In this episode of FIN-LYT by EWA our team explores the world of international investments and answer the common question, “Should I still be investing in international stocks?” Matt Blocki, Ben Ruttenberg, and Nick Stonesifer make the case for the importance of international investments in proper asset allocation, diversification, and achieving the best risk-adjusted returns for long-term investors. In the United States many investors have a subconscious bias towards domestic investments, so it is important for investors to understand why international investments remain a cornerstone of a well-rounded investment portfolio. Matt, Nick and Ben discuss both emerging markets and developed markets, active versus passive investments and weigh in on the debate of mutual funds versus ETFs (Exchange-Traded Funds). Discover the pros and cons of each approach, and gain insights into which are best suited for specific components of your portfolio and financial planning goals
Welcome to EWA’s Fin-Lyt podcast. EWA is a fee -only RIA based at Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you.
And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time. Welcome, everybody, to FinLit by EWA podcast. Today, we’re going to be talking in detail about physician contract negotiation.
A lot of these will be very specific for physicians, but the main high -level takeaways are really applicable for anyone when signing a contract for a new job. So, Jameson, talk to us first. Why is it important for physicians to really learn about their contracts and negotiate the contract ultimately before they sign on the dotted line?
Yeah, I think it’s a number of reasons, really important, but I mean, you spend a lot of time and money to go to medical school, go through a ton of training, so you want to make sure you’re fairly compensated.
And just like, you know, we don’t understand medicine well, a lot of times physicians weren’t taught, you know, how to negotiate a contract. They’re taught how to practice medicine. So, getting really familiar with it, making sure you’re paid for the work they’re doing, they’re fairly compensated based on national averages.
And it really can be the difference between hundreds of thousands of dollars, if not millions of dollars, over the lifetime of contracts. It can be pretty uncomfortable for a physician to go to the administration and try to negotiate or ask for more money, but yeah, I think it’s extremely important to make sure they get, you know, get the contracts in place that are serving them and the hospital, not just one -sided.
It’s the two things that I personally seen really over the last, you know, 13, 14 years of working with physicians and being a financial advisor for physicians is one. Typically physicians, when it comes to the finish line, after four years of med school, three years of residency, three years of fellowship, or if you’re a surgeon, it could be a similar, but different, longer residency, smaller fellowship.
Either way, after 10 years of grinding, a lot of physicians will sign contracts with their final place of where they trained, whether that be residency or fellowship. And so, politically, they have close ties to maybe, the director, the program director, the administration of the hospital.
And so, it’s very uncomfortable, as you said, for them to push back. A lot of times we see just a big decision fatigue. After going through 10 years, they’re finally, they just wanna get, making 50 to 70 ,000 a year, and they’re about to jump to maybe 250, to a million a year, depending on what type of physician they are.
They just wanna see that first paycheck. They’re sick of seeing their student loans grow in a bigger balance. And so, a lot of, the biggest mistake I would see is just decision fatigue and exhaustion taking over, and just, signing because they think that’s, you know, they have no other option.
And then the second thing is really a lot of hospitals say we don’t negotiate contracts. Well, there’s two in Pittsburgh that we work very closely with that you can guess what those are. Every contract we’ve helped with they’ve negotiated like we’ve negotiated, we’ve changed stuff successfully and compensation higher, etc.
So every everything is in the life, especially contracts is negotiable. I think it’s important for physicians to really understand that. And then the other thing, if you have student loans, one of the really the number one reason why we started helping physicians with contract negotiation is our student loans.
Just as an example, like if someone is three years in residency, three years in fellowship, and they’re on an income based repayment at a non for profit. I mean, they’re four years away from getting their loans forgiven.
So just hypothetically, you know, if someone’s going to stay in a non for profit, we’ve analyzed, you know, probably a thousand of these, but they have four years of income based repayment, maybe three or 4000 a month.
And then four years later, let you say it’s 3000 a month of the payment, 36 ,000 a year times four. What is that? That’s 144 ,000. And, you know, let’s just say that’s a $300 ,000 loan balance. That’s amazing.
First, if they go pay off that loan, because they joined a private practice and they’re responsible for it themselves, meaning they don’t, they’re bumped off the 10 year loan forgiveness program, which requires you know, 30 hours per week of work at a non for profit.
So full time work as it’s defined. And then also making, you know, the correct type of payment. A lot of the times a physician would have to make gross and additional 50 to 150 ,000 a year to just justify going to a private practice to get a higher payment net of taxes to then offset those loans to be done with them in four years as well.
So a lot of physicians that are burdened with student loans, I mean, that’s really where we start. is we say, okay, well, if you stay at this hospital, here’s what would be required to get these loans, paid off or forgiven.
If you go to a private practice and you accept the full responsibility, you have to pay those loans off out of your pocket, you need to make a lot more money to come up with that difference. So that’s really where we started.
Now, what we’ve seen is a lot of private practices are becoming less and less, and a lot of physicians are, W2, or your partners of a private practice that are really closely affiliated with the hospital.
So the second biggest thing we see is, with the compensation is there’s slowly the shift to quality metrics, but by and large, a lot of our physician clients are still compensated by WRVUs. So, Jameson, talk to us about the breakdown.
Let’s go through some specific examples of how, we’ve actually told physicians to go with a lower base salary and they’ve ended up making. nearly twice as much when most, you know, someone right out of residency fellowship would probably go for that higher base salary, higher guaranteed, just based upon stress.
But with how these WRVUs work, it’s, it’s really, you know, important to understand how you’re compensating to maximize your contracts. So James, first tell us, you know, what are they and how do they work and then how specifically have we helped clients negotiate the highest compensation possible?
Yeah, so get a little bit nerdy. Relative value unit is what it stands for, actually. And basically patients or insurance companies most times submit claims to get reimbursement, which is dependent on the RVU that the physician performs.
So this, there’s three main factors. Number one, the work that the physician does. So the amount of skill, time training. So easy example there is like a surgery is going to be a higher value than a standard inpatient visit for like a primary care physician.
The cost of operating the medical practice or the overhead to the hospital or the practice and then the liability expenses. So doing a brain surgery, there’s much higher stakes of messing up than, you know, annual physical.
So at the end of the day, healthcare, it’s basically, whether you’re running a private practitioner hospital, it’s a business. And so it’s like the money that comes in, money has to pay the overhead, the cost of the labor.
And then obviously the physician gets compensated for some of it. But to your point, super important because like you said, a physician coming out of training may be enticed to accept a higher base salary, which may not actually be in their best interest.
And we’ll go through an example here. But a lot of times there, the RVU is essentially, it’s the productivity of the physician. It’s easy example. It’s a bad example, but it’s essentially based on the amount of work they’re performing, just like a commission based sales.
job essentially, totally different but same concept. And so they could have, they’ll basically have a target, an RVU target, and that’ll cover their base salary. So it’s essentially saying if you do this amount of productivity, we’ll pay you this annual salary, assuming that you hit this metric, and then anything above that, productivity, you get a bonus for.
So easy example here. There may be an example, so you may have a $400 ,000 base salary with an RVU target of 5 ,000 RVUs per year. And so if you divide that out, that comes out to $80 per RVU. So each RVU that you do, you get paid $80.
And they’re assuming that you’re going to do that. And so total comp in this scenario, you’ll see why this makes sense, but if you do 10 ,000 RVUs in that year, and you maintain that $80 per RVU above that target of 5 ,000, that’s $800 ,000 a year in compensation.
And this can be guaranteed or non -guaranteed. And a lot of times if you’re under that target, you owe some of that money back or… different stipulations with the contract. This could all be negotiated.
But same example, if you took a contract with a $500 ,000 base salary as opposed to that $400 ,000 and the RVU target was $7 ,000 versus $5 ,000, that initially may look better because you’re getting paid more money.
But that comes out to be about a little over $71 per RVU versus that $80 per RVU in the first example. And so that same $10 ,000 RVU target, you’d get paid about $85 ,000 less. You’d get about $715 ,000 a year.
So $85 ,000 just literally have to have a tough conversation. But one thing I want to point out here is that the first contract is better for two reasons, Jameson, because you said the base salary is $400 versus $500.
But that position only has to reach $5 ,000 because what happens… So there’s basically a worst case, middle case, and best case. So the middle case is that one physician is going to make $400 ,000.
And if they do that $7 ,000 RVU, they’re going to be way over that $500 ,000 number. But what happens if a physician doesn’t reach their target typically? What happens the next year? If they don’t hit the target, they could money back off the base would be one example.
I mean, it could be a number of things, depending on what the contract says, or I guess that the target could be raised or lowered. Yeah. So typically, I’ve seen a lot of them. If you don’t reach 90% or 95% of your target, then they have the right to adjust your salary moving forward or even have a pullback provision of compensation.
So the lower salary is important for two reasons. One, because I think the draw of the second salary is, oh, I have that guarantee, that five… Well, that’s not guaranteed. I mean, it may be guaranteed for like two years of your contract, but after that, it’s going to put stress on you for two reasons.
One, you’re going to have to do a lot more work to earn just a little bit of money. little bit more. And if you did that same amount of work in the first scenario, you’re going to earn a lot more. But in the first scenario, you also have the flexibility where you can have the consistency of that paycheck and not get it pulled back because the RVU target is much, much less.
So this is the most crucial thing. If you’re RVU based is to negotiate, you know, not what the salary is, but two things. What one is your target? What’s your patient looking to look like? How quickly is that going to build up?
So I would typically recommend have it guaranteed that’s not tied any target. There’s still going to be a target, but there’s no pullback provision this first two years. Give yourself a runway to build up your patient base, meet your name in the community, et cetera.
And then, you know, secondly is you have to be paid properly for what you do because a lot of people think, oh, physicians, they don’t have a problem because they make so much money. Well, the reality is, you know, they’re typically 35 to 45 coming out of all this training and they’re buried with student loans.
So I mean, I mean, you’ve seen it. A household income making maybe $250 that started saving when they were $23 or $24, not making $250 right away, but without that much student loans, is probably going to be ahead of that household, that physician household, making double with a student loan.
They’re going to be ahead for the next 20 years, typically. So this is so important to have the negotiation. And one of the benefits of working with a financial advisor is they don’t have to, the physician doesn’t have to go directly.
They’ll write up an email, and then they’ll typically forward it to make one of us look like the bad guys. So I know that you recently helped a neurosurgeon with this. What was then the result? Like what was the, I know it was basically like, let’s not look at, let’s not worry about raising this astronomical base salary.
Let’s just make sure we get compensated for the work you do and RBU target. So what was the end result based upon the contract he was in versus the ending contract after a couple of years of practice?
What was the end result and compensation moving forward per year? It basically doubled. It went from his total comp was like 800 to about 1 .5 a year. The reason being he wasn’t, the original contract wasn’t productivity based.
And so he came into this hospital and they basically said, you’re going to build this neurosurgery practice yourself. And so he’s doing that. He’s working like 80, 90 hours a week doing 90th percentile, which we’ll get into the M .J.
May data in a second, but he’s doing the job in the 90th percentile productivity. So he’s basically doing the job of two physicians and he wasn’t getting comped on any productivity. It was just, hey, here’s your guaranteed salary.
Here’s a bonus one time quality bonus at the end of the year. And he was basically doing like double the amount of work. So, yeah, I mean, that was a great example because it was, it’s $700 ,000 a year in additional compensation.
Yeah, no question. So for a young physician, he’s doing the same thing as he did with the M .J. whether it’s physician, procedural based or not, it’s really important to understand as well, something we call the 80 -20 analysis.
So, it’s out there in the universe, basically 20% of what you do will make up 80% of the results. And this could be said for 20% of people make 80% of income, or 20% of people hold 80% of wealth, or 20% of clientele make up 80% of the revenue.
Or as a physician, 20% of your procedures, if you’re procedural based, 20% of what you do is gonna make up 80% of the results. I mean, there’s a big difference for a hand surgeon. If you’re doing carpal tunnel syndrome, like carpal tunnel syndrome surgeries, that are not super time, obviously high level skill set, not super time, they don’t take a lot of time.
Yeah, and then the RVUs are relatively high, so that’s kind of a bread and butter, you can go boom, boom, boom. Whereas if you’re reconstructing a couple of fingers, you could be in the surgery for five, 10, maybe 12 hours.
And… the amount of RV use you could have gotten from a carpool tunnel doing like 10, 20, 30, would in the same time would have been astronomical. So it’s important. Obviously a physician is a hospital.
Like you’re not going to have ultimately 100% control of, you know, what procedures you do, what patients you see, but it’s important to build a specialty and understand how the reimbursements work because if you, and we’ve seen there’s a lot of politics as well.
Also, maybe there’s some veteran physicians that will pull, they’ll understand the RV use and they’ll push all the low paying RVU procedures on like the young gun. So the young physician, so it’s really important to understand how this works, what procedures produce, what results, and then to really start structuring your schedule in an intentional way and to build your team and philosophy around there.
The other thing I’m going to say, and we’ve, we’ve gone through this with several clients is after COVID, like their promise is certain amount of days in the OR. And if that doesn’t come true, it’s going to be tough for them to reach their RVU production.
If they’re not getting all the, you know, in the operating room, if they’re not getting all the, the time in there to actually do the procedures, that could really hurt them as well, especially if they’re procedural based.
So really important to have all those details buttoned up in your contract because then if the hospital or, you know, an event happens, that’s out of your control, you’re still going to be protected.
Because there’s no way you’re reaching your RVU production, you know, production, if you’re expected to be in the RV, in the OR two or three times a week and you’re only getting one time a week. So let’s talk about the MGMA data a little bit before we go on to other tips for negotiating the contracts.
So give us a, give us a breakdown of like national averages. I know you print out neurosurgery here, we use that example. And then what are these different percentiles that we see here? MGMA data, do you know what stands for national, I don’t know, it doesn’t matter.
It’s like national averages of the physician data. There’s a couple other organizations. two that do this. But MJMA is just one. It’s basically just looks at you can break down by years in specialty, you can break down by region, different factors to see what are the national averages based on other physicians in your specialty.
So this is just a breakdown of neurosurgery. It basically breaks it down like 10th percentile, 25th percentile, median, 75th and 90th. So it’s based on your work RVUs and it’ll give you the average to be a median production physician for neurosurgery is doing about 9 ,000 RVUs per year.
And that equates to total compensation, where we add your total comp. 761. Yeah. And then the 90th percentile would be About 1 .3 million so it’s all based on you know your productivity and can just show you the data between You know national averages, but it’s important because if you’re doing you know if you’re doing it if you’re in the 90th percentile You’re doing 16 ,000 RVU is that’s double what the median is doing at nine You know eight that little under 9 ,000 you should be compensated probably won’t get the full two times compensation But you can get you know with a proper contract and get close And yet you have to really understand it’s not this isn’t just simple math as well Because as you climb basically these percentiles like even the 90th percentile that means that you’re like one of the most productive physicians out there You know think about like how golf players are paid think about how like if you look at like hundreds of golf professional golf players I guess really only the top 50 that have like substantial career earnings.
Well Think about NBA players Why do some people like sign the super max contracts and then some people are at league minimums? Well, it’s your productivity obviously there’s this is a Medicine now is a business to it to an extent and so you have to understand how you know how you’re compensated what you know What you’re worth based upon how the productivity of your of your practice works?
So just as an example so you mentioned the total compensation for median neurosurgeon 760 1000 I’m just being exact here and then the 1 .259 million Not quite double but almost double if you’re in the 90th percentile.
So The key thing there is not just the compensation. It’s the compensation to work RV ratio. So if you’re a median physician You should be getting compensated 86 dollars per RVU and if you’re a Top 90 percent then 158 so that’s again the almost doubles and in a simple analogy for this is just like if you’re a Superproductive like turning out like twice as many RV use That’s less overhead for the hospital, you know, that’s less staffing That’s just less overall overhead they need to have if it’s one physician doing the work of two physicians essentially.
And so understanding if that’s you, we go to the state and say, oh, it’s $86 per RVU. If you multiply that by 10 ,000 or even like 20 ,000 of RVUs, you could be at the same point of someone doing like 15 ,000 of RVUs that’s actually getting compensated for what we call the super max deal.
If you’re that in that 90% how you should getting 158 per RVU as a neurosurgeon. So it’s not just simple math that’s understanding what’s your trailing 12 for your work RVUs? What are you anticipating the next year and then negotiating one, making sure that your RVUs are aligned with industry data.
And this is geographical as well. And then secondly, it’s realizing, are you in the median, are you in the 25th percent, are you in the median, are you in the 75th, are you in the 90th? And then making sure that your, payout is actually based upon those because those are drastically different.
I mean, as a neurosurgeon, if you’re in the 25th percentile, your, let’s say your total compensation is 450 ,000 and your RVUs will be about 5 ,800. Well, total compensation for, again, the 90th percentile is 1 .2 million.
So that 1 .25 million, that’s over double. And then the RVUs obviously are higher, but getting those ratios down. Cause the ratio, if you’re in the top 20 or if you’re in the 25th percentile, the ratio, the compensation level is only $65.
So less than half of what it would be if you were a super productive, you know, neurosurgeon, this example. And then there’s a whole academic side of this as well. So if you’re focusing on academics, if you’re in a teaching hospital, you’re not, you’re not going to have that much production.
You’re, you may be, you know, doing some procedures and then a lot of teaching. So understanding that if you’re like a hybrid, then you need to negotiate a really low, you know, RVU target because you’re not going to be putting in the time.
And then also if you’re in research for a day, a lot of times we’ve seen people, you know, that have academic duties, have research duties, and they don’t have the time set aside. And that contract, you need to have like specifically time blocked out.
That’s respected and understood from the hospital, from colleagues, from peers, and just make sure that that’s in the contract. Two quick things to add. One, this, once you have gone through, like you said, your first couple of years in your first contract, you’ll know what your production is.
But if you’re a physician coming out of training, it’s going to be hard to know what is realistic for, you know, RVUs per year, per 12 months or whatever. And so, you know, ask senior physicians there that have been there for a while, get an understanding of the resources of the hospital, all that stuff.
to kind of gauge what is realistic productivity before you sign that first contract. And the second thing, a lot of times anything above that RVU target, and this is another huge part of the negotiation, may not, you may get that, let’s say your neurosurgery, for example, 75th percentile, you’re getting comp $115 per RVU, but they may say anything above the target, you’re going to get median comp $86 per RVU.
And so that can be a huge negotiation piece that can save, can earn you hundreds of thousands of dollars more to make sure that if you’re targets based on median comp and you’re producing in the 90th percentile above that RVU target that you’re fairly compensated for being in that 90th percentile.
Absolutely. Okay. Well, any question on RVUs and if someone is negotiating the contract, and a lot of times we have clients that are 55 years old or 60 years old that are renegotiating the contract. So we’ve always…
to have clients asking us for the MGMAT data. We’re happy to provide that and we’re happy to write up an email to keep you, let us be the bad guy, the bad cop, good cop, you’re the good cop, or the bad cop.
So you can keep the relationship with the hospital administration, and they can see our name behind providing all this data and early analysis. OK, so a couple things. Before we talk about how understanding how the contract may terminate, I’m going to talk about malpractice insurance.
So there’s really, you have to be aware of really two types. So the first is what’s called a claims made type. And in the claims made, let’s say you’re an OB guy. Like if you work in a hospital for three years and you have claims made, and then you go change states, let’s say, from Pennsylvania to like Texas, you’re no longer covered for the three years you were there.
And there’s still lawsuits can pop up, and this happens all the time. That can pop up even when you’re gone. So you have to purchase what’s called a tail coverage. And tail coverage, if you’re specialized like an OB guy, it can be astronomically expensive.
So the first thing we look at is what type of insurance is covered. And if it’s a claims -based coverage, we’re negotiating for our clients that if they leave with or without cause, that the hospital pays for the tail coverage.
Or if they stay for the three years, then the hospital pays 100%. Maybe if they leave in the second year, then the cost is split. But it’s really important to understand that because we would never recommend, you never know what kind of lawsuits are going to happen if you’re highly specialized, because sometimes these happen not right away, they happen later in life if complications occur.
And then the second type is occurrence coverage. And this is the more expensive kind, because in occurrence coverage, like in that example, if you’re an OB guy, three years, you don’t need a tail. You’re covered indefinitely, even if you move states or move to a different practice in that state, you’re still covered for any lawsuits that are going to happen at that time that you were there.
So occurrence, the best kind, the most expensive kind, claims made, the less expensive kind, some more common. And so it’s important that you negotiate as a physician, the hospital is paying that tail coverage if you leave, when you leave, et cetera.
So super important malpractice coverage. Talk to us, James, about the contract termination. Like what are some tips on what physicians can look at to termination with cause, without cause, et cetera.
Give us the breakdown and tips for that. Yeah, I think this is really important. I mean, any contract you sign know how you would get out of it if you need to. But generally there is, you basically terminate at will or without cause by the hospital is how they just like, I would say most of the time is standard contract.
And that could be anywhere between like a 30 to 120 day notice. So it could be, for any reason, the hospital can say, we’re gonna terminate you. We actually had an example of, clients we work with, they had properly negotiated their contract.
The hospital had thought they terminated, but were able to terminate them. And so they came in to terminate them without cause. And the contract was, again, negotiated properly that they weren’t able to do that.
So it kept them their job. But what you would want to negotiate is that it basically, if you break the rules, you get terminated. So compliance, you’re under production, something that they actually have caused to do so, so that the hospital can’t just come in and wipe your contract out.
And if they try to terminate without cause, that could be a breach of contract. And maybe you have two years left making a million dollars a year, you have to pay that out. Just like an NFL player has a guaranteed contract, it would be the same thing to get paid out the rest of that term.
And then the other thing is we’ve seen a lot of, especially with what’s going on with rural hospitals right now, they’re getting bought out, they’re merging, there’s some financial instability. So get a clear understanding of how the contract reads if the hospital gets purchased or there’s a merger.
And this may not be as applicable if you’re at a huge health system, but if you’re at a small rural hospital, community hospital, this is so important because it’s very likely that we’ve seen it happen a million times where a big hospital just comes in and purchases it.
And the best way to navigate that would be if there’s a new control group and ownership, the contract stays enforced just as is. And that usually will solve that problem. But anything else to add on termination?
Great. It’s super important to understand how you can terminate it. If you terminate it early, what are you responsible for? We said that tail coverage. Is there a payback? If you got a sign on bonus, which is very typical, if you’re coming out of residency or fellowship, when is that vested?
Because if you get that sign on bonus and then leave six months later, most likely they’re going to claw that back. They’re just having a general education understanding of the terms. And then if you, if it’s a toxin for you, how can you get out?
And if it’s obviously, if it’s not working out for the hospital, how can they get out? How are you protected? So next I’m going to go into just some very, not often thought about, but very important factors.
So I’m just going to give a personal example of a cardiologist that, you know, seven years ago, they were negotiating their contract. And it was, I brought up the location is super important. And the reason for this and what happened, they signed the contract.
What happened was this hospital said, you’re going to be here. And this is in Pittsburgh and Pittsburgh, there’s so many tunnels, so traffic can just get insane. It’s not like LA or New York city, but it’s still like during rush hour.
Well, what happened is they switched the hospital because they needed this physician in a different hospital because someone had just quit. So they took her, you know, from the South and put her in the.
East. And then what happened is was kids were set up in daycare in the south. Her husband was also a physician. So it was literally like nightmarish for her life to operate effectively for her to fulfill her duties, you know, as a cardiologist and then also be able to just do basic stuff, like pick her kids up from daycare at the proper time.
Um, so that’s why we recommend like have the specific location, where can they send you if they need you have that spelled out? Potentially, you know, protect yourself and just say, this is the location I work at.
Um, the call coverage is super important as well. We see if this is not spelled out properly, you know, typically the older veteran physicians will expect the younger physicians to take more call coverage.
Um, so this should be spelled out. There should be payments if you’re taking extra call coverage. Um, it should be spelled out, you know, how, what radius, how many miles you need to live within the hospital.
Um, if you’re taking call coverage and you know, you’re just at home over a weekend. Um, so all those things, those little details we find are sometimes the most negotiable and sometimes the most important aspects of negotiating your contract.
Um, anything to add there, Jamison? Um, yeah, I just say, just as I mentioned, as these big hospitals try to take over smaller hospitals, like think of a couple here in Pittsburgh, I mean, they’re the whole way up geographically in Pittsburgh, they could be the whole way up to like Erie, two hour, two and a half hour drive.
And if that’s not specified, you know, they could just send you out wherever that could be. Like you said, detrimental to your life. So make sure that’s negotiated. Um, and that it’s specifically spelled out where you’re operating so you don’t get sent all over the state.
Absolutely. And, and, and most of the time we see like, if there is a city, like you know, like Pittsburgh, for example, it was too huge like giants of healthcare systems, your restrictive covenant is basically to say you can’t work anywhere within like 10 miles of where you practiced, if you’re practicing multiple, And basically, it’s like you, if you decide to switch a job in Pittsburgh, if you’re one of these main two giants, like you’re basically have to sit out of here or you’re basically stuck your entire career at one of these giants.
So every contract we find it’s not often, but you can get out of out of those contracts if there’s a reason legally why if it was a toxic or unsafe environment or they broke their contract on you. This is doable to get out of the obviously have to work with an attorney.
We recommend work with an attorney for all things contract review. We obviously can help with the number side of things. We’ll get the benefits of student loans, RBU’s, but when it comes to the legal aspect, we’re very familiar, but you have to work with an attorney that represents your best interests in mind and navigate the restricted covenant, the non -competes, the termination causes, et cetera.
So, well, let’s end with this. I think it’s really important for physicians have a good financial plan in place. So the fringe benefits that the employer provides if you’re a W -2 employee physician.
Now, if you’re a private practice physician, a lot of this doesn’t matter because you’re developing the practice by yourself. The contracts are relevant unless you’re joining an existing private practice, and it’s still extremely relevant.
But if you’re a W -2 physician, you can’t set up your own 401k with a W -2 wage. You can’t set up your own pension plan. You are at the mercy of whatever benefits the hospital gives to you. So Jameson, talk to us.
What are some of the top things we look for in a physician’s ability to really catch up and get their financial plan in place? What is the employer really need to have on the table for the physician to be able to take part in?
Let’s start very basic. I mean, disability insurance is huge. Understand what they offer. Some offer better policies than others. Same with life insurance. And then big thing is retirement benefits. So that can be additional.
You may not think about it as compensation, but it is compensation for you. It’s getting saved if the hospital or employer is contributing to it. It’s still compensation. So understanding, like one hospital here, they offer a cash balance.
Pension plans, as percentage of your salary gets put in on top of the match into the 403B. So that could be a huge benefit. And another big thing, we do a lot of planning. Did a whole separate podcast on this.
But mega backdoor Roth planning. So knowing how much money. Can you get money into a Roth 401K 403B? And then can you get additional money up to that 415C limit of 66 ,000 a year into what we call mega backdoor Roth?
Some plans allow, some plans don’t. Some plans allow more than others. Most commonly, a lot of hospitals and a lot of people think, oh, I put in the 22 ,500, my 401k, I max it out. Plus I got a match of 3%.
So you’re only getting about a third of what you can in there. If the 401K or 403B is structured properly, if you’re under 50, you can get 66 ,000 a year in this 415C limit into a 401K or 403B. If you’re over 50, it’s 73 ,000.
So one of the first things is not just like if they don’t offer 401k, it’s a big red flag. Like is the 401k offered and how is the 401k structured as a physician have the ability to reach that full maximum?
And the other thing to realize as well, if you’re a physician making 500 ,000 and they’re giving you a 3% match, well, 3% of 500 ,000 is 15 grand. Well, it doesn’t work like that. The IRS only allows a hospital or any employer to match up in 2023.
They’re putting 3% of 330 ,000. That’s $170 ,000 of your income that you thought you were getting a match into your retirement. You’re not getting anything. So the first thing, 401k, obviously after the basics, like you said, the 415C limit, but sometimes hospitals will provide a spillover plan, a deferred compensation plan that allow them to continue that match above that $330 ,000 income and continue putting that 3% somewhere usually in a deferred compensation plan to get that full 3% of the full $500 ,000 in.
So you mentioned cash balance plan. What about medical plans? Talk to us briefly about like HSAs, how important that is. Yeah, health insurance. Understand the health insurance they offer. Basically, you just need a high deductible plan to contribute into an HSA.
And for a high income earner, that could be huge because if you’re in the 37% tax bracket, you’re contributing into it, getting a full tax deduction, it can be invested, grow tax -free, and then come out for health insurance or for healthcare costs tax -free.
It’s additional tax savings and deduction that’ll save you a couple thousand dollars a year in taxes. That’s huge. So you talked about disability, you talked about life, we talked about retirement planning.
Those are just the basics that we would say that your employer has to have for you to even consider a job. And then there’s other things they can do on top of that such as pension plans, 457s, 451s, deferred comp, and then obviously we talked about the bonuses and the RVUs.
It’s really important that these mechanisms are in place because as a physician, asset protection is really important. And the plans we just mentioned, 401Ks, 401Ks, 401Ks, HSAs, and then by yourself, you can do things like back to a Roth IRAs through the 401K and mega -back to a Roth.
The majority of states protect these. If you ever get sued, people can’t touch money inside of these plans. So it’s super important that you have access to these plans and you’re maxing these out as soon as possible on a year -to -year basis.
Well, James said anything to add for tips? Obviously, the number one thing is if you don’t think you need a legal counsel just because the hospital says we don’t, these contracts are not negotiable. Think again, they are.
And the first contract you sign is often the most important contract you sign. If you end up staying at the hospital for the majority of your lifespan of a doctor, because that’s going to set the tone really for the rest of your career.
Yeah. I think we hit on everything. The only other thing I would add, this is mainly for a W -2 physician at a hospital if you’re going to join a private practice. Some of this could apply, but also it could be a whole separate one.
negotiation if you’re taking a practice over, if you’re buying in for equity ownership, and obviously if you have ownership, there’s some different tax benefits that we could be talking about. So some of this may apply to that, but could be a more in -depth conversation for private practice as well.
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