job offers. So picking job 1 purely for the PSLF was not a wise financial move.

Your bosses, in this example, are your division chief, department chair, and dean. There are also senior faculty members who will be your faculty advisers (and some may serve on your tenure/promotion committee)

 

[group_theory]

For job #2

This is a Straight Salary plus bonus/incentive model. A lot of young physicians like this because income is set and you know how much you will be making in a year.

How the bonus is structured is really dependent on your contract. The question is - how attainable is the bonus? It may say "extra $20,000/year if your RVU is above a certain amount" but can you obtain that RVU threshold? Would it require you seeing an extra 2 patients/hr for the entire year to get $20,000? Would you have to give up every weekends to meet that RVU requirement? How high is the bar set? Remember, you are new to the practice (without your own patient base) and not as efficient as the other physicians - would obtaining that bonus be attainable?

So when negotiating or discuss bonus structure, don't just focus on how much the bonus may be, but how feasible and attainable is the bonus?

If you are lucky enough to land a job that can lead to partnership - after a number of years, you may be offered to join (buy-in) to the partnership. This is like being a share-holder in the company/group. You can either "buy" the percentage of shares from the other partners, or "sweat equity" (work for reduced amount for the few years leading to partnership), or take a reduction in pay (with the difference going to the other partners) afterwards to buy your shares of the practice (not indefinite but until the amount is paid off)

This model is relatively simple - your income is basically practice income - expenses, distributed among the partners. Since you are part owner of the practice, you have an incentive for the practice to do well ... see more patients, do more procedures, generate more income. If your group also happens to own ancillary services (labs, imaging, etc), you will get a share of the profit as well.

The downside is that you are now part owner of the practice. Your income is after everything else gets paid. If it is a bad year, you may have a small income. If it is a good year, you may have a large income. Since you are part owner, any financial liability of the practice is partially your financial liability as well. (if the practice is a LLC, it should be a limited liability where your liability is the investments you have in the company. If it is general partnership, then the owners are all personally liable for the debts and legal action of the company)


If you're offered a position, ask how many years do you have to work before you can become a partner, and how is the practice set up legally (is it an LLC? General partnership agreement?). During the partnership buy-in, ask to look at the books - look at the account receivable and financial statements over the last few years. It is important to get an accurate assessment of the "worth" or value of the company since you will be paying a percentage of that as your "buy-in". Also ask if the revenue are distributed evenly, or do the senior partners get a bigger cut than the junior partners? If the practice also own ancillary services, are you also getting a share of of that income, or is that income all going to the senior partners? If going to senior partners, are you buying shares in the ancillary services as part of your buy-in? If everyone gets an equal cut, are you expected to work harder (ie more calls, more weekends, more holidays, more overnight) than the other partners? Or will you be compensated for extra work?


In this scenario, your bosses are the partners (and if in a larger group, the board of directors, and company officers)

 

[group_theory]

For Job #3, this is production or productivity based. On the surface it appears simple - you eat what you kill (minus expenses) but it can get complicated. There are a myriad of variations available. Essentially, physicians are paid a percentage of either billings or collections, or they are paid based on the resource-based relative value scale (RBRVS) units assigned to procedures or patient-visit types. The overhead costs of the practice — both fixed and variable — are allocated among the physicians.

The advantages of this model is that it financially rewards physicians who make the extra effort and generates more RVUs (either through billings, collections, or both). The downside is that it can create a competitive environment. If you are in the office and have a lot of cancellations and no shows, it will personally affect you (financially). If you are in the office all day but your colleague is at the hospital doing procedures, your colleague will generate/collect more than you. If the distribution of work is unequal, you may grow to resent the disparity in scheduling. If it is based on collection, you may want the patients who are private insurance (with higher reimbursement rates) than the patients who are Medicaid, Workman's Comp, "Self-Insured", and nowadays patients from the ACA plans with high deductible, etc. If your compensation is based on collections, it's important to know the payor-mixed in the practice, as well as what the percentages of the billings the group actually collects, as well as how quickly (or slowly) reimbursements are received. Some insurers (medicaid are notorious for this) can take months before reimbursements arrive after billing.

Accounts receivable or A/R is a term used to denote money owed to your practice for services you have rendered and billed. Any payments due from patients, payers, or other guarantors are considered A/R. A goal of every practice is to manage its A/R to ensure that it gets paid correctly in a timely manner. An increase in A/R could mean that your practice is not able to collect payment up front (co-pays), insurers are delaying payments, or patients aren't paying their share (like those with high deductible plans where they have yet to meet their deductible and have to pay out of pocket until deductibles are met). It can lead to cash flow troubles if not corrected.

From a book keeping perspective, this is an asset (account receivable) but it can lead to significant cash flow problems. Your practice expenses (and in fact, your compensation/salary) will need to be paid ... and sometimes the group will need a business loan (or access to liquid capital) until those account receivable are cleared. This accounting concept is not unique to medicine.
https://en.wikipedia.org/wiki/Accounts_receivable

For the above reasons, that's why there are various compensation models and not as straight forward as "eat what you kill" in an effort to try to make things equitable.



As the new physician to the group (or area), you don't have a patient base yet, so it may take a while to generate that patient base - your schedule may be light when you start (since you will need local physicians or hospitals to start referring patients to you) so when you start, your compensation (either from billing or collections) will be on the light side. Even if you are joining a practice (and not moving to a new area and starting a new solo practice), you will need a steady stream of patients and the local doctors (or NPs/PAs) will need to know to refer to you. Your salary for the first few years may be on the low side as you build up your patient base. If your skills and talent are what the local hospital wants/needs, the hospital may offer you (if you are starting a solo practice) or the group a minimum guaranteed salary for the first few years (in our above example, $350k/year for 3 years). Because of Stark Laws (federal anti-kickback laws, see prior thread on this subject), the hospital can't just give you $350k/year to practice in the area where the hospital serves. In most cases, it is structured as a type of loan that is forgiven under certain terms - for the first three year, they will loan you up to $350k/year the difference between your production/compensation and $350k/year. You are responsible for paying that loan back if you leave the area during that time frame. After 3 years, for each additional year that you stay and practice, the hospital will forgive certain amount of the loans (and if you practice long enough in the area, the entire loan can be forgiven). It may be a 2:1 forgiveness (for every 2 years of practice, 1 year of loan is forgiven). The hospital cannot just "waive" the loan (even if the hospital president, CEO, board of directors all love you and want to waive the loan and write it off to help you) ... what the hospital can and cannot do is govern by complex federal rules/regulations (all coming from Stark Laws) and violation can result in millions of dollars in fines. But if you stay long enough, everyone wins. The hospital was able to recruit and retain a talented physician. You got a guaranteed income for a few years while you build up your practice, and your "loan" was forgiven just by staying and practicing in the community. And the community wins by having a talented physician join their ramks. Just keep in mind that any portion of the loan that is forgiven is considered taxable income (you will get a tax form 1099) so be prepared to pay taxes. However you will have business expenses to off-set that tax (and will definitely need a tax accountant to help determine the best strategy to minimize your tax obligation). So if your spouse suddenly gets a nice job offer in a different state after 3 years, and you decide to move, be mindful that you owe the hospital a lot of money.

In the above case, you have 3 years to build your patient base and generate a positive cash flow (and not just a large amount of account receivable). After 3 years, the hospital-backed guarantee is gone so you are on your own. If your overhead is 50%, then you will need to collect (not just bill) $700k to maintain a salary of $350k/year. If you collect more, you make more. If you don't collect that much, then you may see a drop in salary (eat what you kill). If your payor-mix are mostly medicaid, self-insured, and uninsured, then you may see a dramatic drop in salary.

Hospital provide hospital-backed guarantee loans to physicians that they are trying to recruit ... usually in areas where there is a shortages of physicians. So if your goal is to open a private practice dermatology clinic in Upper East Side of Manhattan, Mt Sinai Hospital may not be offering you loans to guarantee your income (Beverly Hills, Cedar-Sinai for the west coast equivalent). But if you are a child-developmental pediatrician, a rural Kentucky Hospital may try to recruit you if there is great need.

 

[JustPlainBill]

5. Who are your "bosses" in each of the above options?

This is the one I wanted to comment on --- the rest of the stuff all depends on various factors/personality types/wants/needs --- this one is the biggie though ---

So, I can see where being employed is a great option -- you know what you're getting every 2 weeks, nice benefits package, see a certain number of patients and embrace the suck based on how much you can tolerate -- the administrators will generally try to throw their weight around being the bean counting types they are, depending on how strong your medical director is, they may or may not get away with it -- as a former employed physician at an Urgent Care I was called on the carpet several times when people with little education beyond high school felt that I should've treated the patient with tachycardia, muffled potato voice, drooling, a necrotic tonsil and high blood pressure with a rapid strep and amoxicillin rather than sending them to the ER for treatment by ENT for a peritonsillar abscess, or when a patient buried a toothpick in their heel so far that I would've had to perform minor surgery in order to remove it including a nerve block or was ordered to run a CBC to "test" for viral meningitis (that turned into a long education about LPs and meningitis) --- if you enjoy that sort of thing, have at it. I've also had CNOs tell me that I should've admitted a bilateral PNA in a patient with known CHF/COPD who was going in and out of aFib in the ER, was septic with LE cellulitis also and merely needed to put them on metoprolol and life would've been good -- all with no intensivist or cards/pulm help within 30 minutes of the critical access hospital -- not on my watch, Skippy ---

I want you to think for a minute--- you've spent all this time, effort and money to earn a professional degree -- why would you resort to being an employed physician which is basically a highly paid burger flipper required to see x number of patients per day? I can see it for a certain timeframe after residency to gain skills/experience but not as a long term solution. You need to be thinking of either becoming a partner or doing something that generates revenue streams that benefit you and you alone -- as I learned the hard way -- no matter how nicely they say it -- no one really gives a s*(t about you and yours except you and yours -- there's no help coming so don't depend or count on any ---

if you can't afford to open your own practice, look for one where partnership is available and spelled out as to what you need to do in objective, definable terms, not some vague BS -- or better yet, open a clinic, start staffing it with PAs/NPs as soon as viable -- pretty soon you're semi retired and letting other people work for you --- think about what generates passive income streams ---

sorry for the rant but thought I'd pass on an opinion.

 

[AlteredScale]

@group_theory I have a question about the academic job. Is the difficulty of getting your appointment renewed the fact that the balancing act between research output and clinical output hard to do? Also say you decide you want to make more money and lessen on the side of research/adminstrative duties and thus start working more clinical hours, would that be essentially a death sentence to getting your academic appointment renewed?

I know of a few clinical professors at UCSD who had a lab, ran it for 4 or 5 years and despite having decent work put through, could not receive anymore funding and thus closed their lab. Seems they were kicked to the curb and are now required to perform clinical duties at multiple hospitals affiliated with UCSD (VA, both centers, outpatient) as supposed to being able to just work at the new hospital. Is that a normal pathway that happens to docs who don't "make it" through academic medicine gauntlet?

 

[dozitgetchahi]

In the above example - you're doing great, well loved by your department chair. Your dean doesn't know you. And your non-tenured term has been renewed.

Believe it or not, as a single person making $150k/year and with $200k in loans, you still qualify for IBR. After 6 years of payments, you qualify for PSLF (before Congress gets rid of it or place an income cap on it). That $200k is now gone . PSLF was a great deal, right? Only if you wanted to work for a 501(c) to begin with. You took a reduction in income to work in academia. The difference between job 1 (academic) and job 2 (private practice) was $75k/year. $75k x 6 = $450k. The difference might be bigger if you became a partner after 3 years in Job #2. While your loans were forgiven after 6 years due to working for a 501(c), you could have made more money if you took any of the other job offers. So picking job 1 purely for the PSLF was not a wise financial move.

Your bosses, in this example, are your division chief, department chair, and dean. There are also senior faculty members who will be your faculty advisers (and some may serve on your tenure/promotion committee)

Yes indeed.

I've tried to make this point a number of times, both around here and elsewhere...PSLF isn't this panacea that everyone seems to think it is, and it may not even be there for you when it comes time to get your loan forgiveness after all these years of lost income. There may be isolated situations where it makes sense, but there are just as many situations where it makes no sense whatsoever.

Get a good job, live lean for the first few years, pay off your own damn loans and don't rely on the government to do it for you.

 

[group_theory]

@group_theory I have a question about the academic job. Is the difficulty of getting your appointment renewed the fact that the balancing act between research output and clinical output hard to do? Also say you decide you want to make more money and lessen on the side of research/adminstrative duties and thus start working more clinical hours, would that be essentially a death sentence to getting your academic appointment renewed?

I know of a few clinical professors at UCSD who had a lab, ran it for 4 or 5 years and despite having decent work put through, could not receive anymore funding and thus closed their lab. Seems they were kicked to the curb and are now required to perform clinical duties at multiple hospitals affiliated with UCSD (VA, both centers, outpatient) as supposed to being able to just work at the new hospital. Is that a normal pathway that happens to docs who don't "make it" through academic medicine gauntlet?

It depends on the priorities of the department chair and division chief, and also the reason why you were hired. If you were hired to be a triple-threat (clinician, educator, and researcher), they expect output from all three arenas and if you don't fulfill expectations (ie independent funding to sustain a lab), you may be forced out of the position to let the next "hot shot" take over. Unlike PhD researchers, you are also expected to have clinical duties (take part in the call schedule and holiday schedule) in addition to administrative/service duties (which PhD researchers also do ) as well as teach and mentor medical and graduate students, all while running a full time lab (and writing grant proposals) ... and at some point also get invited to give talks/presentations to outside institutions (and also try to network with other visiting professors/distinguished clinicians who visit your institution). Hopefully you will have a senior faculty member be your advisor and mentor and guide you through the process, so that after a certain number of years, you prepare a portfolio (dossier) and submit it to the school's promotion and tenure committee ... some schools have a "up or out" where if you don't get promoted at this stage, you must leave. If your dean/dept chair/division chief are trying to get focus more on research (and more NIH/NSF/DoD grants), then they may look at your ability to get more funding (as well as what outside reviewers say about you) and may decide not to promote you. What happens next is school dependent - some school will force you out completely. You had your chance, let's see what the next hotshot who graduated Harvard MD/PhD, residency UCSF, fellowship at Hopkins, additional postdoc years at NIH will bring to the table. Other schools may switch you to a pure clinical role (esp if they have a need for clinicians to help cover service obligations). Or you may take your skills/service and start over at a different school/academic center if you still want to pursue research.

The above is for "tenured" appointment where you are hired on the tenured track (and tenure is expected). There are also "termed appointment" where you are not on the tenured track, but are hired for a fixed length of time, and re-appointed (if you are in the good graces of your division). Sometimes you can switch from tenured appointment to termed appointment (even if the P&T committee denied tenure), esp if the division is hurting for clinicians. Some schools do not offer the ability to switch.

There are other career paths in academic medicine as well - in addition to the clinician-scientists (where to have a successful lab, you need to dedicate the majority of your time on the research/scientist side), there are the clinician-educator (hired to be clinicians and full-time teachers of medical students/residents/fellows). There's also the clinician-scholar, where in addition to clinical work, they expect you to do "scholarly activities" (take part or be the PI of a large clinical trial, leader in the field of XYZ, etc). Even if you are on a termed appointment, there are also "ranks" such as clinical assistant professor, clinical associate professor, and clinical professor. Some schools have additional ranks, such as "lecturer" and "instructor"


Funding on the research side gets complicated. Academic medicine and university hospitals aren't known for model of efficiency, and you are not working full time as a clinician (compare to your private practice counterpart). Even if you're 100% clinical, you still have other expected service obligations (committees, etc) that take you away from your duties. In addition, the dean's tax eats at whatever revenue you bring in (see above post). And if you are 20-80 (20% clinical, 80% research), the majority of your salary is coming from research and only a small portion is coming from your clinical duties (which is already depressed)

So that Harvard MD/PhD who is newly hired at Mass General with a lab at HMS ... is making a salary a lot lower than the DO FP who failed step 1 and 2, scrambled into a residency, but joined a thriving FP practice in Western MA. But Harvard pays in "prestige" points. That and $1 will get you ... a cheap small cup of coffee at a gas station (taxes excluded)