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A slip in net worth


Physicians have been losing ground, our findings show, but the right moves can speed recovery.


Cover Story

Financial Survey

A slip in net worth

Jump to:
Choose article section... What's up, what's not Stepping up practice net Hanging on and hoping How doctors' assets add up Room at the top Medical family income dips How much doctors save What doctors' homes are worth How big a tax bite? Moves to boost practice net Time + patience = fat portfolio Working overtime to build a nest egg Bumps on the road to financial freedom Paying closer attention to the bottom line

Physicians have been losing ground, our findings show, but the right moves can speed recovery.

By Lawrence Farber
Senior Editor

For many doctors who participated in our latest Financial Survey, diminished practice earnings and a slumping stock market started the new millennium on a weak note indeed. In 2000, the median family income for all survey respondents was $180,000, down 10 percent from $200,000 in 1997, the year we last conducted our survey.

Still, 37 percent said their financial situation was better in 2000 than the year before, while only 28 percent thought it was worse. For example, an Illinois FP soloist who reduced his dependence on managed care contracts reported an 18 percent rise in income—more than enough to offset a 5 percent loss on his investments and allow him to splurge on a home theater system. He has hired an NP to raise productivity and enable him to take more time off "to avoid burnout."

An equally hard-working Kansas FP's experience was fairly typical among physicians who faltered in 2000. He took a 20 percent hit in the stock market and saw his total income decline 5 percent. By slashing family expenses 10 percent, he managed to make the maximum contribution to his retirement plan, pay off some revolving debt, and have enough left over to buy a restored Chevy pickup. To keep his finances on an even keel, he's hoping to trim education expenses for his children, which exceeded $11,000 last year.

What's up, what's not

Nine out of 10 doctors own stocks. In 2000, their median investment equity was $200,000, compared with $190,000 in 1997. This doesn't necessarily imply a net capital gain; it may simply show that doctors channeled more new money into the market than they lost during the three-year interval. Nearly half reported losses on their investments last year, typically 13.5 percent. Overall, doctors' median net worth—total professional and personal assets, minus total liabilities—has fallen 12.5 percent, to $700,000, since 1997.

Though these economic setbacks hardly constitute disaster, their negative effects shouldn't be minimized. At least in part, they've caused doctors to lower their retirement plan contributions from a median of $20,000 in 1997 to $15,000 last year. The typical plan's value has receded from $197,500 to $150,000. Lowered income can also result in a higher debt load. So far, however, doctors seem to be holding their own. A third are debt-free, and the median amount owed by the rest is $190,000, compared with $200,000 in 1997.

Some physicians mentioned problems with credit card debt, but more seem to favor borrowing on home equity. Last year, mortgage loans accounted for 80 percent of the typical doctor's debt, down slightly from 83 percent in 1997.

Medical education loans represented 30 percent of indebtedness for physicians age 34 or younger. Ironically, some doctors whose education loans were forgiven had to pay tax on the resulting "phantom" income. One young New Mexico FP with $110,000 in total income before deductions got stuck with a $40,000 tax bill.

On a positive note, doctors generally haven't been financing their stock purchases with borrowed money. Fewer than one in 10 had margin loans in 2000. Among those who did, the median amount owed was less than 18 percent of their total debt.

One slightly tarnished silver lining in the cloud over many doctors' finances: Lower income usually means smaller tax bills. Although one physician in five paid Uncle Sam at least $100,000 for 1997, only one in eight shelled out that much last year. The median tax bite eased from $45,000 to $40,000. Overall, doctors estimate that about 20 percent of family income goes for taxes on income and property.

Stepping up practice net

About half the doctors surveyed say they've recently taken or plan to take action to increase practice net. Many aim to cut expenses by eliminating employees or using them more efficiently.

Like most of his colleagues, a Maryland pediatrician is skeptical that the insurance bureaucracy can be tamed ("Ha!" he says). Instead, he's trying to trim the staff time spent "chasing reimbursements" by relying more heavily on computerized billing. A Florida FP has hired an office manager who'll work for free—his wife—even though "it means we'll eat out a lot more." A Texas gynecologist plans to give up some "poorly compensated procedures" and move to a smaller office.

A sizable number of doctors are attempting to deal with inadequate third-party payments by renegotiating contracts. "I was losing money on capitation and switched to a fee-for-service basis on all my contracts," a Texas pediatrician reports. "As a result, we had $10,000 more in our year-end party fund than in 1999." Despite physicians' complaints about sagging practice net, however, only 15 percent of those making changes to improve matters expect to trim their HMO practice; 7 percent plan to increase it.

A much more popular approach to boosting practice income is expanding medical services. A Vermont GI specialist in a three-man group has branched out into colon cancer screening and may open a surgicare center. A Texas ob/gyn will soon offer varicose-vein therapy and microdermabrasion. Others are adding acupuncture, cosmetic surgery, laser hair removal, mammography, ultrasound, and other procedures not necessarily related to their basic specialties.

Some plan to join the 35,000 physicians already serving as clinical investigators. A North Carolina GI has set up a medical research company. A South Dakota GP is doing sleep studies. Several primary care doctors are enlarging their office-based testing facilities, including mammography and ultrasound, or adding laboratories. Not only are such activities potential revenue enhancers, but they may also make it possible to ease workloads and limit dependence on managed care contracts and insurance payments.

Roughly one in five doctors aiming to boost practice net is hiring a nurse practitioner or physician assistant to help handle increased patient flow resulting or anticipated from expanded services. Some doctors are also using such personnel to promote goodwill and attract new patients by shrinking office waiting time and accommodating an "open access" appointment policy.

Around 6 percent want to link up with a hospital to boost practice income. "I really got hurt when a local IPA became insolvent," a California physician moans, "and hospital affiliation seems the best way out." But an equal percentage strongly disagrees. "My time in the hospital is nearly a dead loss," says an Alabama FP, "and it eats into my time at the office." A Missouri doctor is ending his affiliation because he has to treat too many uninsured ER patients. An Illinois internist whose gross rose due to a hospital affiliation is canceling it, anyway. "Hospital management decisions have eroded my income and smeared my professional reputation," he charges.

Would changing from group to solo practice help? A Connecticut internist whose income declined 20 percent last year thinks so. "I just quit a group with high central office costs and expect to save $2,000 to $3,000 a month in practice expenses as a solo," he says. A Tennessee doctor left a clinic "to get rid of heavy imposed overhead." And an Arizona pediatrician is sure he can practice more efficiently on his own.

Well . . . maybe. "I sold my practice and am now an employee," a Utah FP crows. "I don't have to hassle with insurers, I'm working regular hours, and I'm better off financially." Slightly fewer than 6 percent of doctors seeking to boost practice net voted his way; a bit more than 6 percent favored a change from group to solo practice. It appears to be a standoff.

There's no question, however, that the number of nonowner doctor employees continues to rise, and the trend may be accelerating. In 1997, 30 percent of the respondents to our Financial Survey were nonowners. By 2000, the figure had grown to 44 percent. Among doctors under age 40, the nonowner ratio rose in that three-year span from just under half to two-thirds. Not surprisingly, older physicians are the least likely to be nonowners. Even so, in the 40-and-over category, the number of nonowners increased comparably—from 24 percent in 1997 to 36 percent last year.

As you might surmise, doctor employees often don't do as well financially as their owner colleagues. Compared with solo owners, for example, nonowners' typical family income was 11 percent lower in 2000. Net worth was 57 percent lower, and annual retirement plan contributions were 30 percent lower. True, many young doctors are nonowners, which exaggerates the disparity. Still, the numbers show which way the wind is blowing.

Convinced that the wind won't change direction, a small minority of doctors in private practice are ready to abandon ship altogether. Racked by a 30 percent plunge in income last year, a Massachusetts ob/gyn vows he'll "join the enemy—get a job with an insurance company." A New Jersey internist is gradually increasing his working hours in occupational medicine and expects to devote full time to it eventually. A woman physician in New York plans to get an MBA and shift to health care administration.

Hanging on and hoping

Most physicians with financial problems are toughing it out, however. "I blame my troubles on the stock market," says a Texas doctor. And well he might, since he lost $500,000 last year. "But I'm not selling," he insists, "because it will improve in the next 12 to 24 months." A doctor in his 50s with nearly two-thirds of his net worth in stocks is praying for a rebound—"or else I'll have to adjust my retirement date." Amen, says a $300,000 loser, who says he hopes Federal Reserve Chairman Alan Greenspan will continue pushing down interest rates to help revive stocks.

An Arkansas internist has put together a three-point program to improve her situation: (1) use credit cards less; (2) force herself to save via automatic deductions from her checking account; (3) be more active in stock portfolio management. Like other respondents who've begun to doubt their financial competence, she intends to engage a financial planner.

To gauge how doctors view their prospects, we asked them what net worth they expect to have at age 65. In our survey during the early '90s recession, most physicians younger than 40 named a figure around $2 million. That estimate remained the same in 1997, despite the booming stock market, and it didn't change in 2000. Older doctors' estimates varied somewhat in the two earlier surveys, but last year they, too, typically projected $2 million.

Are these expectations reasonable? Yes, if physicians can keep up their current median savings rate of 10 percent, and if average annual investment returns over the next two or three decades match those of the past 50 years. From time to time, market volatility and a constant squeeze on service reimbursements will pose financial challenges, but most doctors seem capable of overcoming them.

How doctors' assets add up

Median value for doctors
Younger than 35
Retirement plan
Total real estate equity
Stocks and stock funds
Bonds and bond funds
Other income investments
Total net worth


Room at the top

% of doctors
Net worth
$2,000,000 or more
Less than $300,000


Medical family income dips

% of doctors
Total family income
$400,000 or more
Less than $100,000


How much doctors save

% of total family income saved
% of doctors
30% or more
Less than 5%


What doctors' homes are worth

% of doctors with homes of that market value
% of doctors with that much equity
$500,000 or more
Less than $100,000


How big a tax bite?

% of doctors
Federal tax paid
$100,000 or more
Less than $20,000


Moves to boost practice net

Time + patience = fat portfolio

Charles Davant III, a 55-year-old family physician in Blowing Rock, NC, is on target for a comfortable retirement. With a stock portfolio worth $770,000 plus a paid-for home and several mutual funds, Davant anticipates having a net worth of around $2.5 million at age 65. That's $500,000 more than most physicians expect to have by then, according to our survey. However, a slumping stock market and a leveling off of practice receipts may threaten his dream of retiring at 60.

Unfortunately for Davant, when the economy stumbles, his practice feels it acutely. "I'm in a resort area in the Blue Ridge Mountains," he says. "When things are bad, people don't take as many vacations or build second homes. That translates to fewer patients." He has done all he can to make himself and his employees more efficient, so with the stock market in a rut, Davant doesn't have high hopes for increasing his income in 2001.

"This year's a toss-up," he says. "I can't raise my fees, because the insurers won't pay more. As for the stock market, the experts say that if you buy and hold, you'll be okay. I've got five to 10 years until retirement, so I have time."

Davant's portfolio holds mostly blue-chip stocks, many of which he has owned for years; they're in the self-directed retirement account he started in 1975. He gets his investment tips largely from publications, including Medical Economics, Money, and The Value Line Investment Survey. "Even when tech stocks were rolling, I didn't own a lot of them," he says. "I was content to earn 15 to 20 percent a year from my big-company stocks."

Not that Davant isn't daring from time to time. He's done pretty well owning small-caps and the occasional high flier. However, he lost a few thousand dollars recently on Redback Networks, which helps provide companies with high-speed Internet access. "I need to take a chance every once in a while," he says, "to remind myself that I'm not really as smart as I think I am."

—Dennis Murray, Senior Editor


Working overtime to build a nest egg

John Cellucci took a 15 percent income hit in 2000—even more painful than the 10 percent drop many other doctors surveyed for the accompanying article experienced. The 34-year-old family physician's investments, mostly mutual funds, didn't lose much value, but his two-doctor practice was closed down by the hospital satellite system that owned it. That left Cellucci, who lives in Glen Mills, PA, scrambling to find work.

Fortunately, he was able to hook up with two urgent care centers and land some other part-time work. "I'm now earning about as much as I did with the hospital," Cellucci says. "The bad news is that I'm traveling between Pennsylvania and Delaware, and working until 9 some nights. By the time I reach the last center, my patience can wear thin." His packed schedule leaves him little time to spend with his two toddlers. "I mail them pictures of me, so they can continue to recognize their daddy," he jests.

Cellucci's immediate goal is to earn enough to let him save more for retirement. He's set aside less than $25,000. Like half the respondents to our survey, he doesn't use a financial planner or money manager. What little investment advice he gets comes from his father-in-law, who's a CPA. "Some former patients of mine are financial planners," Cellucci says, "but I brushed aside their offers to help, because I never felt I had much of a nest egg."

Because he's investing for the long haul, Cellucci isn't overly concerned with the stock market's recent slide. "It'll eventually rebound," he says. "Right now, I'm focused on practicing medicine; paying for health, life, disability, and car insurance; paying down my mortgage and student loans; and doing home repairs—then spending with my family the remaining two or three minutes I have left over each week."

—Dennis Murray, Senior Editor


Bumps on the road to financial freedom

Wendy C. Daly is working hard to rebuild her investment portfolio, which took a big hit after her divorce two years ago. The settlement required the Louisville pediatrician to give up half the equity in her home, her medical building, and her retirement plan. That left her with $90,000 in stocks and stock mutual funds—some $110,000 less than the typical physician, who reported having $200,000 in equities in 2000.

Recouping her losses hasn't been easy. A 49-year-old mother of two, Daly pays $23,000 a year to send her 20-year-old son, Greg, to Purdue University, in West Lafayette, IN. Her younger son, Jordan, will start college this fall, and the added college costs will make saving for retirement even more challenging. So Daly recently raised her fees an average of 7 percent, which should help boost her income from the $160,000 she reported last year. She'll direct the additional revenue to her retirement plan; she kicked in $15,000 in 2000, but would like to contribute closer to $30,000 this year. A professional money manager administers the plan and regularly reviews each participant's mutual fund holdings.

To free up more cash for investing, Daly plans to refinance the 75Ž8 percent, 30-year mortgage on her home. She'll also have to trim her personal expenses, especially during the year when Greg's and Jordan's college careers will overlap.

So far, she has been able to pay tuition bills and other college costs from current income. But she may soon need some help from the kids. "Greg hasn't taken any loans yet," Daly says, "but he'll probably have to this fall. Jordan will likely go in-state for his freshman year, so that should make things easier on me." However, if money gets tight, Daly can tap into a $20,000 emergency college fund she established several years ago.

—Dennis Murray, Senior Editor


Paying closer attention to the bottom line

Sunita Puri's family practice suffered a double indignity last year: Expenses went up, and insurers took longer and longer to pay. Overall, she earned 10 percent less than she did in 1999. But like roughly half of the doctors we surveyed, she plans to be proactive and make some changes to her practice. "We're examining every expense this year, to find ways to reduce overhead," she says. One move: Close the office an hour earlier each day, to save on utilities and payroll.

"I still expect to treat the same number of patients," says Puri, who operates a solo walk-in clinic in Decatur, AL, and sees about 40 people a day. "It'll be a matter of working more efficiently and shifting some duties among my employees. I'll examine the numbers again in six months, to see how I'm doing."

In the meantime, she'll watch the numbers that indicate how well her investments are faring. Puri, who handles her six-figure portfolio herself, plans to have a total net worth of $1 million by the time she's 65. That's half of what most physicians surveyed said they expect to have by that age, but she says, "I don't have dependents or expensive tastes, so I won't need as much as some other doctors might need."

After gaining close to 20 percent on her investments in 1999, Puri broke even last year, something she considers a victory given the handful of Internet-related stocks she had owned. "I made money on them and got out when the experts began saying prices were overinflated," she says. "The losing investments in my portfolio were mostly growth-oriented mutual funds."

Puri's playing it closer to the vest this year. She has trimmed the number of stocks in her portfolio from 25 to 12, and has shifted several thousand dollars into certificates of deposit. "Until I see some better opportunities in the market, that money's going to stay in CDs," she vows.

—Dennis Murray, Senior Editor


Lawrence Farber. A slip in net worth. Medical Economics 2001;10:122.

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