Risk, guarantees and salaries: entering the business of medicine

The first two years are important, but it can take five to 10 years to shape, adjust your practice to the profile you desire.

Issue: December 2003

ByDouglas W. Jackson, MD

Douglas W. Jackson, MD [photo] --- Douglas W. Jackson, Chief Medical Editor

This month’s column is written to stimulate and challenge the thinking of some of our younger orthopedic readers as they deliberate and make decisions and plans for their careers following their residencies and/or fellowships. My observations drawn upon for this column are not based on any scientifically conducted survey. They come from spending time listening to the thinking of young surgeons approaching the end of their formal training and preparing to enter their orthopedic practices.

Think back to the situations and conditions you considered in making that big decision in your career. Depending on how long ago you entered practice determines how much has changed. Some of the differences I see in the thinking of the recent graduates are related to the debt burden many have acquired during their education and training, some difference in their desired lifestyle as well as the current economics of practicing orthopedics today.

Still a major career decision

Young orthopedic surgeons still consider this career choice as a pivotal time. It is to them as it was to us, one of the biggest decisions they will make in their professional and personal lives. There is the sense of finality to their formal training and now they must decide where they are going to settle and establish their future residence. They realize they will probably end up living and working in their chosen location longer than they have lived anywhere else to that point in their life. In a previous issue, Orthopedics Today discussed some of the important factors when choosing a geographic location for a medical practice.

Besides the desired location, another big decision is choosing the type of practice setting. These two selections — geographic location and opportunity — greatly affect each other. The young surgeon must decide whether to join a solo or group practice, a multispecialty clinic, an academic department, a sub-specialization practice, or a combination of these. In these potential settings, the new graduate should understand how much of their time will be spent initially and then eventually in the type of patient care and surgical practice they want. How much of their income and time will be related to doing evaluations for report generation (legal and industrial) and covering emergency rooms and hospitals (one or many)? How much time will be spent driving around in a car? What are the time commitments they will have at night and on the weekends?

Finding patients, coverage issues

Occasionally, these young surgeons will ask my opinions on different practice settings and financial arrangements. I suggest to them that they choose a setting that has the potential to allow them to reach their desired professional growth and develop the ultimate type of practice they desire. Some young surgeons may find difficulty in obtaining immediate access to patients that require being included in existing contracts and established referral patterns. Building a strong following of patients and referrals takes time. A desirable association will assist the new associate with inclusion in existing contracts and referral patterns as well as with obtaining faster credibility in their community.

Tolerating risk

It seems to me that many of the younger orthopedists are less willing to tolerate risk when making decisions about entering a practice. Risk, which means taking a chance on the unknown, raises the potential of suffering a loss and not being successful. It is clichéd to say, but often the degree of risk correlates with the eventual rewards.

Income the first year is one of those risk factors that are usually close to the top of the list for those deciding to enter practice. Should they choose a fixed salary, income based on productivity or some combination? How will they meet their start-up costs while they build up enough patients to support their practice? Some choose to select a setting where this is less of an initial concern (ie, joining an existing HMO).

More now than in the past, I am seeing increasing concern for protection in meeting the overhead expenses until revenues are flowing into the practice plan. The formulas for sharing overhead are often confusing to understand for the new graduate. It takes those first three to six months to establish a revenue stream flowing into a new practice. How the overhead is handled during this time is an important consideration. Probably just as important is to have an understanding of the eventual overhead-sharing formulas.

If all the partners have relatively similar productivity and revenues and are taking home a similar income, the attention to fixed and variable components of overhead is not as important. When there are significant differences in revenue generation between the associates, then the formulas for the fixed and variable overhead components require more attention. The percentage for fixed overhead tends to either favor productivity, time away from work and/or rewarding non-revenue generating contributions to the entity.

Groups have different philosophies on how the percentages for fixed and variable overhead are determined. Talk with them about why they have it the way they do. Be certain you understand this concept in the situation you are choosing. Their formulas should fit with your long-term career plans, values and objectives.

Understand the contract

Usually if a salary is guaranteed there is some return to those making it available. In order to have a warranty, someone else will assume most of the initial financial risk. Most of these arrangements have some built-in potential for profit for those taking the risk of providing a guaranteed salary.

It is important to understand what the reasons are and what you give up for that protection. Those offering the salary understand the ramifications clearly. I see many young orthopaedists choose the initial higher salary and sacrifice the potential to develop a more desirable practice profile over the next five to ten years. They get locked into a practice pattern to generate income that requires them to keep doing what they are doing and prevents future professional growth and opportunities.

Beginning and acquiring debt

Debt structure coming out of training sometimes pushes the individual into the more structured income guarantee. They have gotten to a level that their debt is paralyzing. They say, “No more debt, I cannot deal with it.” This is an individual decision-making process. However, it may serve one to acquire prudent further debt with a realistic plan to pay off these obligations. Debt is not a subject we can discuss in any detail in a short column. Interest rates, inflation, income and bonuses, and tax considerations require individualization in each situation.

The first few years in practice it makes sense to minimize unnecessary additional debt. This usually involves living within one’s means. Working to pay off unnecessary debt can be some of the most fatiguing work you will have to do, particularly if it requires undesirable longer hours. To push long and hard in a demanding profession is stressful enough. The additional pressure to generate more income to meet debt obligations has taken its toll on some of our colleagues in the past.

Most individuals prefer that their extra time be available for family and the pursuit of opportunities that arise inside and outside of their professional life. We all need time for personal growth. It is my impression that many of the young graduates are putting an even higher priority on their free time during those first few years of practice than the older generations have. This is something that requires that both sides of the new relationship understand. This may be a point where “a generation gap” may exist.

Beginning a professional relationship

Most of us desire a long-term professional relationship with our new colleagues. The first few years need to be looked at as the beginning of this relationship. If both parties are going to meet their short- and long-term objectives, it is important that neither party feel they are or have been taken advantage of. As a generalization, usually if the new associate leaves during the first two years, the entity is on the losing side. Often the contracts try to protect the existing structure (partners) during that period in particular.

Understand who is taking what risks in the relationship and what the consequences are to leaving if things do not work out. Contracts are important expressions of understandings but will not hold a bad relationship together. Every long-term personal and professional relationship takes trust, a willingness to compromise and ongoing communication.

Communication is a key component. The young person in the beginning is usually at a disadvantage related to decisions regarding the business of medicine. With commitment and a nurturing environment, the younger orthopedist over the first few years will come to really understand the business of medicine. It is an ongoing process and each associate brings contributions to the relationship.

Be certain you choose an environment where you can grow and reach your desired professional and personal potential. The first two years are important, but it usually takes five to 10 years to shape and adjust your practice to the profile you desire. Think longer term in your decision making. Try to avoid an initial decision that precludes you from your ultimate desired patient care and practice setting. Orthopedic surgery is an exciting career. There are many different ways to help and care for patients and to realize the professional and personal satisfaction that brings. Good luck, I am sure your future is bright.