From Medscape Medical News:
Years After Residency, Primary Care Physicians Still Face Financial Woes
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 Martin 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?"
Elizabeth Wiley, co–legislative director for the American Medical Students Association and a third-year medical student at George 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."
Acad Med. 2010;85:1692-1697. Abstract