Evaluating Job Opportunities: Financial Factors to Consider

Physician turnover was already at a high level before 2020, according to various reports, and the COVID-19 pandemic only exacerbated the issue. Dermatologists are not immune to this trend.

Many factors might motivate dermatologists at all levels of experience to seek a change in employment. Although considerations such as family circumstances, location, and practice conditions can play a role in a doctor’s decision to change jobs, dissatisfaction with their financial situation is often one of the biggest contributors.

With so many elements involved, how does a doctor determine when the numbers work? OJM Group suggested a simple method that dermatologists can use to financially model their net worth in prospective job opportunities. Drilling down, there are secondary financial factors to consider, including state tax rates and benefit plans. Implementing these tactics will enable physicians to more accurately understand job opportunities; make better choices; and, ultimately, be happier at their new job and less likely to leave once they accept it.

MONEY ISN’T EVERYTHING, BUT IT MATTERS
A job’s financial situation is not everything. Like many Americans, some dermatologists will gravitate toward the highest-paying opportunity, only to realize after a few years that a situation with a more desirable lifestyle balance or more suitable location would have been the better fit. It is important to focus on the big picture during a career search.

Often, physicians leave a practice because their income expectations differ from reality. This situation is often worsened by complex compensation formulas, overhead expenses, and partnership costs in some practices in the health care system.

A TOOL EVERY DERMATOLOGIST SHOULD USE
In the business world, financial modeling involves creating a spreadsheet that summarizes a company’s or project’s expenses and earnings and can be used to calculate the impact of a future event or decision. Executives frequently use these tools to guide decisions and estimate stock prices, relying on the current value of future cash flow. Despite these seemingly complex uses, the process is relatively straightforward and may be of value to physicians, who are executives of a sort for their own careers, in their job decision-making.

At its core, financial modeling employs a simple sensitivity analysis. Similar to methods used by professional analysts, this process financially simulates various what-if scenarios. Financial modeling simplifies the complex compensation arrangements often seen in physician employment and identifies large discrepancies in compensation or risk early in a doctor’s job search.

A spreadsheet program such as Microsoft Excel offers an effective tool for developing a financial model. The spreadsheet should have a row for each job opportunity, with columns for each financial factor (salary, range of likely productivity bonuses, reimbursement for continuing education, etc) in each year of employment.

A partnership buy-in amount should also be included in the year it is expected. That figure is a negative income number because cash flow from that year (or over a few years) would be used for the buy-in. Ideally, compared with a nonpartnership employed position, a partnership’s higher income and practice profitability over future years will more than make up the buy-in’s cost.

Another significant buy-in-early/pay-off-later scenario to model might be an ancillary project such as practice real estate, a surgery center, or a medical spa. Ancillaries are often very profitable and can make a significant difference in a physician’s overall compensation.

SECONDARY FINANCIAL FACTORS

Taxes

The impact of state and local taxes should not be ignored. State income tax rates vary widely, from 0% in Florida, New Hampshire, Nevada, Texas, and other states to more than 12% in New York, when state and city taxes are combined, and 13% in California.

Consider 2 positions with identical income prospects in the financial model: One is located in California; the other, in nearby Nevada. Given the difference in state taxes, the bottom-line difference for the physician could be in 6 figures—every year! Compounded with even a conservative growth rate, this could mean millions of dollars of difference over a career.

Benefit Plans

Proper use of benefit plans can be significant for reaching long-term financial and retirement goals. A discussion of qualified retirement plans, and nonqualified plans goes beyond the scope of this article; for a detailed assessment, see the Finance & Practice Management article in the April 2022 issue.

All potential jobs are not equal in terms of the quantity and quality of benefit plans. Moreover, the plans’ long-term financial benefits can be substantial, allowing the dermatologist who has access to superior plans a more comfortable or earlier retirement. Physicians looking at different jobs should examine and understand the benefit plans and attempt to quantify the long-term value of each.

CONCLUSION

Whether they are seeking a first job or a mid-career change, physicians often lack a comprehensive understanding of the potential income and benefits offered by a prospective employer. Although financial factors should never be the top consideration in a career decision, unrealized expectations can lead to discontent and, eventually, turnover.

Financial modeling can help dermatologists simplify the complex compensation arrangements often seen in physician contracts. Analyzing secondary financial elements, such as local taxes and available benefit plans, is worth the time and effort.

Reference

Leventhal R. Is healthcare on the verge of a physician turnover epi- demic?HealthcareInnovation.February24,2021.AccessedMarch24, 2022.https://www.hcinnovationgroup.com/covid-19/news/21211627/ is-healthcare-on-the-verge-of-a-physician-turnover-epidemic

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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice, or as a recommendation of any particular security or strategy. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.