More and more final-year medical residents are flocking to employment.
According to a 2017 survey of 935 final-year medical residents by Merritt Hawkins, a healthcare recruiting company, the majority (94 percent) prefer employment with a salary in their first practice rather than an independent practice income guarantee or loan. A major reason for this is significant student loans. The survey reported that more than 50 percent of final-year medical residents owed more than $150,000 in student debt. Residency directors, healthcare recruiters, and financial experts cite a myriad of other reasons for physicians preferring employed positions, including reducing student debt and obtaining financial security; a lack of training during residency on how to run a practice; the upfront costs to start a practice coupled with complex government regulations; the ease of getting an employed position; and a desire for work-life balance.
Most graduating physicians want to get rid of significant student loan debt, not add to it by starting a practice. According to the Merritt Hawkins' survey. Employers' loan forgiveness programs allow young clinicians to reduce debt burdens in a tax-advantaged manner, explains Tom Davis, MD, principal of St. Louis, Mo.-based Tom Davis Consulting, which provides clinician career mentoring. These organizations typically make the loan payments directly, pay the clinician additional monies to cover the tax liability and then, at the end of the employment agreement, pay off a large balance (i.e., $100,000 to $200,000) with an additional bonus to cover income taxes.
An employed position also ensures a steady paycheck, as well as benefits such as health insurance, paid time off, retirement plans, profit sharing, and typically a steady stream of patients, says Jake Serfas, lead financial strategist at O'Dell, Winkfield, Roseman, and Shipp, a financial advisory group in Washington, D.C.
"Many physicians want to focus on seeing patients and providing treatments, not running a business and dealing with the stress that comes with it," Serfas says. "Unless you have a great practice manager, for many physicians it makes the most sense to collect a paycheck and receive employee benefits without having to worry about whether the practice can afford to make payroll next month."
Startup Costs and Government Regulations
The cost to open a small internal medicine practice can easily exceed $100,000. It includes staff labor costs, paying rent or a mortgage on the medical facility, insurance (medical malpractice and health insurance), and purchasing an EHR system, furniture, equipment, and other items, says Joe Thomas, senior vice president with SunTrust Private Wealth Management's Medical Specialty Group, a financial advisory firm. Existing debt can impede a physician with little-to-no work or credit history to take on additional debt that may be needed to get a practice off the ground.
As a new physician gets a practice up and running, he will have to spend time building a patient base and addressing the business side of the practice. "Many new physicians feel overwhelmed at the thought of doing this, so they gravitate toward an employed setting," says Travis Singleton, senior vice president of Merritt Hawkins.