Bonnie Darves

When several states began creating prompt pay legislation in the late 1990s to curb systemic payment problems and questionable practices of payers, physicians breathed a collective sigh of relief. At last, they thought, someone is paying attention.

Placing the issue on legislators' radar screens and crafting bills to stem payer abuses have had a beneficial impact, but the resulting statutes are so riddled with loopholes that the net effect has hardly been a total fix. And many physicians either aren't aware of their rights under the laws or are uncertain how to access the statute to get overdue money in the door. Furthermore, in some states, payer contracts supersede the prompt pay laws, so physicians may not benefit from some of their provisions. 

Still, there is good news in some quarters and hope on the horizon. Forty-seven states now have some form of prompt pay law and more than a dozen have proceeded to "version two" to close loopholes and give the laws -- and the agencies charged with enforcing them -- more teeth.

The trends are promising, but the loopholes -- notably the widely varying or altogether absent definitions of what constitutes a "clean claim" -- are thwarting the statutes' intended purpose of dealing with the problem. Twelve states have attempted to resolve the definition dilemma, but it remains a serious roadblock to enforcement.

"That's one of the areas we're still concerned about," says Timothy Flaherty, MD, chairman of the AMA board of trustees. 

"In many states with laws on the books, [the statutes] have been unenforceable because of problems with that definition." In addition, most prompt pay laws exempt self-insured ERISA plans, and Medicare+Choice and Medicaid managed-care plans are governed by federal laws regulating payer practices, so prompt pay laws don't necessarily apply. 

Still, Flaherty is optimistic that the tide is beginning to turn. The laws, and the AMA's work at the state and national level, have exposed the problem of delayed or withheld payments and given physicians an avenue for redress. "This has put the spotlight on the situation, and now that insurance commissioners are imposing significant fines, things are changing. Rather than ... playing banker with us, insurers are [incurring] fines," Flaherty says. Most of the current laws require payment within 30 to 60 days, depending on the situation and claim status. Interest rates on late balances run from 10 percent to 18 percent annually.

To benefit from the "full force" of law, it's important to first understand what it does -- and doesn't do. "The first thing physicians should do is get a copy of the [regulations] and make sure they understand them," says Kathy Cartwright, a consultant with HCDS Consultants in Houston, who works with physician practices on practice management and contracting issues.

Knowing whether a payer is in violation of the law also means having a good handle on the practice's finances and contracts, Cartwright says. Too often, physicians don't have systems in place that monitor payments from and incorporate the contracted rates. 

"With many practices, this is a hit-or-miss situation, and if you don't know what you're supposed to get paid -- whether it's 120 percent of Medicare or X-percent of billed charges -- a prompt pay law isn't going to help much," she says. But practices with good systems are reaping the benefits. In Texas, where payers incur a $1,000 fine and pay full-billed charges if they don't pay claims within 45 days, hospitals and practices using effective monitoring systems are seeing their bottom lines boosted. 

"Some providers and hospitals have systems that auto-generate a letter on the 46th day -- to both the payer and the state," Cartwright says. "That's a powerful way to use the law."

The Ohio State Medical Association (OSMA) plans to offer its members a way to take the automatic monitoring of claims to a higher level. "When we surveyed our members, their number one challenge was claims management," says Mark Jarvis, managing director of OSMA Advantage, the medical association's business arm. So next year, OSMA will introduce a custom-developed application service provider that not only tracks late claims but also generates letters to payers and the state, and calculates the interest due on late claims. 

But physicians can't simply expect that because the law exists their payment problems will go away. The best way physicians can take advantage of the law is to get their own houses in order first, says Reece Hirsch, a healthcare attorney with Davis Wright Tremaine in San Francisco. 


"Inevitably, these laws will move HMOs and other payers away from the practices [that result in payment delays]. But as a practical matter, that will happen only if the laws are enforced and if physicians take responsibility for pushing that forward," Hirsch says. That means working with professional organizations on collective efforts, ensuring that claims have been properly filed, and filing complaints formally. 

States that have implemented a formal complaint process -- using either the AMA's template or their own version -- have seen compelling results. In New York, for example, the Department of Insurance received 63,500 complaints in the first two years after the state's prompt pay law was enacted, and levied fines accordingly. 

In Oregon, a joint AMA-Oregon Medical Association (OMA) initiative has produced results as well. Jim Kronenberg, OMA's associate executive director, says that since the organization began vetting and then funneling complaints to the insurance department, payers have taken notice. "We're receiving a lot of calls from insurance companies asking, 'Have you received any complaints against us?' It's at least having a salutary effect," Kronenberg says. 

Oregon's prompt pay law is one of several that don't specify a structure for fines. For that reason, the OMA's 6,500 members devised a way to get regulators' attention. After conducting a survey of physicians regarding payers' practices, the OMA backed up its findings by conducting a follow-up project in which several hundred physicians tracked every single claim from the time it was filed until it was paid -- or not paid. "That's a big task, when you're talking about big clinics that generate 3,000 to 4,000 claims a day," Kronenberg says. But the substantial documentation of process has spurred the insurance department into action. "The 'opposition' couldn't complain that [the findings were] self-reported," he adds.

In Texas, a revision to the 1999 prompt pay law was vetoed last summer by Gov. Rick Perry. The setback prompted the Texas Medical Association (TMA) to use other means to address the problem of the clean claim definition. In addition to providing the state with evidence of the scope of the problem -- a recent survey found that 15,000 Texas practices had accounts receivable beyond 45 days totaling more than $60,000, for a total estimated $90 million in overdue payments -- the TMA pushed the insurance commissioner to institute a clean claims work group. But the most effective initiative has been the TMA's Hassle Factor dispute resolution program. TMA representatives compile complaints and meet with payers on a regular basis to discuss member physicians' grievances and push for resolution. "This has probably been the most effective thing we've done," says Rick Johnson, TMA's director of medical economics. 

In New Mexico and Georgia, medical associations have worked with insurance departments to institute claims tracking systems and have warned HMOs that the prompt pay laws will be aggressively enforced. The highly public approach is working. Georgia has aggressively fined violators, and New Mexico's claims-tracking effort has been so effective that physicians are now receiving payments for claims they'd long since given up on, says AMA's Flaherty. "The New Mexico Medical Association's use of this [tracking] system has produced enough publicity," he says, that payers began making good on old claims just to avoid being in the spotlight. "No one wants to be the worst one on the list."

This article originally appeared in the July/August 2002 issue of 

Articles

Understand how prompt payment laws protect you -- and how to get the most out of the laws.

Prompt Payment Laws


Greg Long, MD, says positive change is possible in today's healthcare environment.

The proof is in his practice's nearly 30 percent reduction in daily patient visits - along with a $12,000 jump in the monthly operating margin of ThedaCare, a 90-physician integrated delivery system in Wisconsin, where Long is medical director.

Making some key changes in the patient-flow process has also translated into a more manageable workweek for Long. With the scheduling bottlenecks largely cleared and office efficiency ramped up significantly, he finds he no longer spends hours at the end of the day catching up on paperwork and phone calls.

"I'm keeping up on dictation, documentation, and coding. So when the end of the day rolls around the majority of things are done," he says, adding that while his practice life is "still hectic and packed, it's a different kind of busy."

Thanks to more efficient, targeted use of staff and improved communication using technology, patients in Long's practice no longer have to wait - either for appointments or in the waiting room. As a result, they're visibly more satisfied, and that is reducing stress on everyone else. "When the patient feels more satisfied, and the whole interaction the patient has with the system is positive, the doctor feels better and the staff feels better," he says.

Long's experience is not unique. Practices of all sizes and in all corners of the country are finding that, by making some fundamental changes to office operations, they are reaping the rewards of greater efficiency and career satisfaction. Incoming results from a three-year-old initiative by the Institute for Healthcare Improvement (IHI) on the way care is delivered at the practice level indicate that embracing change and encouraging innovation are not only possible but, ultimately, profitable.

The practices interviewed in the following article have all seen their bottom lines stabilize or improve as patient and staff satisfaction rise, the quality of care increases, and - wonder of wonders -inefficiencies decline. If they can do it, why can't you?

It may sound simple, but to change the way care is delivered in most physician practices requires a whole new mindset.

"If we want to rid the current system of its defects, we have to start with a clean slate," says Charles Kilo, MD, a fellow of the Institute for Healthcare Improvement (IHI), a Boston-based nonprofit organization whose mission, as its name suggests, is to improve the quality of healthcare. The group heads up initiatives that find ways, for example, to improve clinical outcomes, broaden access, and lower costs.

The IHI's formula for problem-solving is simple: Rather than try to fix problems as they happen, look at the big picture, then break it down into several smaller elements to be worked on as parts of the whole. It's the same method many educators suggest for completing large or multipart projects. It works. And it's the guiding principle behind the IHI's Idealized Design of Clinical Office Practices (IDCOP), which seeks to re-engineer the way care is delivered in the most common ambulatory setting - the doctor's office.

The successes that these evolving practices are enjoying shouldn't come as a surprise. The reality is, many of the IDCOP ideas aren't new: streamlining patients' movement through a visit by better use of staff and space; using technology to manage processes and patient data; getting rid of schedule backlogs by making office visits more productive and fewer in number; and delegating to staff more effectively, freeing up physicians to focus on the work that requires their expertise. But when practices try to implement change in a system with well-known constraints, like limited time with patients and capitated payments, it's tough to make progress.

"So much of what we have seen has not been a failure of the concept, but more a failure of the culture to implement the concept," Kilo says.

Under the aegis of IDCOP, however, ThedaCare and about three dozen other practices - ranging from solo-practitioner sites to 200-physician clinics - are implementing the concept, and producing impressive results. Participating practices, which pay approximately $25,000 per year over three years to access IHI's expertise and assistance, are encouraged to embrace the IDCOP model's four key themes - access, interaction, reliability, vitality - in a manner that best meets the needs of the patients they serve, while tapping the knowledge and experience of their staff members. That may sound like Customer Service 101, but as most practices know too well, the "system" (and all of its flaws) often gets in the way - and staff feel powerless to change it.


Scott Decker, quality manager for ThedaCare, remembers the first day he and several physicians and staff members were introduced to the IDCOP concept. Forty-five minutes into the presentation, Decker recalls, he saw the two physicians' eyes light up. "They knew what they were operating was 'broken,' and couldn't be fixed as it was," says Decker. "They knew there was no guarantee, but they were willing to try something different."

In the months before his clinics became prototype sites for IDCOP in 1998, Decker recalls, morale had hit rock bottom. "Some of the staff members were ready to walk. They were working until 7:30 at night, and still couldn't catch up." So the group started by embracing the IDCOP principle that nonphysician personnel are capable of performing a number of tasks typically handled by physicians - history taking, certain patient exams, and procedures such as Pap tests, for example.

"This is a very touchy topic for physicians, but too often, you realize that physicians are doing a lot of work that other people could very competently do" with appropriate supervision, Kilo says. The concept has become a happy reality at ThedaCare.

"Now, they're loving their jobs," says Decker, "and the doctors are seeing about 25 patients a day instead of 35."

As each new innovation or process change takes hold, clinic staff members come up with new ideas for improvements, making the redesign a staff-led, dynamic process.

"We coined the phrase that 'it's our job to slay the sacred cows,' and embraced the idea of figuring out what we can do differently right now," Decker says. "Three years later these clinics continue to challenge the sacred cows."

As word of the clinics' successes and improved working conditions gets around, staff working in other parts of the system are seeking spots there, according to Kathryn Correia, senior vice president of physician services.

"I get a lot of requests from people who want to work in our division because they've heard about this," she says. "It's what I call the 'wow factor.' One of the most important things about redesign is that the real meat is the behind-the-scenes improvements."

Other practices are realizing similar successes, albeit with different focuses on the four IDCOP themes. For Luther Midelfort Mayo Health System, a Rochester, N.Y.-based behavioral health clinic, a key to its redesign was the IDCOP principle of population-based care - namely, improved management of patients with depression, who account for 40 percent of its patient panel.

Its new Depression Care Track involves a more structured patient intake process and brings nonphysician personnel into symptom reporting and history taking. It also makes extensive use of "problem knowledge couplers" - a data-driven, evidence-based system of using symptoms, patient history, and patient data entry to devise more standardized care.

Approximately 25 percent of patients with depression participate in group therapy sessions, which have brought treatment response rates above national benchmarks. In addition, the advanced-access scheduling system, now two years in operation, ensures that most patients are seen within 24 hours of requesting service; patient education and empowerment are intrinsic elements of their care. The group also began combining the medical and psychotherapy treatment aspects into a single visit, where feasible, ultimately reducing the number of patient visits without compromising revenues.

"Patients were very positive about it, and highly endorse the process," says Robert Peck, MD. The Depression Track program's success garnered Luther Midelfort an award from the American Group Management Association, and Peck, as part of IDCOP's train-the-trainer methodology, is consulting with other regional practices looking to implement the IDCOP principles.

In changing its system, Luther Midelfort got even more out of the bargain than expected. Efficiencies gained by using nonphysician personnel and patients themselves in information gathering and patient tracking, for example, contributed to a reduced need for transcription services and streamlined use of front-office and nursing resources - eventually, through attrition, reducing the number of full-time equivalent (FTE) personnel by 6.5.

The redesign process taught Peck two important lessons: "For one, I never fully realized how many people were involved in supporting my practice. And I also know that if you want to make substantial gains in improving the care of patients and populations, you have to work in a new way. You can't make the old system do more."


Peck is quick to point out that championing change isn't always easy. "Some people love change, but we're a minority. It was hard because I would hear ideas and immediately see the possibilities - but the challenge is how to get your colleagues to see those possibilities and move forward," Peck recalls. For now, he says, IDCOP has become a "part of how we do business."

Outside the circle of IDCOP study sites, other forward-thinking physicians have been moving ahead with self-styled initiatives based on some of the same concepts. Charles Burger's primary-care practice in Bangor, Maine, has been integrating technology (electronic medical records and exam-room terminals, computerized decision support, and recently, e-mail), advancing the use of nonclinical personnel, and substantially involving patients in their own treatment decisions for about a decade. Putting those principles to work has enabled the practice, which is affiliated with Eastern Maine Healthcare, to care for an active patient panel of 5,000 - a number that just wouldn't have been feasible under the "old system," Burger says.

"If you're going to use technology right, you have to change the way you work, designing processes very carefully and saying, 'OK, we're going to train people to do this reliably,'" says Burger, who is a longtime advocate of computerized support in diagnosis and treatment.

"All of our training is very performance-based. Once people can do [a task], we let them do it. We tend not to pay too much attention to degrees and titles," says Burger, whose staff includes two nurse practitioners, one registered nurse (RN), and two medical assistants. Burger explains that the practice's specially trained medical assistants and the RN handle most of the work associated with physicals and wellness visits.

Telephone triaging and assessment are used in lieu of office visits whenever possible, with telephone follow-up built into the process. And when patients are seen in the office for initial visits or follow-up care, they are asked to input some of their own information, while medical assistants gather the rest. By the time he enters the exam room, Burger says, "most of the work is done, and all I have to do is sit down with the patient and say, 'Here are your symptoms and here is your data. Let's think about these things together.'" He contrasts this with the typical office visit, in which the physician spends two-thirds of his time gathering information and one-third analyzing it.

"That's just not very efficient," says Burger.

The final key element of efficiency at Burger's practice is his insistence on standardized, evidence-based care and processes. If the practice sees 500 patients with headache complaints in a given month, Burger says, "They will all have the same thing done on them." Information gathered in the process is stored in a relational database for potential use in future outcomes studies.

For Burger, the payoffs in efficiency are just as gratifying as the staff satisfaction and relationships that have developed over the years.

"We have exceptionally low turnover because if you were to ask the staff about their work, they have a strong sense that they own the practice," Burger says. "They really function as a self-managed team, and the electronic tools simply give them a greater ability to contribute."

Now that the theories of IDCOP have taken root, Kilo is moving on, translating his philosophies into a new practice model that he hopes will become nationally recognized. Last spring he and Steve Gordon, MD, created GreenField Health System, which is based on high-functioning "care teams" and supported by technological "knowledge management systems." Patients have multiple points of entry to the practices, including e-mail and group visits, and "patient coordinators" ensure patients receive the care and follow-up they need.

At inTandem, the prototype GreenField practice that opened in Portland, Ore., last June, convenience and customer service are palpable - starting with the presence of the greeter who escorts the arriving patient immediately to an exam or conference room (there is no traditional waiting room). Patients pay a $350 annual fee to join, which helps the primary-care practice defray the cost of providing services payers currently don't reimburse, such as e-mail for matters that don't require a one-on-one visit.

Elizabeth Muckler, MD, who joined inTandem in September after completing her internal medicine residency at UC San Francisco, says the practice embodies everything she was looking for in a practice opportunity, without the baggage she expected to find.

"When I looked at other practices they were all very traditional. My perspective is that the traditional structure's constraints and access difficulties make it impossible, time-wise, to give the kind of care that I want to give to my patients," she says.


Muckler cites a recent situation in which a female patient exhibited signs of depression but wasn't ready to consider medication. But when the patient coordinator made the follow-up call a week later, she sensed that the patient's symptoms were worsening and that she wanted to pursue treatment.

"I jumped in then, and worked with [the patient] to make a plan for treatment. Under the traditional system, that might not have happened until the patient came in for a follow-up visit," Muckler points out.

"What drew me here is that I knew I'd have more time to see patients," she adds, "because the patient coordinators would be doing the kind of things I would have done alone in another clinic."

Kilo hopes that, as word of participants' successes gets around, more practices will jump on the IDCOP bandwagon. Even if that is slow in coming, the body of knowledge that is being gathered is nothing short of "spectacular," says Kilo.

Over the coming years, a new Robert Wood Johnson Foundation (RWJF) initiative called "Pursuing Perfection: Raising the Bar for Health Care Performance" will take the IDCOP concepts a step further. The $20.9 million undertaking, which evolved following an RWJF survey in which 80 percent of responding providers said the healthcare system needed fundamental changes, will fund its 12 grantee organizations - systems and physician practices - to create and implement plans that foster the needed improvements. Preliminary results will be published this spring.

"I think we can say with confidence that this is indeed hard work, and that people have put a lot of time and effort into making innovations," says Pat Rutherford, IHI vice president and director of IDCOP. "But once implemented, the yields for patients, providers, and staff are substantial."

This article originally appeared in the January/February 2002 issue of

Results from a study on improving practice efficiency

A Better Way To Practice


Want to find out what your practice looks like to the outside world and how well it fares in the increasingly important realm of customer service? Consider hiring a "mystery patient" to tell you what you need to know.

The practice of hiring mystery patients - a concept borrowed from the retail sector, in which specially trained "mystery shoppers" pose as customers for the purpose of evaluating a business' employees and service standards - is becoming increasingly common in healthcare. While hospitals have used mystery patients for many years, the concept began emerging in medical practices only about a decade ago.

Often, the mystery patient comes into the picture after patient satisfaction surveys yield undesirable results, when a merger or split has wreaked havoc, or when a practice wants to assess whether a training effort or new service standards are bearing fruit. Today, practices concerned about competitive positioning or simply seeking to improve processes are using the self-assessment approach to obtain objective, valuable information about what goes right - or wrong - when patients move through a typical visit cycle.

"There are a lot of things practices could fix for themselves, but they just don't see their [business] with the same kind of critical eye because everyone is so busy," says Andrea Eliscu, president of Medical Marketing Inc. of Orlando, Fla., and a former ICU nurse. A trained mystery patient can provide that objectivity, Eliscu says, as well as details on where and how the system breaks down or fails to provide solid - and friendly - service.

"I tell practice owners that the reason to do this is to see if everything you believe is happening when you're not with the patient, is the way it's designed to be," says Eliscu, author of the recently published book, 

mystery patients - typically either specialized consultants or actual patients hired and trained by consultants - go through an entire visit cycle, from making an appointment and being examined to paying the bill and scheduling a follow-up. Their focus is on the service issues, rather than on clinical quality issues, although the two may overlap over the course of the visit. The best mystery-patient firms are able to not only assess the practice but also to provide a detailed report and, if necessary, a follow-up presentation and staff training.

Dermatology Specialists Inc. of Vista, Calif., uses mystery patients on a regular basis in its five north-county San Diego locations, with the primary objective of seeing whether the practice's "image" meets it own expectations. 

"When you're evaluating staff and physicians with surveys, you get some information, but it's also nice to have someone who is savvy about what's appropriate in the office," says Jay Grossman, MD, president of the practice.

Grossman recently hired professional mystery patient Meryl Luallin, a partner in the San Diego consulting firm Sullivan/Luallin, to evaluate such factors as how well new patients were informed about office practices, how quickly the patient was moved from waiting room to exam room, and the physicians' demeanor and general bedside manner.

"We want everyone to treat our patients like they are their mother or grandmother -basically, the way we all want to be treated," Grossman says, adding that the benefits include the objectivity of the process and the opportunities for staff improvement it uncovers. "When [staff] receive feedback from somebody who has no vested interest other than to try to be impartial, then it's not the doctor saying it - it's from a patient's standpoint," he says. "It's supposed to be constructive, not destructive."

For example, Dermatology Specialists has used the process to help a physician figure out why he constantly ran behind - and to help the tardy doctor devise his own method for staying on track.

Practices use mystery patients to ferret out the source of a problem. Mary Maloney, vice president and chief educator at the Pittsburgh, Pa., marketing firm Adam Filippo & Associates, recalls a situation in which a Pennsylvania practice with serious service issues used a mystery patient to tie problems to their source: a dissatisfied receptionist.

"She was the practice's 'golden gatekeeper' - a position she'd held for 20-some years - and she was just miserable on the phone," Maloney says. It turned out that the woman was a competent, caring individual who still wanted to work at the practice - but she was very unhappy in what had become an unchallenging job for her.


Maloney's third-party perspective and resulting documentation gave another practice the armor it needed to fire a receptionist - the best friend of one of the physicians' wives - who was rude to patients, presumably because she thought she was above reproach.

"Everyone in the office knew it was a challenge, but no one wanted to touch the situation with a 10-foot pole," Maloney says. Despite the fact that the receptionist was advised in advance that the practice was being "monitored," Adam Filippo's mystery patient callers found that she behaved in much the same way other staffers had reported, and the woman was eventually terminated with cause. "We probably did her a favor, but we were also able to take a monkey off the practice's back in a diplomatic way that made an ugly situation a little smoother," Maloney recalls.

Most practices hire mystery patients to assess the entire experience, but University Physicians Inc. (UPI), a 400-physician academic practice affiliated with the University of Maryland School of Medicine, used mystery patients to evaluate how callers were treated when they phoned to make appointments, and whether that experience met the practice's established standards.

"What we learned was that it's not just people issues that caused receptionists to meet standards in one call and fall far below those standards in another," says Chris Hipple, UPI's director of training and performance management. Ultimately, the data UPI gathered was incorporated into future training programs.

Luallin notes that mystery patients often uncover unexpected faux pas, such as the physician who apparently didn't realize the negative message she was giving when she shook patients' hands while wearing rubber gloves. Another physician discovered that she spent an unacceptable amount of time with her back to the patient. With Luallin's coaching, they were able to change their behavior.

"What surprises doctors is that they sometimes inadvertently come across as uncaring and rushed," Luallin says, because of behavior that might not be documented in a patient satisfaction survey.

When it comes to whether mystery patients' planned "visits" should be disclosed beforehand, there are two schools of thought. Luallin and Eliscu cast their votes for telling staff beforehand, and then having the mystery patient show up weeks or months later, when, presumably, people are no longer actively "looking out" for an undercover patient.

Suzanne Boswell, head of Healthcare Impression Management Services in Raleigh, N.C., and author of 

The Mystery Patient's Guide to Gaining and Retaining Patients

, thinks it's better if staff don't know beforehand, even though that makes her job - delivering the results and offering constructive recommendations for change - more difficult. "There are mixed reactions when [staff and physicians] find out they've been visited, so I'm walking a delicate path," Boswell says.

If something untoward happened, or a situation occurred that would make someone feel picked on, Boswell discusses it privately with the person. "I have to make sure the team is intact when I leave," she says.

Regardless of which way you go, realize that hiring mystery patients is an expensive proposition, costing roughly $500 to a few thousand dollars, depending on the number of "visits" and the follow-up reporting and training provided.

If it's not handled properly, the process could negatively affect employee or physician relations. That's why it's critically important to approach the process carefully. Besides ensuring the mystery-patient firm is reputable, has relevant experience (insist on references and check them out), and is prepared to customize the job, the practice should determine in advance exactly what it wants to assess and how it will proceed if serious problems are uncovered.

This article originally appeared in the September/October 2001 issue of 

Wondering what your practice looks like to the outside world? Consider hiring a mystery patient

Patients Incognito


For a number of reasons, ranging from managed care's hassles or the government's onerous burdens to the new economic realities of medical practice, more and more physicians are looking to hang up their stethoscopes early. 

The idea of practicing medicine until age 65 or longer just isn't all that appealing anymore to many doctors, especially in an era when working professionals with half their education stand to earn twice their income, and the notion of the loyal patient base - always considered one of medicine's most gratifying aspects - is fast becoming ancient history. In short, many doctors have no interest in or hopes of becoming Marcus Welbys.

"In the old days doctors didn't retire early - primarily because there was a premium for experience, for gray hair, for knowledge. But that's not as important anymore," says David Marcincko, DPM, MBA, an Atlanta surgeon turned financial advisor and author of the recently published book 

Financial Planning for Physicians and Healthcare Professionals

Statistics support the trend. Recent surveys by both Harvard University and the physician recruiting firm Merritt Hawkins & Associates produced similar findings: Nearly 40 percent of physicians over age 50 are either throwing in the towel or actively thinking about it, and 12 percent are considering changing careers. And a recent unpublished study by the American Medical Association found that the average retirement age for physicians dropped from nearly 70 in 1980 to 67 in 1995 - and industry watchers are predicting we'll see a precipitous retirement-age drop when the numbers are tallied for 1995 to 2000. 

"Doctors no longer enjoy the autonomy and control they once did. Many of the things that attracted them to medicine are no longer there," explains Merritt Hawkins CEO Joseph Hawkins. 

For many physicians, the question is not so much whether they ought to retire early but whether they can actually afford early retirement. That's not an easy question to answer, says Marcincko - who at 45 recently left practice completely to pursue his new career. But the first step is to objectify the goal. 

"You can't just say, 'I want to retire early.' You have to say, 'I want to retire with how much in my qualified and nonqualified pension plans, and with how much money coming in each month - before and after taxes,'" Marcincko says. 

Determining the amount and cost of "fringe benefits" - health and long-term care insurance, for example - that will be needed also is necessary, he adds. 

The second step is to develop a comprehensive - as well as accurate and brutally honest - net-worth statement that takes into account both current and potential liabilities, such as college education for children or support for aging parents. 

"With computers, it's a lot easier to do this now than it used to be," Marcincko says, but it's best to obtain professional help for the "big picture" perspective. Because of the changing financial realities of medicine under managed care, Marcincko says that his next version of the financial planning book will contain revised benchmarks for physician lifestyle spending, and for liquid assets and savings physicians need even before retirement. 

"Because of the volatility of the industry, we're revising all of those benchmarks - how much to spend on a house and car, how much cash and liquid assets doctors should have," he says. 

Although most advisors recommend six months' income worth of liquid assets, Marcincko thinks it should be "more like one to two years'" worth. 

Stephanie Enright, president of Enright Financial Consultants in Torrance, Calif., says some of the physicians she advises are so anxious to get out of medicine -especially in managed-care-war-scarred Southern California - that they have trouble looking at the issue rationally. 

"If physicians plan to retire early, they really have to have quite an accumulation of assets to tide them over," Enright says. "With lifespans increasing, I tell 50-year-olds that it's not unrealistic to think they'll live almost as long as they've already lived - which takes a lot of money." 

Marcincko, who began retooling five years ago to leave medical practice because he "saw the writing on the wall" in terms of the industry's physician-unfavorable economics, and who frequently speaks on healthcare financial issues, advises against retiring early merely out of frustration. 

"The doctors who actually retire for negative reasons - such as quitting because they hate managed care - seem to fare poorly psychologically, versus those who leave because they want to do something else," he says. "It's important to have a transition plan." 

Mike Megalli, MD, MBA, chief medical officer for Catholic Healthcare System Resources in New York, N.Y., says he still works, and plans to continue working into his 60s, because he's enjoying it and "it's nice to get this check every month." And he's seen physicians who didn't have a transition plan bomb out when they abruptly end their careers, a prospect he hopes to avoid. 

"Certainly anyone who plans to retire should have something [planned] to occupy his time and keep the mind working," Megalli says." But physicians in general have a problem because medicine becomes their life, they tend not to have hobbies, and they don't know how to do anything other than their profession." 

In general, Enright advises physicians to begin planning their departure strategy several years before they actually plan to leave practice. Physicians who are a decade away from a hoped-for early retirement should focus on "maxing out" contributions to both defined contribution and defined benefit plans, and using any excess funds to diversify into other areas, such as income-producing real estate or bonds. 

At five years out, physicians who plan to retire relatively young should begin scaling back their expenditures, especially if they expect their post-retirement income to be substantially less than their earning-years income. 

"I tell physicians that if they're going to cut down spending in five years, they had better start doing it now, and begin putting the surplus into something that's not currently taxable to them - such as variable annuities or tax-free bonds," Enright says. 

The five-year timeframe is also a good time to look at how assets are held, she adds, to ensure they're in the most tax-advantageous format for the retirement years. When retirement is imminent - or within two to three years - Enright advises physicians to begin looking at lifestyle issues such as how they'll spend their time, where they plan to live, and how they'll change their spending habits. 

In the "don't-do" category, Enright cautions against investing in medical industry-related new ventures with the thinking that the business' growth will fund the retirement. 

"These are what we call 'the doctor deal,' and there's one every minute. Often, these industry-related endeavors are either very risky or very expensive," she says. "They're not scams, necessarily, but they may eat up more funding than anyone anticipates." 

Both Marcincko and Enright agree, based on their experience, that it's best not to count on the sale of the practice as a route to early retirement. It used to be that physicians who operated a financially and reputably successful practice would have potential buyers lined up outside the doors when the word got out that retirement was imminent. No longer, Marcincko says. 

"A lot of doctors have money tied up in their practices but practices just aren't selling like they used to," he says, because with managed care, a patient base can no longer be guaranteed, and few young physicians have the capital to buy into a practice anymore. Even if the practice is sellable, Enright says, physicians eyeing early retirement should avoid pumping a lot of money into it - especially equipment purchases - a few years before the sale because they stand to lose valuable tax deductions for depreciation. 

"I have a couple of clients who saved nothing their whole careers, thinking that they had would sell the huge practice they'd developed, but the market just isn't there," Marcincko says. 


He also advises against earmarking a highly appreciated home as a principal source of retirement funds, because many physicians find, as retirement nears, that they're not yet willing to give up the big family home. In any event, Marcincko says, physicians considering early retirement shouldn't count on needing far less money in retirement. 

"If you want the golden years to be golden, you aren't going to live on 70 percent of what you lived on before. It's going to take 90 or 100 percent or even more, if you have grandchildren and want a nice lifestyle for them, or if you have charitable intents," Marcincko says. "I see physicians who worked 70 hours a week and made a lot of money but had no time to spend it. When they retire, they want to start spending that money." 

This artcile originally appeared in the March/April 2001 issue of 

What to consider when making a decision to retire early

Author | Bonnie Darves

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