5. FINANCIAL MANAGEMENT

compensation to the productivity (as measured by work RVU). This is completed with the use of independent compensation surveys and analyzing expected productivity. The most commonly used “government endorsed” surveys to accomplish this task are: • American Medical Group Association (AMGA)

Medical Group Compensation and Financial

Survey • Medical Group Management Association (MGMA) Physician Compensation and

Production Survey • SullivanCotter and Associates, Inc. (SullivanCotter) Physician Compensation and

Productivity Survey The most common methods of clinical compensation arrangements utilizing work RVU are: 1. Compensation per work RVU: Also known as an “eat what you kill” model. Providers are paid a set dollar conversion rate for each work RVU generated.

Work RVU $/Work RVU Compensation

8,000

$50 $400,000 2. Graduated scale: Under this model, providers are paid dollar conversion rates per work RVU based on a graduated scale.

Work RVU Scale Work RVU $/Work RVU Compensation

0 - 2,666 2,666 $45.00 $119,970 2,667 - 5,333 2,666 $50.00 $133,300 5,334+ 2,666 $55.00 $146,630 APPROXIMATE TOTAL: $400,000 3. Base guarantee plus productivity bonus: Under this model, providers are paid a base guarantee and receive incentive/productivity compensation for every work RVU generated above a predetermined threshold.

Base Salary Threshold Work RVU

$266,650 5,333

8,000 $/Work RVU Bonus Compensation

$50.00 $133,350 $400,000

4.3 Bundled Payments

The Bundled Payments for Care Improvement (BPCI) initiative was developed by the Center for Medicare and Medicaid Innovation (Innovation Center). The Innovation Center was created by the Affordable Care Act to test innovative payment and service delivery models that have the potential to reduce Medicare, Medicaid or Children’s Health Insurance Program (CHIP) expenditures while preserving or enhancing the quality of care for beneficiaries. Provider and hospital expenses are linked to make a single payment for an episode of care with bundled payment models. There are several bundled payment models, including the Oncology Care Model. In this model, oncology practices receive monthly care management fees and are eligible for bonus payments if they lower overall Medicare spending and meet quality goals for episodes of chemotherapy and related care.

4.4 Average Salary

According to the annual compensation report conducted by Medscape, urologists earn $417,000 per year on average, up from $408,000 as reported in 2019. Average incentive bonuses were $64,000, with 46% of respondents achieving that bonus. The most recent data available is for 2020.

4.5 Resources

• American Medical Group Association https://www.amga.org • SullivanCotter https://www.sullivancotter.com • CMS Innovation Center https://innovation.cms.gov • CMS Quality Payment Program https://qpp.cms.gov

This section was authored by Dima Raskolnikov, MD, Jonathan Wingate, MD and Mathew Sorensen, MD. Note from the authors: this text does not constitute professional financial, accounting, legal or any other advice; we recommend consulting a professional if such services are desired. The products referenced below are meant as examples and are not specifically endorsed by the authors or the AUA. The purpose of this section is to provide a framework for you to consider critical aspects of financial management during an important time in your career. It is not meant to be exhaustive. Just as it wouldn’t be possible for you to decide whether academic medicine or private practice is a better fit solely by reading this manual, so too with decisions related to personal finance. Instead, this section is meant to serve as a guide for further reading and discussion. We hope that you find it helpful.

Data suggests that you now earn – or are likely to soon earn – approximately $400,000 annually. What should you do with this money? The right answer involves a combination of the ideas described below, tailored to your specific circumstances, goals and values.

5.1 Emergency Fund

How would you fund living expenses if you lost your job, had a medical emergency, or were unable to see ambulatory patients due to practice restrictions placed during a global pandemic? This is the point of an emergency fund. Before considering saving for retirement or any other long-term goal, set aside six months’ worth of living expenses in an account that you can access quickly and without penalty. The amount you select depends on your other financial needs and risk tolerance. Emergency funds typically take the form of a savings or money market account. Such accounts do not earn significant interest, but that is not their purpose. Instead, emergency funds allow you the flexibility to invest other money in necessarily higher risk ways. For example, you will likely purchase stocks or mutual funds as part of your retirement portfolio. If an emergency struck and you were forced to sell while the market was low to cover living expenses, you will have lost money. This is entirely avoidable. Emergency funds have the added benefit of helping you – and potentially a more risk-averse spouse/partner – sleep more comfortably, irrespective of how your money is otherwise allocated. Do not skip this step.

5.2 Debt

If you have consumer debt such as high-interest credit cards, pay them off immediately and plan on never carrying high-interest consumer debt again. Such debt is usually costly (due to high interest rates), not tax deductible, harmful to your credit rating and, ultimately, the end result of spending more on a monthly basis than your income allows. The transition from residency/fellowship to attending is likely the only time in your career where you will see such a dramatic increase in your income. Using this income to pay off unhealthy debt before increasing your discretionary spending is an important first step toward financial independence. A full discussion of the pros and cons of auto loan and home mortgage debt is beyond the scope of this manual. However, it is important to remember that banks will commonly loan you more money than you should borrow, especially as a high-income earner. So how much should you borrow? A good starting point is to keep your debt-to-income ratio (calculated as the ratio of the total of your monthly loan payments to your gross monthly income) well below 1:3. Keeping a low debt-to-income ratio will, much like an emergency savings fund discussed above, provide a cushion of security in the event an unexpected expensive event occurs. Student loan debt is largely unavoidable. American Association of Medical College (AAMC) data suggest that you may have upwards of $200,000 in education debt. A clear plan for paying this off should be a high priority. Broadly, there are two ways to do this. The first is to seek loan forgiveness. Many borrowers holding federally guaranteed loans are eligible for income-based repayment. If you made small payments on your loans during residency, it was likely through one of these programs. Payments made through such programs while employed by a non-profit institution (e.g., academic medical centers, VA or other public hospitals) for 10 years may qualify you for a federal program known as Public Service Loan Forgiveness (PSLF). After 10 years of payments, the balance of your loans is forgiven. This program has some risk. While it may exist in its current form indefinitely, multiple recent federal budgets have proposed sweeping changes. You may also choose partway through these 10 years to leave for a private employer. However, PSLF could also substantially reduce the amount of debt that you ultimately pay back. Consider a trainee who makes payments during 5-6 years of residency and 1-2 years of fellowship through one of the qualifying federal programs such as Pay As You Earn (PAYE). In a best-case scenario, these payments would be based on a relatively low trainee salary for 8 years and higher attending salary for 2 years. While you could begin making such payments even after training, this will expose a higher salary to the income-based repayment calculation. Strategies exist to mitigate the effects of PSLF changing or ending if you do pursue this program. For example, you could set money aside in a personal “PSLF side fund” while making minimum payments. If the program ends prematurely, you could use this fund to pay off your loans. If your loans are forgiven, you’ll have a lump sum with which to invest. Whatever you choose, becoming an expert on student loan repayment options can save you thousands of dollars if you have large amounts of educational debt. Second, and more reliably, you could just pay off the loans. You may choose to first refinance to secure

a lower interest rate, for which you qualify now that you earn an attending salary. Quickly paying off your loans is one of the only forms of tax-free, guaranteed returns. Some argue that this is unwise because you could earn a higher rate by investing in the market. Why pay off $200,000 in debt at 5% interest if you could earn 10% by investing in stocks? These arguments are mathematically sound but ignore both market and behavioral risk. You will not earn greater than 5% on your money if the market drops, or if you forget to invest and instead buy yourself a new car. The freedom and peace of mind that result from eliminating debt are harder to quantify, but are also valuable. You may ultimately leverage this freedom to change jobs, work fewer hours or otherwise improve your well-being in ways that you might not consider if still heavily in debt.

5.3 Retirement & Investing

Of all your long-term financial goals, retirement is perhaps the most important because it is both inevitable and expensive. How much should you save? The answer is ultimately, “it depends.” Recognize that by virtue of starting your peak earning years later in life than non-medical professionals, you have already fallen far behind. As a general rule, to eventually replace a reasonable fraction of your pre-retirement income, anticipate saving 20% of your gross attending salary each year for retirement alone. Begin this practice as early as possible, ideally during residency with a smaller amount. Not only will this establish a useful habit, but it will also ensure that you receive your employer’s retirement contribution match. This money should preferentially be used for investments within tax-advantaged retirement accounts such as 401(k), 403(b), 457, IRA, Health Savings Account (HSA) and so forth. Each of these accounts has unique advantages that can help maximize the growth of your investments. For example, 401(k) (private, for-profit employers) and 403(b) (nonprofit and government employers) plans allow pre-tax contributions of up to $19,500 (for tax-year 2020). This money grows tax-deferred, enabling you to pay the income tax at the time of distribution (upon retirement at age 59.5 or older), at a rate which is likely to be a lower marginal rate compared to when the funds were initially earned. While uncertainties will always be present (future tax rates, inflation, status of the financial markets, etc.), failure to educate yourself about, or effectively utilize tax-advantaged retirement programs may cost you hundreds of thousands of dollars over the span of your career. The good news is that investing is less complicated than many would have you believe. Once you understand the different types of programs and accounts that are available, all that is left is to purchase a combination of investments (e.g., stocks, bonds, and funds thereof) that match your goals and risk tolerance. Low cost, passively managed index funds such as Total Stock or Total Bond Market index funds are likely the best way to do this for most investors. This is particularly true for those saving for retirement who wish to simplify their portfolios. Target date funds or “lifecycle funds” are low-cost mutual funds that track stock and bond indices, changing the ratio of these assets to decrease risk as you approach retirement (i.e., the target date). If you do nothing more than invest 20% of your salary in such a fund from now on, you will be far ahead of many of your peers in retirement planning. It does not need to be more complicated. By modifying asset allocation, a similar strategy may be used to save for other long-term financial goals such as a home or your children’s college education. Some argue that investing is too complicated for you to do on your own and that you should leave this to a financial professional. There are certainly benefits to this approach. If you are not willing to spend time educating yourself on personal finance and investing, or if the alternative is simply that you would not plan or invest, you will benefit immensely by paying someone else to do this for you. Just as importantly, a financial planner may help protect you from yourself. Whatever you pay in fees could pale in comparison to the losses you sustain if you panic and sell inappropriately during a market downturn. However, recognize that even seemingly small investment management fees can have dramatic effects on your account balance over time. Consider two urologists, both earning $350k per year and saving 20% of their incomes in tax-advantaged retirement accounts. One has educated herself about personal finance and manages this money independently; she pays 0.2% annually in fees for index funds. The second pays 2% annually in fees to a financial planner to invest the money for him. Both portfolios grow at 7% per year. After 30 years, these accounts will hold $6.4M and $4.7M respectively, a difference of $1.7 million dollars, or 30%. What sounds like a small fee results in a very large difference in account balances over time. Moreover, by the time you have educated yourself sufficiently to judge the value of professional advice that you might purchase, you will likely know enough to invest the money yourself. One option to mitigate this effect is to pay a financial planner episodically on an hourly

basis to re-evaluate your investment plan. Spending even $500-$2,000 for such advice could ensure that you are on track without resulting in a substantial drag on your annual investment returns.

5.4 Budgeting

It will be very difficult to meet any of the above goals without keeping a budget. Free or inexpensive software such as Mint (www.mint.com) or You Need A Budget (www.youneedabudget.com) are available online to help you track and plan your spending. You may think that your salary is so high that this is unnecessary, but you are wrong. Consider the countless stories of professional athletes making multiples of your salary who manage to declare bankruptcy. No matter how much you earn, it is always possible to spend more. If this idea is too daunting, start by just tracking your spending. Even this simple task will likely encourage you to save and spend more effectively. A common refrain is to “live like a resident” for a few years after training. If you can manage to avoid growing into your entire attending salary immediately, you will be able to use this money to pay down debt, save for retirement, fund a house down payment or achieve any of the other major financial goals that you have likely been neglecting during residency. The other commonly used adage is to “pay yourself first.” This is the concept that you use automatic deposit/transfer processes to contribute to short, intermediate, and long-term savings and investment accounts. This ensures these accounts are appropriately funded before you have a chance to spend the money on discretionary items which have less long-term value (e.g., restaurants, clothing, recreation, etc.). Living by this mentality helps ensure you meet your longterm goals and simplifies your budget because if followed consistently, the money will have been deposited before it was even available to budget for discretionary use in the first place.

5.5 Insurance

Consider how life, disability and other insurance can impact your financial wellness. Life

Life insurance should be the simplest insurance to buy because it is conceptually simple and for most young urologists, relatively inexpensive: if you die while you hold the policy, the insurance pays your beneficiaries a lump sum. That’s it. A typical policy features a 20 to 30-year term, meaning that the insurance company guarantees the payment over that time. You want this term because 20-30 years from now you will hopefully have saved enough money that your dependents would use that instead of your lost future income to support themselves should you die. If you reach this point of financial independence sooner, cancel the policy. In the meantime, opt for a term policy in the range of $2M - $5M. Another option is to “layer” multiple term policies (e.g., $1.5M 30 year term + $1M 20 year term + $500k 10 year term). This provides the greatest benefit when it is needed most (early in your career when you have little in your investment accounts and, if applicable, your children are likely still financially dependent on you), but saves on cost compared to a single high value, long-term policy.

You should be wary of policies such as “whole life insurance,” which are sold under a variety of confusing names and seek to combine aspects of insurance and investing. They are almost never the best option for either of these purposes and are sold by agents who stand to earn high commissions if they can convince you otherwise. Disability

Consider that you may have a 30-year career ahead of you. Not accounting for inflation or changes in reimbursement structure, this may amount to $10.5M of earning potential over the span of your career ($350k x 30 years). If you currently owned a fragile item worth $10M, would you not insure it? That’s what people without disability insurance are doing. Disability insurance is expensive because people frequently submit claims for these policies. Recall all of the patients that you have seen throughout your training with illness or injuries that restrict their ability to work. Now think of all of the ways that you depend on your health to optimally function as a urological surgeon: you must be able to think rapidly and clearly, have the stamina to stand for several hours at a time, and retain excellent gross and fine motor function. It is not difficult to imagine how a decline in any aspect of your health could restrict your ability to earn a high salary during your peak working years. High-quality disability insurance policies will protect you if this happens. You should look for an own-occupation, specialty-specific, individually owned disability insurance policy.

Purchase this policy as soon as you can afford it – ideally in residency – or run the risk that new medical conditions you develop will be considered pre-existing and thus uninsurable.