Financial Woes

[Guest guest]

Docs:

Looks like we're not the only profession that has to dig out of a

hole after starting a practice.

Lyndon McGill, D.C.

Salem, Oregon

www.SalemSpineClinic.com

Evolving Doctors

From Medscape Medical

News

Years After Residency, Primary Care Physicians Still Face

Financial Woes

Mark Crane

November 11, 2010 — The typical primary care physician will be in

a financial hole, with expenses exceeding income, for 3 to 5 years

after residency, forcing the doctor to cut expenses and delay

savings to remain solvent, a new study in the November issue of Academic

Medicine found.

Applying a financial planning model that compares primary care

physicians with other young professionals, the authors found that

these physicians won't begin to have a positive cumulative net

worth until age 33.

"This reality greatly increases the financial disincentive for

pursuing a career in primary care compared with other fields of

medicine," write lead author Palmeri, MD, a fellow in the

Department of Hematology/Oncology at Dartmouth Medical School, in

Hanover, New Hampshire, and colleagues.

The study looked at educational loan costs, average starting

income, housing expenses, and recommended savings for retirement

and children's education. It concluded that primary care

physicians fresh out of residency face a monthly budget shortfall

of $801 unless they make significant reductions in expenses or

postpone savings. Physicians in most other specialties have higher

earnings and won't face the same shortfall.

Although primary care doctors typically begin to have some

discretionary income a few years after residency, the authors warn

that "any erosion in primary care physician income may make a

career as an internist, family physician or pediatrician

untenable. Rising interest rates on educational loans, increasing

student debt, declining Medicare/Medicaid reimbursement and

inflation can significantly reduce physician income."

"There'd been very little written about the effect that

educational debt plays in financial planning" for young

professionals, Dr. Palmeri told Medscape Medical News.

"This study started with me trying to figure out my own family

finances on the back of a napkin, and grew from there."

Although the conclusions may appear depressing, Dr. Palmeri notes

that a primary care income should be adequate to meet savings and

investment goals a few years after residency. "If doctors become

financially savvy and plan from the beginning, primary care can

still be a lucrative working opportunity."

The authors concede that some of their assumptions can be

challenged and that there are significant regional variations.

They used data from the Bureau of Labor Statistics, physician

compensation surveys, realtors, the College Board, and other

sources regarding medical student debt, physician reimbursement,

retirement planning, college savings, and cost-of-living expenses

to develop their models.

Some of the assumptions include that primary care physicians

start their careers at age 30 years, will repay educational loans

across a 10-year period, will purchase a home after residency,

have 2 children, retire at age 65 years with a life expectancy of

90 years, and face an average tax rate of 25%. For this model, the

physician is the sole wage earner in a family.

The study found huge increases in the amount of medical student

debt during the past few years. About one quarter of medical

students have more than $200,000 in debt, double the number of

students in 2004. For this study, the average debt was $162,500.

If payment on the loan is deferred for 3 years of residency, the

total debt is $199,159. Amortized over 10 years, this debt results

in a monthly payment of $2261.

The average starting salary for a primary care physician is

$130,000. Assuming an average tax rate of 25%, the after-tax

monthly income is $8125. The authors include average mortgage/home

expenses of $1734, college savings of $1967, and other expenses of

$2069. The result is a negative monthly income of $801 after

expenses.

"The first few years after residency will be financially lean but

feasible...if the physician reigns [sic] in expenses by, for

example, extending educational debt repayment from 10 to 20 years"

or delaying the purchase of a home, the authors said. Although

many young doctors will defer making contributions to retirement

and college savings, Dr. Palmeri warns that will mean having to

save more aggressively 5 years down the road.

The authors advocate ways to level out salary disparities with

specialists through changes in the reimbursement system, better

forms of debt relief, and new models of care that reward quality

instead of volume to encourage more medical students to choose

primary care.

"The loan forgiveness and repayment programs need to be more

generous," Dr. Palmeri said. "They aren't easy to qualify for, and

you may need to relocate to a medically underserved area. For

someone in the fourth year of medical school, can you rely on this

program 4 years from now?"

Wiley, co–legislative director for the American Medical

Students Association and a third-year medical student at

Washington University, in Washington, DC, agrees that the programs

need to be improved. "Doubling the strength of the National Health

Service Corps under healthcare reform is a great idea, and I'd

like to join it. But the maximum amount of loan forgiveness of

$35,000 a year just isn't enough," she told Medscape Medical

News. "I'm spending about $80,000 a year now. I'll finish

medical school with about $300,000 of debt. We'd like to see more

scholarship up front instead of on the back end."

The study "makes concrete something most medical students already

know, but it raises awareness, and that's to the good," Wiley

said. "This report doesn't shock us. It's just the harsh, scary

reality. I started medical school later than most, so I'll be in

my mid-30s when I finish training. At this point, I can't see how

it's even feasible to think about saving for children's college

education.

"Reimbursement parity is the big elephant in the room," she said.

"Even the proposed 10% increase in Medicare reimbursement to

primary care doctors over 5 years isn't nearly enough." The

American Medical Students Association supports increasing

scholarships and loan repayment plans to incentivize service in

primary care.

Roland A. Goertz, MD, a family physician in Waco, Texas, and

president of the American Academy of Family Physicians, strongly

agrees.

"It takes an amazing commitment to go into primary care these

days, to resist the temptation to go into another specialty," he

says. "We've got to change the payment model to one that focuses

on the patient-centered medical home to improve quality and bring

costs under control.

"This issue has been troublesome for many years, and we're facing

a huge shortage of primary care physicians," he said. "We've tried

to get policy makers interested, but their interest waxes and

wanes. This report helps focus attention on the problem."