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Financial implications for physicians when choosing a career path


Young doctors’ early decisions can have profound effects on professional development and retirement. Here are some questions to consider.

physician financial concept: © Jo Panuwat D - stock.adobe.com

© Jo Panuwat D - stock.adobe.com

Medical students face a wide range of options when deciding specialties and areas of interest. Likewise, young doctors have a host of choices when beginning their careers, including whether to enter private practice or join a hospital system. These decisions are made early in a career and can have a profound impact on a physician’s professional trajectory and even their retirement. That’s why it’s so important for young doctors to be intentional and thoughtful about what they want from a career, making sure to align that with their long-term financial goals.

Michael Joyce 
© Agili

Michael Joyce
© Agili

The following are just a few of the many questions that young doctors should consider when evaluating an initial career path between private practice and working for a hospital system:

  • Are you risk-averse or entrepreneurial?
  • Are you interested in the business side of medicine?
  • Do you prefer autonomy or having a large support system around you?
  • What are your long-term financial goals?

Everyone’s specific situation and goals will be unique to their circumstances, but there are some general guidelines that can provide a helpful framework for young physicians.

Considerations for private practice

Although the number of physicians in private practice has decreased in recent years, according to the American Medical Association’s most recent Physician Practice Benchmark Survey, it remains the ideal career choice for many young doctors. A key consideration for private practice is your risk tolerance. Are you more open to taking risks in the hope of getting a better upside? If the answer is yes, then private practice may be the right fit.

Generally speaking, private practices that offer young doctors a path to an ownership stake have the most potential for financial gain in the long-term. Owning a piece of a practice can yield annual dividends as well as a larger payout when you retire or sell the practice.

Private practice typically offers doctors more independence and autonomy. After all, you’re one of the owners so you can help make the rules. You have a more direct role in practice decisions and strategy as well as shaping the work environment and culture. With an ownership stake, you’ll also feel more invested in the business’ success.

One other financial benefit of having an ownership path or stake in a private practice is that physicians in private practice may have access to additional entrepreneurial opportunities based on their specialty, such as buying into ambulatory surgical centers or dialysis centers. These facilities offer another income stream and can be highly lucrative assets for the owners (often more lucrative than a medical practice itself).

Of course, the flipside of being an owner is that you – and your partners – are responsible for the business’ expenses and debts. Doctors who own private practices must be familiar with the business of health care, even if they hire support staff to run the operational side of the business. You also are ultimately responsible for your employees, their benefits, and a long list of business costs. Addressing even limited components of the business side of a private practice can be overwhelming for some doctors.

Understanding your risk profile and level of interest in the business side of medicine is critical because those factors will play a major role in a young doctor's career decisions.

Finally, it’s important to note that a physician who considers joining a private practice, at any stage in their career, should ensure that they have proper financing to buy into the practice and that the valuation is reasonable. That buy-in generally requires taking on additional debt, often on top of student loan debt, a mortgage, and more.

Considerations for hospital systems

What hospital systems lack in independence and autonomy they typically make up for with stability and support. Young doctors may find more certainty with an established hospital system. If you prefer to focus primarily on patient care and are not interested in the business side of medicine, a career path with a hospital system may be appealing because the hospital will provide back office and administrative support.

Hospital systems also can offer more predictable compensation in the form of salaries, retirement savings, health insurance, professional liability insurance and other benefits. Although it is true that hospital systems may be able to offer a more competitive benefits package, there is typically a ceiling to these benefits. With private practices, doctors have access to additional options, such as cash balance plans and monetary distributions for owners.

Young doctors considering a career path at a hospital system should expect that their earnings will be tied to productivity goals. Those set goals can be adjusted over time and negotiated but productivity will remain a key drive for a physician’s compensation.

Evaluate what’s best for you

Geography is another consideration and increasingly important for doctors beginning their careers. Local market dynamics matter because many hospital systems around the country are actively acquiring private practices. The rate of private practice acquisition by hospital systems in a region could reduce private practice job opportunities over time. It could also result in the sale of a practice before a young physician has acquired much of an ownership stake. Take a close look at the trends in your local market.

Young doctors must weigh many financial factors when considering their career path. Return to the four questions posed earlier. Your responses will help you make a more informed decision.

A decision this significant is not one to make alone. Rely on the guidance and support of trusted advisers, including family members, mentors, close friends, financial advisers, and others. Evaluate the risks and benefits of your options with this team. You’re the ultimate decision maker, but don’t be afraid to ask for their advice and have candid conversations. These perspectives will provide further insight to help guide this important and exciting decision.

Michael Joyce, CFA, CFP®, is founder and president of Agili in Richmond, Virginia, and Bethlehem, Pennsylvania, responsible for overall invest­ment strategy, management of investment portfo­lios and financial planning services. He can be reached at mjoyce@agilipersonalcfo.com.

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