Margaret Sucré-Vail, AIF® AWMA® l Sucré-Vail Wealth Advisors l www.sucrevailwa.com
The financial conditions facing young doctors and med students today are significantly different than they were 30, 20 or even just 10 years ago. If you are starting a career in medicine, student debt and a challenging insurance reimbursement environment, among other factors, make it essential to take a proactive approach to understanding your financial and career options in order to improve your chances of achieving long-term financial success.
Handling the Challenges Facing You as a Young Doctor
Some of the most significant challenges you are likely to face when building a career as a physician, along with steps you can take to overcome them, are as follows:
1) A changing healthcare environment: Hospitals increasingly run the show these days when it comes to employing doctors. This makes it difficult for a young doctor to start his or her own practice – most opt for employment instead.
In many cases, there’s no need to reinvent the wheel and take the time and trouble to try and start up your own practice, with all the expense and effort that entails. An alternative approach is to look into succession opportunities – working with older physicians looking for help to relieve some of the burden of practicing medicine full-time before they retire to enjoy their Golden Years. Another option is to investigate opportunities to serve as a medical director in addition to working in a private practice to bring in additional income.
2) Enormous student debt: The rising cost of education means that many young physicians are carrying significant debt loads by the time they complete their education.
One way to positively reframe this debt load is to think of it as you would a capital investment in a startup business – with the business in this case being your career in medicine. As with any business venture, there should be a business plan, which takes into consideration both the short- and long-term earnings potential of your chosen specialty. Once you’ve completed residency and fellowships, consider consolidating student loans with a plan to substantially pay down your debt, while avoiding the temptation to live a luxurious lifestyle (at least until you’ve made significant progress in reducing your debt). You may also want to explore opportunities for employment with a government entity as a way to have student loans forgiven. Explore details on the new IRS ruling that allows 401(k) student loan benefits, since more employers may move to adopt a student debt repayment benefit as part of their retirement plan.
The bureaucratic burden associated with practicing medicine today: This includes sometimes onerous paperwork demands, along with extensive licensing and standards requirements. The challenge this represents to productively running a medical practice is seldom covered in med school.
To deal with the challenge of staying compliant with the many bureaucratic regulations associated with modern medicine, utilizing practice management services and software is essential. Another route to consider is joining an established medical practice or hospital that offers these services.
3) Minimal financial management education at med school or during residency: This lack of financial education can be an impediment to doctors when it comes to managing their professional and personal finances.
To properly manage your finances without becoming an expert in the subject yourself, it is necessary to assemble a team of specialists who will work together to perform the job. The team should consist of a financial planner, a CPA, an attorney and an assistant to run interference. You as the physician should serve as the CEO, with the rest of the team functioning as the board of directors.
4) Decreasing reimbursements from insurance companies: As healthcare costs continue to rise, insurance companies have become increasingly strict in their attempts to reduce payments to service providers.
In this era of reduced reimbursements, becoming a participant in a larger medical group is often the optimal way to deal with the situation. There are a number of options for joining or working with such groups, so it is best to explore a variety of these options to find the one that works best for you.
Why Financial Advice for Young Doctors Needs to Be Different Now
As the financial and business landscape facing young physicians has changed in recent years, so too must the advice given to young doctors as they embark on a career in medicine. Two main areas that need to be addressed in this regard are:
- The impact of rising student loan debt
- A shift in generational philosophy that makes immediate gratification a top priority
These two challenges must be addressed jointly, as the ability to live a luxurious lifestyle after residency/fellowship is likely to be significantly constrained if you have student debt to deal with. If you aren’t encumbered by student debt, your options both from a lifestyle and investment perspective will be much wider.
One thing to be cautious of when you are just starting out is the temptation to participate in private equity opportunities before you’ve established the foundations of financial wellness. Building your financial foundation involves:
- Insuring against the loss of your most important asset – your income
- Setting aside three to six months of lifestyle costs in the form of cash reserves in a savings/checking account, money market fund or equivalent
Some advice that was suitable in the past simply no longer makes sense for young doctors in today’s healthcare environment. This includes the strategy, most commonly found in small and medium-sized practices, of dividing responsibilities among physicians for administration and practicing medicine.
The idea was that these practices functioned best when one partner focused on serving as the practice manager while the others saw patients. However, with the reduction of reimbursements and the ever-changing billing environment, this type of approach is no longer as efficient as it once was. It’s often more beneficial nowadays to either be a part of your own private practice with an administrative assistant to handle practice management duties or to work for a larger group or hospital.
Another example of outdated advice is the admonition to invest heavily in medical equipment to add value to a medical practice. Given that the risk that changes to reimbursement parameters will sharply curtail its value, leasing rather than buying such equipment or joining a medical group or hospital where the equipment is provided for you are likely to be more prudent choices for a doctor who is just starting out.