unning a medical practice usually means high income. Of course, that also implies more significant tax obligations. The truth is, although your taxes may be quite high, medical practices have many legal tax-reduction 

 available to them. Many believe that only the uber rich can afford the strategies developed by tax specialists and attorneys. However, the tax code is available to everyone to navigate and reap the savings benefits if you are willing to take the time to learn the strategies and how to implement them properly.

The good news is there are a few strategies you can start implementing right now. Here are some of the ways you can approach your medical practice’s 

One of the most basic but most important choices you can make for your practice is the choice of entity. Your entity selection will be determined by who the owners of the business will be and how the profit will be taxed in your practice.

The right entity choice depends on a few factors:

Do you need to protect any assets or yourself?

What are your costs and managerial responsibilities?

Are you looking for more permanence or transferability?

Below are options available to medical practices, as well as their major benefits and drawbacks. Remember, depending on the state your practice operates in, some of these options may not be available to you.

A sole proprietorship is often chosen by medical professionals because it’s simple and inexpensive to set up and maintain.

As a sole proprietor, you pay income tax at your ordinary rate and self-employment tax on 100% of the profit from your business. Being self-employed means you are responsible for all of your Social Security and Medicare taxes (15.3% of your gross pay) with an additional 0.9% Medicare tax if your income is more than $200,000 filing as single or $250,000 if filing jointly. You do not take a W-2 salary.

Although sole proprietorships are easy to administer, they create unlimited individual risk for you as the owner and they tend to be audited more frequently by the IRS than partnerships, S-corporations or C-corporations. Even if you create a single-member limited liability company (SMLLC), as a physician, you will not be able to avoid personal liability.

Partnerships are pass-through entities. The partnership’s tax return acts as an information return, and the income and losses pass through the entity and into the owners’ personal tax returns.

Similar to sole proprietorships, 100% of partnership profits will be passed to the owners and taxed at the ordinary rate subject to self-employment. You do not take a W-2 salary. You must choose the partnership option if you have more than one owner, which in some states can include your spouse.

You still have liability issues with a partnership unless you choose to be a limited liability company (LLC), but, again, as physicians the LLC protections do not apply to you.

Like partnerships, S-corporations are also pass-through entities where any income or losses are generally taxed at the entity level. It is important to note some states will impose an entity level tax.

Where S-corporations differ from partnerships and sole proprietorships is in the way they are taxed. You are required to take a reasonablesalary, which will be subject to Social Security and Medicare taxes. However, any profit above your salary is considered a distribution and not subject to Social Security and Medicare taxes. This can be a significant tax savings depending on your circumstances.

Although there are tax savings with an S-corporation, they are more expensive and time-consuming to administer. They also require you to be on payroll and limit the types of ownership.

A C-corporation is a standalone entity that protects against most business risks, except malpractice, for which you would still require insurance. However, it can protect you from general business liabilities. C-corporations are easy to transfer via corporate stock and well understood governance laws. If you plan to have outside investors in your medical practice, this form of entity would be ideal.

C-corporation profits are taxed at the entity level. You receive a W-2 salary from the business, and if you take any profits from the business they are treated as dividends and taxed at dividend tax rates. This causes the same profit to be double taxed. C-corporations are more expensive and time-consuming to administer.

Contributing to a retirement plan is the easiest and most direct way to lower your taxes. By contributing to a pretax retirement plan, you receive a deduction for the contribution. As a result, you pay less on taxes because the contribution lowers your taxable income. It’s important to note that there are limits to how much you can contribute to your retirement depending on the type of plan and whether you are the employee or the employer.

Another advantage of contributing to a retirement plan is that you may pay a lower tax rate at retirement than when you put the money into the retirement account. Your retirement savings are tax-deferred, which means you do not pay taxes when you contribute to your retirement and it will grow tax free. When you are required to take it out, you will have to pay taxes on it at the time of withdrawal.

If you retire before age 72 (the age at which you’re required to start taking distributions from your retirement account) you can take advantage of lower tax rates and start taking the retirement contributions earlier so their distributions are spread out over more years. Once you are 59½, there is no penalty for taking money out of your retirement account.

You also can convert pretax retirement to a post-tax retirement account, known as a Roth account, by paying tax at lower rates between retirement and age 72. This can be a significant strategy for saving money and legacy planning.

Despite the direct tax benefits of retirement plans, there are a few things you need to think about when choosing the type of retirement plan for your practice:

How aggressive do you want to be with retirement savings?

What sort of investments do you want in your retirement plan?

If you think a retirement plan makes sense for you, do so with the assistance of a tax or financial adviser.

Hiring family members in your practice allows you to shift income from your higher tax bracket to their lower tax bracket and create a deduction of their wages through your business. This gives you the opportunity to teach your children about handling money or to save for their retirement or education. Or, if you have parents you regularly support, you can hire them in your practice and write off their support as wages.

If you have a sole proprietorship or partnership, you can hire your children and you do not have to pay Social Security or Medicare taxes on their payroll. However, if you have an S-corporation or C-corporation, you will have to pay payroll taxes. In addition, when hiring a spouse, you can contribute more to their retirement based on the compensation they earn in your business. This can add up to more tax savings.

This is a fairly easy tax strategy, but you must follow a few rules. Any family member you hire must have a legitimate job in your practice and be paid a reasonable wage. It is important to document their job responsibilities and duties as well as open a separate bank account in their name.

Many medical practices build a large collection of medical equipment. This creates an opportunity to use the equipment in a gift-leaseback, which effectively replaces the current salary of a family member. Typically, you would use this strategy to support a parent or child. You need to determine the fair market value of the equipment and the fair rental value of the equipment. A gift of the equipment is transferred to your family member and then the family member leases the equipment back to your business. This creates a rental deduction for the business, the family member receives income/support and you avoid payroll taxes on the family member’s salary. Family members can also continue to depreciate the equipment to help lower their taxable income.

It’s important to note that you need to do a proper appraisal of the equipment and have a rental agreement in place with your family member.

Lastly, there are several deductions available to your medical practice that you might not know about.

The Augusta Rule is otherwise known as the 14-day rental rule. The rule allows you to rent your primary residence (not a rental property) for up to 14 days per year without paying any tax on the rental income on your individual tax return regardless of how much you make. You do not receive any deductions for the time your home is rented. This can be done if you have a home near major sporting events or even rent your home to your business. You need to document the business purpose of the rental, such as corporate meetings, and charge a reasonable rental rate (similar to hotel rates).

A health savings account (HSA) is one of the ultimate tax-efficient ways to save. HSA contributions are contributed tax free, grow tax free and are distributed tax free if used for qualified medical expenses. In order to qualify for an HSA, you must meet the qualifying limits.

It’s important to note that you can pay for your medical expenses out of pocket and hold onto the receipts until you are ready to take the money out of the HSA. This could be later in retirement years, which allows the HSA funds to grow more quickly and gives you some extra tax-free income.

Do you own the building your medical practice is in? As a bonus, you can consider a cost segregation study.

Cost segregation studies break down a structure into various depreciable components that have shorter depreciable lives. This allows the owner to accelerate depreciation instead of the whole building being depreciated over a 40-year period.

Depreciation of property value is one of the more complex deductions. But having a cost segregation study done can uncover new tax-savings opportunities. These studies normally cover things you can’t calculate on your own such as structural element, land improvements on the structure’s exterior and construction expenses.

In general, these studies need to be completed by experienced firms. The American Society of Cost Segregation Professionals website has more information.

As we all know, different diagnoses require different approaches and every business has a unique financial situation. Therefore, depending on the characteristics of your business and on the plans that you have for your future, it is always wise to consult with a qualified tax or financial adviser before moving forward with any of these strategies.

Alexis E. Gallati, EA, MBA, MS Tax, CTP, is the founder and lead tax specialist at Cerebral Tax Advisors and the author of “Advanced Tax Planning for Medical Professionals.”

Articles

Medical practices have many legal tax-reduction strategies available to them and the strategies are not limited to the ultra-rich.

The best tax strategies for your business

The Affordable Care Act of 2010 (ACA) extended 

 to previously uninsured millions of Americans. Yet many insured adults, even those with employer-sponsored coverage, find they still can’t afford the care they need. Individuals who are “underinsured” represent a growing challenge for policy makers, insurance companies and providers.

Sara R. Collins, Ph.D., has spent nearly two decades studying insurance 

 and coverage as a vice president of The Commonwealth Fund. Collins is lead author in the latest in a series of studies by The Commonwealth Fund on the state of health insurance coverage in the United States, a project that began in 2001. She spoke recently with 

® about the study’s findings, and their implications for the future of health care. The interview has been edited for space and clarity.

 How do you define the term underinsured?

 Since about 2003, we have been tracking though our biennial health insurance survey the number of adults who are insured all year but have high out-of-pocket costs or deductibles relative to their income. We defined someone as underinsured if their out-of-pocket costs are 10% or more of their income, or, if their income is under 200% of the federal poverty level, if their out-of-pocket costs are 5% or more of their income.

We have a separate measure of risk of being underinsured. Deductibles are what we use as a very rough measure of benefit design. So if someone’s deductible is 5% or more of their income, they’re also counted as underinsured.

ME: Most Americans receive their health insurance through their employer, and it seems that gives them enough coverage to meet most of their needs. But your survey shows that 25% of adults in employer-sponsored plans fall into the underinsured category. Why is that?

SC: That is a very good question. If we look at the share of people who are underinsured overall, that is largely driven by people in employer plans, because there are just so many people in employer plans. The share of people in employer-based plans who are underinsured has climbed from about 17% in 2010 to about 28% in 2020. And this growth has really been driven by the proliferation of the number of people who have deductiblesand the size of those deductibles.

In 2010 only 6% of people with employer plans had deductibles that amounted to about 5% of their income. Bu 2018 that share was 15%. So it’s really been driven by this risk of out-of-pocket exposure people experience in employer plans.

ME: The survey also shows a lot of overlap between issues of race, income and insurance status. Can you talk about that and why that relationship exists?

SC: The core coverage problem in the United States, even 10 years after passage of the Affordable Care Act, continues to be concentrated among people with low and moderate incomes, both in insurance and affordability. And this is driven by several factors that are still with us: lack of Medicaid expansion in 12 states; people working in multiple jobs and potentially churning in and out of insurance coverage. [Another factor is that] a lot of people work part time, and those jobs generally don’t come with insurance benefits. Then [there are] also complex Medicaid and ACA marketplace eligibility rules. For example, someone who works multiple jobs may have fluctuations in income that can make them eligible or ineligible depending on the time of year, such as farm workers. Their income might go way up in the summer and bump them out of eligibility for Medicaid. So much about the way people work affects whether they have insurance coverage.

And people of color are disproportionately represented among people with lower incomes, so that’s one reason we see higher rates of uninsurance among Blacks and Hispanic patients. Those differences have fallen over time, just as they’ve fallen between people with higher incomes and lower incomes.

The other major factor is the immigrants who may be living in the country illegally who are not eligible for subsidies under the ACA or Medicaid.

SC: In commercial plans, the prices insurers pay providers are the major determinants of the cost of health care in private markets. And since premiums are primarily driven by costs, these prices also drive growth in premiums. So in order to keep premiums low, employers have tried to share more of those costs with their employees in the form of higher deductibles and other kinds of cost-sharing.

And what’s also important to keep in mind as an employee, as your health care costs grow to be a larger share of your compensation costs, employees are also making wage concessions. So their income isn’t growing. So that means the deductible becomes even a larger share of someone’s income as it grows and income growth doesn’t keep pace. And people who face high deductibles or have high out-of-pocket costs are much less likely to get needed health care.

So there’s a circular aspect to this phenomenon of rising provider prices, the impact of insurance costs and people’s demand for care from the providers whose prices seem to be one of the main culprits.

ME: Is that tradeoff between premiums and deductibles a dynamic that plays out on the ACA exchanges?

SC: It does, for sure. If you look at our report, you see that rates of underinsurance are even higher in the individual market than on employer plans. So even though a lot of the growth in underinsurance is coming from employer plans, people with individual market plans tend to have much higher deductibles. There’s just no countervailing pressure. Under the ACA, exchanges are not allowed to negotiate down price differences. Some insurers, such as California, has been very experimental in terms of getting price concessions from employers. But in general, the marketplaces haven’t had a lot of leverage to lower premiums and deductibles.

ME: How does lack of insurance or underinsurance affect individuals’ care decisions?

SC: We find that people who are uninsured, are insured part of the year but not other parts of the year or who are underinsured are much more likely to report not getting health care because of costs. In our most recent survey, more than half of adults who were uninsured for any time during the prior year reported not getting health care due to cost. This could include not filling a prescription, not getting specialist care, not going to the doctor when they’re sick, not getting a recommended follow-up test or treatment.

ME: Does that contribute to the disparities in health outcomes among racial and ethnic groups?

SC: Adequate insurance coverage is not the only determinant of access to health care, but it is the most important one. And that was the consensus of the Institute of Medicine in 2003, I believe, so this predated the Affordable Care Act.

But there is no question that insurance coverage is the most important factor. We know that there are other issues, race equity issues, in people’s ability to get high-quality health care, but people at least need to have good health insurance in order to make that first step to access.

ME: How does that also affect a family’s or individual’s overall financial situation?

SC: We find that people with inadequate coverage, particularly if they’re uninsured or have a gap in their coverage or are underinsured, are much more likely to report problems paying their medical bills. [This leads to] not being able to pay their bills, being contacted by collection agencies about unpaid bills and carrying debt over time. It’s directly related to problems paying bills.

We also find that people who report problems paying medical bills experience long-term financial issues. They’re much more likely to say they used up all their savings to pay their bills or that they had a downgrade in their credit rating because of unpaid bills. So it’s a problem that is specific to health care, but it does flow over into other aspects of people’s lives. We even find that about 25% of people report having to cut back on food, heat or electricity because of medical bills.

ME: Is it fair to say that although the ACA reduced the number of uninsured Americans, it didn’t address the problem of underinsurance or even made it worse?

SC: What’s important to remember is that the essential health benefits requirement for individual market plans and limits on out-of-pocket cost exposures, bans on preexisting condition exclusions in health plans, no annual or lifetime benefit limits, are very important provisions in terms of protecting people from catastrophic-type costs that people were regularly experiencing in individual market plans.

And we even see it now in plans that don’t comply with the Affordable Care Act, such as short-term policies, where people are paying premiums for very skimpy coverage that leaves them very exposed to health care costs. And if people get coverage through the marketplaces, and their incomes are below 250% of poverty, which is about $32,000 for an individual, they’re eligible for plans with reduced cost-sharing that include lower deductibles. But as you move up the income scale, people are exposed to increasingly higher out-of-pocket costs and increasingly higher deductibles.

In 2020, in the 38 states where the federal government ran their marketplaces, the average deductible for a silver level plan was about $8,100. So that’s a pretty high deductible. And it’s why we see the higher underinsured rates in individual markets still. So there has been improvement, but there is still a ways to go to lower those underinsured rates in the individual market.

ME: How is the COVID-19 pandemic affecting the problem of underinsurance?

SC: I think what we’re seeing in our biennial survey, which was in the field from January through June of [2020], is that there’s just a persistent vulnerability among working-age adults and their ability to afford health care. And this could worsen if the pandemic continues and the economic downturn continues.

And that is because, aside from many people losing their health benefits because they’ve lost a job, if people’s incomes aren’t growing, or their business revenue is taking a hit, if out-of-pocket costs don’t change, or if their deductibles don’t change or the premium contributions don’t change, that means that health care is going to take up a larger and larger share of Americans’ incomes over the next year. So it will have the effect potentially of worsening the number of people who are exposed to high costs relative to their income.

ME: Of course, that will depend on how long the pandemic lasts.

SC: That’s right. Right now the economic downturn has affected people in some industries more than others. We know that people in retail and food and beverage and accommodations have been the most likely to lose their jobs. And those tend to be industries that usually don’t offer health benefits. So a lot of people were already uninsured in those in those jobs or had coverage through Medicaid or whatnot.

But if the downturn continues, the question is whether we will see job loss in other industries that do tend to come with benefits, or just an overall drop-off in income growth or flattening in income growth that’s widespread through the economy.

A discussion about what affect under-insured patients will have on health care.

Under-insured patients: What physicians need to know

To err is human. So the question is not whether a medical malpractice lawsuit will be filed against a physician, but when.

As physicians pick their way through this minefield, if they’re not careful, one 

 from one patient could define their entire career, and lead to a loss of revenue, increased insurance costs and a 

 to a physician’s professional reputation.

Bob White, chief operating officer of malpractice insurer TDC Group, says that some specialists such as neurosurgeons or obstetricians can spend as much as 25% of their career with an open malpractice suit against them.

“The sheer psychological fatigue that that creates for them is no small distraction for folks who’ve gone through it,” he said.

There are actions physicians can take to reduce their exposure to litigation.

The standard defense to lawsuits for years has been to maintain proper documentation, which White says has been greatly helped by the widescale adoption of electronic health records, but there are still limitations.

“There’s a finite amount of time that someone has to document things and we try to be practical when we talk to doctors about how to document, especially when a patient or the patient’s family is having difficulty in accepting the outcome of treatment,” he says.

Matt Gracey, former CEO of medical malpractice insurer Danna-Gracey and managing director of risk management firm Risk Strategies, says any lawsuit filed can become a much greater headache for the physician if patient records are not accurate, clear and timely.

“The most important document they can have in their patient records is a consent for treatment,” he says. “Those consent forms spell out all the risks of any procedure that the doctor is going to perform on a patient.”

A physician’s legal representative can present proper consent forms to a jury and highlight that the patient agreed to the service after being informed of the possible complications, thereby easing the way to win in the courtroom.

Gracey says the complaints in many malpractice suits are often tied to a known complication of a treatment and that the public often mistakenly assumes that when these known complications arise it is the doctor’s fault.

“It’s that confusion that leads to many lawsuits, and that’s a fundamental part of risk management: to make (the risks) clear to patients in writing, and that’s what the consent form is about — that even if the doctor doesn’t make any mistakes there still can be bad outcomes,” he says.

Sean P. Byrne, JD, founder of Byrne Canaan Law in Richmond, Virginia, has defended physicians in medical malpractice cases for 20 years. He says that proper documentation is key because the cases he handles often take years to reach a courtroom, which can lead to failed memories. Juries view contemporaneous documentation as more reliable than eyewitnesses, Byrne says.

Although medical documentation can be onerous to deal with, it is the first thing a potential plaintiff will take to a lawyer when seeking to file a malpractice suit. Lawyers determine whether to file cases based on expert analysis of these records, he explained.

“It’s the chart that tells the story of the case,” Byrne says.

He notes that the opposing medical expert will be looking for what was documented to determine whether the physician provided good care; if the treatment wasn’t documented, it’s as though it wasn’t done.

Byrne says that physicians should avoid just using the checkboxes and autofill templates in electronic health records because those might not encompass all of the care given to a patient.

“What I really love is a patient-specific narrative that shows you gave thoughtful, individualized care to this patient; that part of the documentation is gold,” he says.

When documenting patient interactions, White suggests noting what the physician initially recommended as the optimum course of care if that differs from what the physician and patient agreed upon as the treatment plan.

He says that physicians often get into trouble when they only document the care plan they and the patient finally select. When outside experts such as a physician’s attorney examine such records, they can’t defend what the doctor initially recommended if that suggested optimum care and treatment were not documented.

Although documentation can serve as a good defense in a malpractice suit, Gracey says that maintaining a solid relationship with a patient and their family is a good preemptive move.

“What really stands out when you look at the data and surveys of patients is that very few doctors who have great relationships with their patients get sued, even when there are bad outcomes, and even when there’s malpractice, and that’s why the doctor-patient relationship needs to be on top of the list,” he says.

All of the staff should be instructed to emphasize good patient relationships from the moment the patient enters the office. Gracey says that patients already assume their physician is educated and skilled, but when they have a good relationship with the doctor and their staff, they believe the practice cares about them.

“Caring doctors get sued much, much less than doctors whose patients don’t get that warm and fuzzy, caring feeling from their doctors,” he says. “It’s a different take on risk management, which is mostly defensive. The offensive mode, (to avoid) being sued, is just to be really caring and have great relationships with patients and their families.”

The period between an adverse outcome and the filing of a malpractice suit can be fraught with anxiety for the physician.

Byrne says many defense attorneys used to tell their clients not to speak to the patient or their families at all after a poor outcome, but he now emphasizes listening to patients and their families after something goes awry during care. He tells clients to be candid and honest with the patient and stick to the facts without speculating, as speculation can erode any confidence the patient or family has in the physician.

“If there’s other information that needs to be gathered to have more answers, and you offered a follow-up, then do it,” he says. “Follow up and do it.”

Although any communication should be run past a defense attorney, White says that being open and available to the patient or their family can do wonders. He says that TDC Group tells doctors to sit down with the patient or family and discuss the adverse outcome.

“You explain that this is one of those kinds of complications that can occur in delivering treatment, and it’s not about a failure on the part of the patient’s ability to heal or anything else, this is one of the possible outcomes from this treatment,” he says.

Furthermore, White adds that physicians should explain that you will be available when needed, in case of questions and concerns.

“You want to help them get through this,” he says. “Be there for the patient.”

Gracey warns about apologizing when something goes wrong, as that can affect the physician’s liability in some states, though an apology often is exactly what the patient or their family are looking for after an adverse outcome.

“It’s really what patients and families want,” he says. “However, some risk managers and some states say that’s absolutely the wrong approach because they can use that in court against you.”

Gracey says that if the physician does communicate with the patient or their family after an adverse outcome, they should not admit guilt because their statements might be used in court against them.

It’s still unknown what impact the COVID-19 pandemic will have on medical malpractice litigation.

Byrne says it’s too early to tell as most medical malpractice claims take at least a year to mature. He believes there will be more cases in the COVID-19 era because early in the pandemic when resources were stretched many patients deferred routine care and preventive screenings.

White believes that the pandemic will not lead to a rise in COVID-19 medical malpractice cases against physicians.

He notes that the most common allegation against doctors is failure to diagnose or treat the patient in a timely manner. With COVID-19, physicians are unable to cure the patient, which eliminates part of the common complaint.

“With this pandemic, all they can do is treat the symptoms, they can’t cure the disease,” he says. “So the delay only matters if you fail to recognize and respond to the more dire symptoms, difficulty breathing, for example. That’s the only real potential that (plaintiffs) have.”

He says that of the 80,000 physicians the TDC Group insured in 2020, only 10 have pending claims related to the COVID-19 pandemic.

Many states, such as Florida, have granted certain immunities to physicians protecting them from lawsuits tied to the pandemic. Gracey points out that there are some federal protections as well.

“It’s too early to tell if the if the federal protections will be strong enough or not, but it certainly looks like some of the state-enacted protections will be strong,” he says.

Although he expects many lawsuits to be filed, Gracey believes that once many of these cases are thrown out due to legal protections, the increased filings will quickly taper off.

Byrne also notes that the public health emergency surrounding the pandemic may lead the public to better understand the difficulties of practicing medicine, which could lead to fewer cases being filed. He has tried a few cases during the pandemic, and although they have nothing to do with the pandemic, he’ll mention COVID-19 to the jury.

“In part to just say to jurors that if we’ve learned anything from COVID-19, we’ve learned how difficult the science of medicine is, how quickly things evolve and how so many very sad, difficult outcomes are really unpreventable despite the best efforts of great people,” he says.

Preemptive actions can limit a physician’s exposure to litigation

Avoiding medical malpractice suits

Investing time and attention in the medical practice staff hiring process can reduce costs and boost staff retention.

In a busy medical office, an empty staff position can be a 

. Days that were already full and often hectic are even more so. Patients are complaining. The instinctive response is to fill the slot ASAP. Resist the impulse! Any short-term relief will almost inevitably produce long-term aggravation and higher employment costs.

The data vary widely, but it is generally agreed that 

 costs more than the associated annual salary. Most of these costs are “soft costs” that have a real impact on productivity and operating costs but do not require the practice to write a check to cover them. They include

Lost productivity and increased overtime while the position
is vacant

Time associated with interviewing candidates

Even more lost productivity and increased overtime while the new hire is learning the ropes

The biggest soft cost, however, is making a hiring mistake. Hiring carefully is worth the investment. Here are six steps to significantly reduce hiring costs:

Experience and credentials are important but they are the easy part of describing requirements. The more difficult requirements are the ones not apparent in a résumé or transcript. They include

 For instance, should the individual be cheerful? Optimistic? High-energy? Empathetic? Independent?

. Do you want a self-starter? Team player? Leader? Someone who is detail-oriented?

 Should the individual speak up? Look people in the eye? Be poised? Youthful? Mature?

It will be useful to flesh out the attributes by actually describing how your ideal candidate would respond in two or three hypothetical situations. (You can use these hypotheticals in the eventual interviews.)

I also recommend describing the ideal candidate from the candidate’s point of view. To whom would the job be most appealing? To whom might the appeal be short-lived? Your best source of this information is your impression of staff, current and past. What type of person at what age and stage has performed well, been happy and stayed a long time? What are the attributes of people who have not worked out well?

The object of the exercise is to have something definite against which to measure candidates. It is unlikely that you will find an ideal candidate, but you will get much closer if you know what you want and hold out for a reasonably good fit.

You may discover that the highly professional, well-turned out, mature person you would really like to hire has no interest in the duties of the job and finds the compensation inadequate. A long-term solution requires adjustments to your requirements, the job, or both.

Think about more than adjustments in monetary compensation. More flexible hours, the opportunity to learn, educational benefits, a pleasant workplace, and discounts on care and services are all examples of perks that have real value to candidates without necessarily increasing costs. Once you know the desired attributes, it becomes relatively easy to tailor the job to attract the ideal candidate.

 Establish a process that weeds out candidates for you

Before anyone looks at candidate submissions, have someone respond to every one with a request for some action on the part of the candidate. The action should be related to the position so that the request maintains your credibility, but the task itself is unimportant.

The objective is to let casual candidates self-select out of the process. If you still have too many candidates to seriously consider, assign another task. About 90% of the pool will drop out with each request.

 Verify selected résumé and application information

If something on a résumé or application is important to you, independently verify the assertions. Otherwise, ignore the contents of those documents.

 Give new hires an easy way to quit after a short trial period

It is not at all unusual for a new hire to discover that accepting the job was a mistake. The sooner the new hire can admit it and move on, the less you will have lost in integrating the new person into the practice.

A bonus is that your second choice may still be available and willing.

Hiring is a necessary evil. Investing time and attention in the process so that your hires are smart ones reduces the costs substantially.

Six steps to hiring great practice staff

If economist Joseph Schumpeter (1883-1950) were alive today, he’d be amazed by how right he was about the potential impacts of business innovation.

The renowned Austrian economist, who spent his later years at Harvard University, coined the now-familiar phrase “creative destruction” to describe how innovation by entrepreneurs can lead to overwhelming competitive advantages that redefine industries. We now call this disruption.

Schumpeter believed that creative destruction from innovating new technologies or processes would always have 

far more economic impact than competition

 between businesses using existing innovations. Today we view this as obvious, but that wasn’t the case in the early 20th century.

The economic impact of waves of innovation since 1785 are depicted in 

 on the website of a project called The Geography of Transport Systems, adapted/updated from “The Natural Advantage of Nations: Business Opportunities, Innovation and Governance for the 21st Century,” a book published in 2005. Explaining waves of innovation which ultimately led to today’s global uber-innovation business culture, the graphic shows that Schumpeter was more than right; he was downright prescient.

In discussing these historical waves of innovation, authors Karlson Hargroves and Michael Harrington Smith identified a trend that was only beginning when Schumpeter was in graduate school. The waves were starting to get shorter or, viewed when another way, they were speeding up.

The graphic shows that the first wave, which included the innovations in waterpower, textiles, iron, and mechanization, started in 1785 and lasted 60 years. Schumpeter came of age toward the end of the second wave--steam power, railways, steel, and cotton--which lasted 55 years. As he developed his theory of creative destruction, Schumpeter witnessed the revolutionary developments of the third wave—electricity, chemicals, and the internal combustion engine. This wave lasted 50 years.

The fourth wave—petrochemicals, electronics, and aviation—started in 1950 (the year of Schumpeter’s death) and lasted 40 years. The fifth—digital networks, software, biotech, and new media, started in 1990 and ran for only 30 years. We’re now on the cusp of the sixth wave—artificial intelligence, robotics, and _____(?). This wave is projected to last 25 years, but who knows how short it will be?

If Schumpeter could see the world of technological innovation today, it would probably blow even 

mind because we now have creative destruction (disruption) on steroids. Innovation is begetting innovation and resultant disruption, disruption apace. The economic impacts are huge. Huge tech companies have created entirely new industries. Thus, Schumpeter was more right than he probably knew about the potential commercial and economic impacts of creative destruction, aka disruption.

Each historical wave of technological innovation has brought substantial disruptions amounting to industrial revolutions. Now that the pace of innovation is accelerating so rapidly, the potential for economic growth may be arithmetically or even exponentially greater than many thought possible only a decade or so ago.

Most of today’s sixth-wave disruption, of course, is digitally based and derived from innovations of the fifth wave, when the digital industrial revolution began. The roots of this revolution were taking hold when Bill Gates was skipping class at Harvard in the 1970s to build kit computers in his dorm, no doubt pondering the software that would be needed to run the small computers consumers would soon have in their homes. Most if not all of the innovations currently considered highly promising for near-term growth—blockchain, quantum computing, artificial intelligence and robotics among them—are ensuing directly or indirectly from the fifth-wave innovation in which Gates was so instrumental: software driven by binary code.

The impacts of the current digital revolution, which goes way beyond tech products and services to industrial processes in non-tech industries, are the foundation to why I’ve been saying the Dow Jones Industrial Average will reach 

. Economic and business growth driven by the increasing pace of innovation and disruption may make this happen sooner.

Regardless of whether you view current tech innovation as the beginning of the fifth wave or as part of a digital continuum that began in the fourth, it nonetheless has profound implications for business and investment markets in the next few years.

As innovation has become everything at tech companies, it’s become far more important to all industries. The premium put on innovation by a broad range of industries has never been higher. Entire departments at companies in all market sectors are dedicated to innovation, and courses in innovation are proliferating at university executive education programs.

The quickening global pace of innovation across all industries has profound implications for all market sectors:

Companies short on innovation won’t be able to adapt to changing markets and thus are imperiled. The need for innovation is by no means new, but now there is a pressing imperative to innovate, driven by a widespread awareness that the grim reaper of disruption won’t spare companies that don’t emphasize innovation enough.

Many investors may limit their returns by assuming that disruptors must necessarily be startups. Some large companies are quite innovative. For example, 3M has a constant stream of new products, representing a substantial part of its revenue stream.

As the pace of innovation quickens, product life cycles are contracting. The life cycle of many consumer products has 

 and for some products, it’s even shorter. So, companies must disrupt their own products before competitors do, and develop new supply chains to hasten production and maximize revenue amid shorter product cycles.

As innovation cycles and product life cycles contract, 

, proprietary distinctions that make disruption more difficult, will effectively narrow. Disruption from innovation will help competitors bridge these moats. Companies that have experienced rapid growth without proprietary technology, like Peloton, will be especially vulnerable.

Faster innovation and more disruption will erode the cultural penchant for brand loyalty. In increasingly disruptive markets, consumers will be more open to considering the merits of new products instead of fixating on brand names. This is already happening, as reflected in millennials’ lack of enthusiasm for established brands and openness to new ones.

Consumer choices will broaden from an ongoing fusillade of new products born of innovation, all seeking to disrupt. In some service areas, these products will reflect increasing democratization—e.g., the robo-advisors and Robinhoods of the world, presenting alternatives to traditional advice and brokerage platforms. Perhaps the most systematic (and therefore the most ambitious) disruption efforts can be seen in fintech and 

 (decentralized finance) entities, which have taken aim at the banking system. We have a generation of young people who don’t see any need for checking accounts; many just use Venmo.

Forget brave new world comparisons. Rampant innovation and disruption mean that we’re headed for a world of the incessant new, so much so that even Schumpeter would be astonished.

Dave Sheaff Gilreath, a certified financial planner, is a 40-year veteran of the financial services industry. He is a partner and chief investment officer of 

, a portfolio management company for individual investors, and 

, an institutional money management firm. Based in Indianapolis, the firms manage about $1.4 billion in assets nationwide.

Companies short on innovation won’t be able to adapt to changing markets and thus are imperiled.

Faster innovation and more disruption will speed growth 

Physicians understand better than most why income protection is so important. They see firsthand how often injuries and illnesses can occur, and how an unexpected disability can disrupt a person’s life and their income. As busy medical professionals with countless demands and stressors, it can be a challenge to find the time to purchase income protection. But that is why it’s so important — because if an illness or injury prevents a doctor from working, they need the peace of mind knowing they’re covered. Selecting the right individual disability insurance, or IDI, policy for an individual’s lifestyle and career can save time and headaches.

Doctors invest years of hard work, time and money to get where they are, and protecting future earning potential is an important decision. IDI provides monthly benefits if an insured individual is unable to work due to sickness or injury. Several IDI carriers have designed robust income protection plans that are specifically built to protect physicians throughout their careers. With many options in the marketplace, it’s important to understand what to look for in an IDI policy. For example, a policy that evolves with a policy owner’s career and future earning potential should be standard to maximize coverage. In addition, look for IDI policies that offer:

For specialty professions, the ability to select an own occupation rider can provide protection from a disability that prevents someone from performing a specialized job. An own occupation rider will then allow for other work. For example, a surgeon who develops a hand tremor and who can no longer perform surgery could collect benefits while choosing to work in another capacity that the hand tremor doesn’t affect.

Many IDI carriers offer riders that can reimburse student loan payments if the policyowner becomes disabled. These riders usually cover some or all student loan payments, up to a maximum amount and/or period. The reimbursement benefits can often cover up to $450,000 in student loan payments and are paid in addition to a policy’s base monthly benefits. It is common for medical professionals to carry substantial student loan debt for some time during their careers, so student loan relief in the face of a disabling event can provide real peace of mind.

What medical professionals early in their career should know when it comes to individual disability insurance policies.

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