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Calculating Your Real Income


Basic economics tells us that when demand is high and supply is low, prices tend to go up. Not for doctors though. If they sit down and calculate their real hourly pay, they might be surprised and a little angered.

Many doctors are afraid to hear the truth. So, I shall deliver the truth to you.

OK, let’s do some math.

Today, I was speaking to a physician colleague who is pretty frustrated with practicing medicine. Seems like most physicians feel the same way these days doesn’t it?

He feels like his workload and the demand on his time keep getting bigger. Basic economics tells us that when demand is high and supply is low, prices tend to go up.

Not for doctors though. Your pay tends to go down. The basic laws of economics are broken.

This doctor said that his gross annual income is about $250,000. He claims he works about 45 hours per week and takes 4 weeks of vacation.

That’s 2,160 hours per year that he works, which is about $115 per hour.

“How many hours per week, on average, do you spend staying longer than the normal workday—returning phone calls, following up with patients complaints and so on?” I asked him.

He said about 5 hours per week. That’s 240 hours per year, since he works 48 weeks per year.

What’s his hourly rate now? It’s about $104 per hour.

“How many hours per month do you spend going to meetings at your medical practice and hospital—you know, the ones where nothing is accomplished and are a waste of your time?”

He said about 5 hours per month. That’s 60 hours per year.

His hourly rate is now down to $102 per hour.

“How much time do you spend driving to your job and back per day?”

He said about 1 hour per day. That’s 240 hours per year assuming he works 5 days per week for 48 weeks per year.

Now his hourly rate drops to about $92 per hour.

“How much time do you spend with CME, licensing, and taking annual tests and concocting QA projects for board recertification?”

About 100 hours. His hourly rate just dropped to $89 per hour.

He is now working 2,800 hours per year or about 58 hours per week for 48 weeks out of the year. That’s almost 12 hours per day for 5 days per week.

“How was your tax bill?”

He said if he combines Social Security taxes, Medicare taxes, and federal and state income taxes, they totaled about $75,000.

Now his after tax hourly rate is $62 per hour.

This hourly rate represents his real hourly rate. But it doesn’t even include other things like going to depositions when you’re sued, the anguish you suffer when you see a patient that threatens you, calls you take from home, and other medicine-related time you spend.

What does this have to do with your finances?

If you’re busting your butt practicing medicine and you’re getting burned out, or if you’re doing just OK but you still have to work and can’t afford to stop or cut back, then you’ve got to ask yourself how long you can continue doing this for $62 per hour.

I ain’t Nostradamus, but your real pay will likely go down as you spend more and more of your time to meet the demands of the medical machine controlling your every move.

What I want you to do is sit down and calculate your real hourly rate. Most doctors just focus on their gross income for the year. But that’s irrelevant.

Your income is only important in relation to your time and the frustration required to obtain it—and, of course, the satisfaction you get by doing your job. Unfortunately, physician job satisfaction is low.

So, take your income and calculate out all of your “expenses” to get that income. Then come up with your true hourly rate.

If that number angers you, then you need to get your personal finances straightened out so you don’t have to accept that rate later on if you don’t want to.

This will also be a good decision-making tool when deciding whether you want to work that extra shift or take that extra call. Is your real hourly rate worth the extra work?

Let me know what you think.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice