Health Reform and My Bottom Line
On March 23, 2010, President Barack Obama signed into law the Patient
Protection and Affordable Care Act. This landmark piece of legislation resulted in a spate
of organizational changes in hospitals, medical groups, health systems and insurance
companies across the nation. A constitutional challenge aside, reform is taking place even
if the individual mandate and other provisions are ruled unconstitutional by the U.S.
Supreme Court. It is unlikely the tide of organizational changes will come to a halt soon.
In the New England Journal of Medicine, Robert Kocher, M.D. and Niklhil R. Sahni,
B.S. write, “The implications will be profound for hospitals’ dominant role in the health
care system and for physicians income, autonomy, and work environments (2010, page
2579).” In a later 2011 paper in the New England Journal of Medicine, Kocher and Sahni
added some color to the anticipated changes in physician income as illustrated below:
“In the future, physicians should anticipate a shift from guaranteed
salaries to incentive-driven compensation linked to productivity and
clinical behavior –with base compensation that is lower than their
previous earnings but incentives that can increase it to that level or
higher (page 1793).”
The bottom line is that it would be prudent for you to get your financial and occupational
house in order given the scope of these changes.
The aim of this white paper is to equip you with information on how to better
manage your own finances and career in the wake of changes taking place at your
organization—whether you are an employed physician with a health system or a partner
in your own medical group. This is not a policy paper but a paper focusing upon you in
anticipation of changes in the health care industry, your organization, and your practice
which will redefine in some ways how you will be compensated and, perhaps, what it
means to be a physician in this new era of healthcare delivery. The heart of this paper is
to better prepare you for success by developing and implementing a plan that takes into
consideration your bottom line financially and occupationally. By the end of this paper,
you will be able to accomplish the following:

Identify the financial and occupational risks of working as a physician during this
era of Health Reform marked by declining reimbursement, shrinking demand for
elective procedures, and increasing total costs for health care for employers,
governments, and patients.

Develop an approach to diversify your income stream while at the same time
controlling what you can definitely control: your spending, your tax bite, and the
costs associated with investing.
Reform: It’s More Than the Patient Protection and Affordable Care Act (PPACA)
Reform in the design and delivery of health care predates PPACA which was
signed into law on March 23, 2010 by President Barack Obama. Advances in technology,
an aging population, the increasing prevalence of risk factors such as obesity, and calls to
contain costs have been drivers of health reform. These drivers, together with the
landmark legislation (PPACA) signed into law in the spring of 2010, are destined to
reshape health care delivery for years to come. All of these forces of change serve as
catalysts for transformation—ranging from the clinical and business integration of
different organizations to the near dissolution of solo medical practices.
Physician Practices: Only the Large Survive
According to a 2008 Center for Studying Health System Change Health Tracking
Study Physician Survey released in September of 2009, it is predicted that smaller
practices with 1-2 physicians will decline significantly in the coming years. This
represents about one out of every three (32%) physician practices today. These
physicians will continue to practice, but will join larger groups or hospitals as well as
health systems.
Larger groups are not immune to change. Physicians practicing in larger groups
will become even larger, adding on more specialties and affiliations with hospitals, health
systems and even insurance companies.
Physician Employment: More Than A Passing Fad.
A related trend to the acquisition of practices of all sizes by hospitals, health
systems and insurance companies is that physicians will be employed in greater numbers.
According to a recent New England Journal of Medicine article, more than half of
practicing physicians in the U.S. are employed by hospitals or health systems (Kocher &
Sahni, 2011). Kocher notes, “…but employment decisions made by physicians today will
have long-term repercussions for the practice and management of medicine (Kocher &
Sahni, 2011, page 1790).”
One of the long-term repercussions for physicians who become employees is that
they give up some autonomy, but they also give up some of the administrative hassles
and risks associated with running their own practice. Each physician has to decide which
option is the best for them in the short run and the long run.
A financial reality that physicians must understand is the perspective of the
hospital that buys physician practices. Understanding this perspective will afford
physicians with the point of view necessary to make a sound financial and career plan
given these financial realities. In brief, hospitals lose money on physicians. The loss for
hospitals is as much as $150,000-$250,000 per year within the first three years of
employing a physician (Kocher & Sahni, 2011). The subsequent losses are less, but they
are still losses. In spite of these direct losses, the Medical Group Management
Association (MGMA) published a survey in September 2010 forecasting that nearly three
out of four (74%) hospitals plan to employ more physicians in the next 12-36 months
(Cantalupe, 2010).
Patient Protection and Affordable Care Act (PPACA) Meets A Bad Economy
The economy clearly has been in the doldrums since the financial crisis of 2008,
and even before going back as far as the dot.com crash in 2001. This represents a decade
of sluggish growth in the United States and most recently in Europe. The stock market
has limped along for well over a decade with an occasional boost and then a sporadic free
fall. Since August of 2011, it feels as if investors have been riding a market roller coaster
marked with high volatility resulting in “market motion sickness.” For many physicians,
PPACA may have felt like the adding of fuel to the fire or salt to an open wound.
Not only does PPACA loom large for physicians regarding the fate of medical
practice, but so, too, do the portfolios of physicians as noted by Sataline (2011) below:
“As with most investors, physicians took a hit to their portfolios during
the downturn, watching helplessly as a decade of savings vanished and
retirement plan goals became as fleeting as Brigadoon (page 56).”
All in all, even before PPACA, physicians were concerned about their income as
evidenced by a July 2009 Medical Group Practice Management Association (MGMA)
survey ranking the two biggest concerns among physicians:
1. Operating costs increasing more rapidly than revenues.
2. Maintaining physician compensation levels in the face of declining
reimbursement.
This new era of health care delivery is riskier. Many of these risks are not sufficiently or
even remotely addressed by your malpractice insurance. What are some of the risks to
your career as a physician and your financial well-being?
Risk Identification: Occupational and Financial
A white paper published in October 2010 and released by Merritt Hawkins found
that nearly seven out of ten (68%) responding physicians viewed health care reform as
diminishing the financial viability of their practice. Furthermore, nearly all (80%)
responding physicians believe that health care reform will erode the viability of the
private practice model. This points back to the increase in employed physicians.
Sataline (2011), in commenting on the impact of health care reform for
physicians, stated that “…many doctors fear for their future (page 56).” To further
underline this sentiment, the editor-in-chief of The Journal of Urgent Care Medicine
published an article about the financial reality of primary care physicians with this bold
title, “Primary Care Physicians…the New Middle Class?” Given these significant
changes— not only in healthcare delivery and reimbursement systems but also the impact
on the working and financial life of physicians—it is critical that physicians begin to plan
for their own occupational and financial well-being, which first means managing risks
and then seizing opportunities.
Risk Management: Common Approaches by Physicians
Physicians appear to be managing the occupational and financial risks of
practicing in this new era of health reform in three ways: redesigning how they practice,
planning for retirement, and pursuing other ways to earn income.

Practice Redesign: In the same Merritt Hawkins October 2010 survey of
physicians, when asked what plans they had in place for their practice over the
next three years, the top five responses in order were as follows: (1) continue
practicing as I am (26%); (2) cut back on hours (19%); (3) retire (16%); (4)
switch to a cash or concierge practice (16%); and (5) relocate to another
practice/community (14%) and work locum tenens (14%). Each of these five
practice redesign approaches requires an integrated career, family, and financial
plan.

Retirement Planning: In terms of retirement plans, it was found in this same
survey, that within the next 1-3 years that nearly one out of four (24%) of the
responding physicians 65 or older plan to retire in 1-3 years, along with nearly
one in three (27%) ages 61-65 and nearly one in five (21%) ages 56-60. The
intention to retire requires an integrated career, family and financial plan. Part of
the planning here should involve leisure time planning, as well as "encore" or
second act careers for those who retire from clinical medicine but are seeking
other opportunities within medicine or outside of medicine entirely.

Physician Entrepreneurship: There are many definitions of entrepreneurship. Yet,
Joseph Loscalzo, MD, PhD defines an entrepreneur in the journal Circulation as
“…in the broadest economic and social sense, a self-employed individual who has
autonomy, controls his affairs, and is willing to take risks (2007, page 1504). This
definition is too narrow in this new era of healthcare delivery. Entrepreneurship is
not limited to the provisions of an employment contract, but expands into the
mindset of a physician to innovate, create value, and add value in exchange for
income in most situations.
Beyond Risk Management: Planning for Your Future…It Is Your Future?
Each and every physician in collaboration with his or her family must develop a
proactive plan to make decisions which impact their quality of life. This plan should
extend beyond your financial life, and include the impact on the following life domains:

Your career

Your family

Your health

Your psychological well-being

Your overall level of life satisfaction

Your contribution to worthy causes such as philanthropy and charitable giving.
Planning was essential even before the gloomy economy, dismal stock market, and
PPACA, but it is even more important today. Furthermore, the consequences of
procrastinating are higher today than before. This is especially true for Baby Boomer
physicians, born between 1946 and 1964, who are newly retired or soon-to-be retired
within the next 10 years.
Similar to clinical medicine, your holistic plan must be based upon an assessment
of your strengths and weaknesses as a practicing physician. You should take into
consideration the opportunities and threats that you face as a physician in your specialty,
in your geography, (because health care is still largely local), and in your organization.
To simplify matters and prompt deliberative action on your part, there are five big
decisions confronting you that must be addressed. Making the decisions below will help
you begin your planning process, respond proactively to the changes taking place in
healthcare, and be proactive in addressing the challenges which will impact your career,
your finances, your retirement, and what it means to be a physician.
The Five Big Decisions
If you know or feel that you are facing some occupational or financial risks within
the next 12 months or longer, denial is not the recommended approach. Failure to take
action often results in being a victim of the vicissitudes and vagaries of others. Taking
deliberate action is no guarantee, but it does increase the chances of success, and gives
you a feeling of being in control and taking a greater role in shaping your own destiny.
Your destiny is a product of envisioning your ideal life, mapping out a roadmap to
live that envisioned life, and making decisions to move you closer and closer to your
vision. Only by aligning your daily actions can you obtain the outcomes you expect and
deserve. There are Five Big Decisions you must face to begin taking control of your
career, retirement and financial life as a physician in this new era of reform. Every one of
the following decisions is a financial decision.
1. Decide on how to manage your career.
2. Decide how to earn income until you’re ready and financially able to retire
without sacrificing quality of life in retirement.
3. Decide how you will fund your retirement.
4. Decide how and what type of legacy you wish to leave to your organization
and your family.
5. Decide how to manage your current spending and cash management to
guarantee that you can take care of large expenses such as buying a home,
purchasing a second home, paying for college, retraining yourself, or saving
for retirement.
Identifying the key decisions to make is the first step. A decision is a mental activity but
if it is not matched with some action, it is only a thought. Actions create results. As such,
it is critical that you move into action based upon reflecting upon these Big Five
Decisions. After addressing these decisions, a natural question might be the following:
Can I benefit from the advice of a financial services practitioner or can I do it solely on
my own?
Partnership or Go It Alone: Yet Another Decision about Your Big Five Decisions
If you decide to select an investment advisor, do so with caution. First, find out
how the advisor is compensated. If they are paid based on commission by selling you a
particular investment, be careful because they may not be as objective. Second, if they
work with a very large institution, you will pay be paying more in fees than necessary.
Fees are the one factor that you can control when you invest. It makes a difference.
Imagine that you pay a 2% fee on your $1 million portfolio; you are paying $20,000 per
year. And to make matters worse, if you also have to pay a load or sales charge for
buying and selling investments, then you might pay much more than $20,000 per year.
Regardless, you will have to compensate a highly trained, credentialed financial
professional who has spent years of study to qualify for the Certified Financial
Professional (CFP designation)—but you should seldom be paying more than 1.5%.
If you decide to go it alone and take a “do-it-yourself” approach to putting
together the pieces of your life-enhancing financial plan, make sure that you are basing
your plan off solid information and sound assumptions. Do not be overly influenced by
following the crowd. Avoid overconfidence which can result in not saving enough or
investing too aggressively. Once you have invested for the long-term, beware of being a
victim of status quo bias which is often referred to as “set it and forget it.”
Conclusion
In the end, just because healthcare is changing in some fundamental ways does
not mean that you have to “hunker down” or “come out swinging.” It does mean that you
need to re-evaluate your occupational and financial life as you anticipate transitions in the
way you will work and earn income in the future. And if you are nearing retirement
within the next 10 years, you need to plan for two transitions: (1) healthcare reform and
(2) your retirement—which for some of you does not mean stopping work altogether, but
doing a different type of work or the same work in a different setting. In closing, be
thoughtful, be reflective, be deliberate, but please take action. Planning for your future is
one of the best investments of your time, talent, and treasure.
References
Cantalupe, J. (2010). Physician alignment in an era of change. Brentwood, TN: Health
Leaders Media. Available at: http://www.healthleadersmedia.com/page-2/MAG256427/Physician-Alignment-in-an-Era-of-Change##
Kocher, R. & Sahni, N.R. (2011). Hospitals’ race to employ physicians-the logic behind a
money-losing proposition. New England Journal of Medicine, 364, 1790-1793.
Kocher, R. & Sahni, N.R. (2010). Physician versus hospitals as leaders of accountable
care organizations. New England Journal of Medicine, 363, 2579-2582.
Loscalzo, J. (2007). Entrepreneurship in the medical academy: possibilities and
challenges in the commercialization of research discoveries. Circulation, 115, 1504-1507.
Martin, W.F. (2007). Succession Management in Medical Groups. Group Practice
Journal, 56(2), 36-46.
Medical Group Practice Management. July 2009. Physician Survey.
Merritt Hawkins. October 2010. Health reform and the decline of the physician private
practice. The Physician Foundation.
Resnick, L.A. 2011. Primary care physicians-the New Middle Class? The Journal of
Urgent Care Medicine, 1.
Sataline, S. 2011. Code blue? Financial Planning, July 2011, 56-61.
Warshaw, D.A. 2011. Pulling off the ultimate career makeover. Fortune, July 4, 2011,
71-81.