Categories
Physician Finances

Retirement Planning In The Time Of COVID-19

I’m taking a break from rounding in the ICU this afternoon while waiting for 3 of my patients’ COVID-19 test results to come back. And I was trying to think of anything good that has come from the financial melt-down that has occurred over the past month. There is at least one small opportunity that the sudden drop in value of the stock market presents, namely, the opportunity to convert your traditional IRA into a Roth IRA with less negative tax implications.

Physicians are generally not able to contribute directly to a Roth IRA because they have too high of income. However, physicians (or anyone) can contribute to a traditional IRA with after-tax dollars. In a previous post, I outlined why I believe that traditional IRAs are an unwise investment option for most physicians. However, many physicians (and other people) have traditional IRAs that they have accumulated when rolling over a pension plan into an IRA. This often happens when changing employment and leaving one employer’s pension plan to join another plan.

I have been a long-standing proponent of annually contributing to a traditional IRA and then shortly thereafter, moving the money in that traditional IRA into a Roth IRA, a process called a Roth conversion. This is also called the “backdoor Roth”. In the past, the only mechanism for contributing to a Roth IRA was by people who have annual incomes less than $124,000 ($196,000 if filing jointly in 2020) contributing directly to the Roth with pre-tax dollars. However, several years ago, a law governing Roth contributions expired, allowing anyone (regardless of income) to “convert” a traditional IRA into a Roth IRA. This now allows a person making more than $124,000 to contribute to a traditional IRA with post-tax dollars then convert that traditional IRA into a Roth IRA.

The advantage of the Roth IRA is that it grows in value tax-free and then when you take the money out, you don’t have to pay any taxes on it. I believe that the Roth IRA is an important component of a diversified portfolio of retirement investments.

One consequence of converting a traditional IRA into a Roth IRA is that you have to pay regular income tax on increase in value of the traditional IRA at the time of conversion. So, if you originally contributed $2,000 to a traditional IRA and it increases in value to $3,000, then when you convert it to a Roth IRA, you have to pay regular income tax on the appreciation value of $1,000. Other than doing an annual “back door Roth” conversion, there are two times that it is smart to convert a traditional IRA into a Roth IRA: (1) when your income tax rate is low and (2) when the stock market crashes.

As I have stated in previous posts, my philosophy to retirement planning is to be able to have enough retirement savings that when you retire, you can withdraw enough out of your retirement funds to equal your current income. If you are successful with that, then you are not going to be in a lower tax bracket when you retire so option (1) for traditional IRA to Roth IRA conversions will not be possible. The COVID-19 outbreak and its effect on the world’s stock markets makes option (2) now very appealing.

When we changed our physician practice corporation in the early 2000’s, I rolled my former corporation’s pension plan into a traditional IRA. In 2009, the stock market dropped precipitously and I used that as an opportunity to convert about half of my traditional IRA into a Roth, thus minimizing the amount of income tax that I had to pay at the time of conversion. Over the next several years, the stock market regained all of its losses and then continued to grow in value so when I retire and take money out of my Roth IRA, I won’t have to pay any taxes on all of that increase in IRA value.

Over the past month, the stock market has fallen by about a third of its value. Consequently, most people’s traditional IRAs have fallen to their lowest value in many years. As a physician, I know that epidemics eventually pass and COVID-19 will eventually go the way of all other previous human epidemics. When that happens, the economy will get back into gear and the stock market will rise again. Therefore, this may be one of the best times in years to convert a traditional IRA into a Roth since you will pay considerably less in income tax on the conversion now than you would pay on withdrawals from the IRA in retirement.

One small silver lining an a sky otherwise full of dark gray COVID-19 clouds

March 21, 2020

Categories
Outpatient Practice Physician Finances

Should Doctors Bill For Phone Calls?

Beginning in January 2019, the Centers for Medicare and Medicaid Services (CMS) rolled out G2012 – a new CPT code for “Brief communication technology-based service (virtual check-in)”. This code can be used for patient phone calls as well as electronic medical record patient portal contacts initiated by a patient. For the first time, doctors can charge for patient phone calls – but should they?

The details behind G2012 are that the physician cannot have seen the patient for a regular billable encounter for 7 days prior to the phone/portal encounter or for 24 hours after the phone/portal encounter. The medical discussion should be between 5 – 10 minutes and has to be between the patient and the doctor/NP/PA and not the office staff. The patient has to give verbal consent acknowledging that the telephone/portal visit will be billed. The patient must have been seen by the physician or a physician in the physician’s group within the past 3 years. This CPT code is compensated at 0.41 RVUs ($14.78 for Medicare).

When Medicare released its plans to roll out G2012 a year ago, physicians all over the country breathed a sigh of relief and said “…finally!”. Every physician who is responsible for direct patient care in the outpatient setting knows the burden of patient phone calls. On a typical Monday, I have 15-20 phone messages in my electronic medical record “in basket”. On a Monday after a holiday weekend, that number can increase to 25-30 and it is not uncommon for me to spend 1-2 hours on those Mondays just returning phone calls. It has been estimated that the average primary care practice gets 21 calls per day for every 1,000 patients in the practice.

There are additional CPT codes that are designated for phone calls of various lengths of time for physicians (99441, 99442, and 99443) as well as for advanced practice providers such as NPs or PAs (98966, 98967, and 98968). However, Medicare does not currently reimburse these codes so they are generally not used unless a commercial insurance company recognizes them. Similarly, there is a CPT code for email responses to patients for physicians (99444) and advanced practice providers (98969) but these are also not currently reimbursed by Medicare.

Some phone calls are entirely legitimate, for example, a person who gets an asthma flare when traveling out of town and needs advice and a new inhaler. But some phone calls are simply because a patient does not want to come into the office or a patient wants to avoid an office visit co-pay. In these situations, the physician is providing free healthcare to the patient. And that equates to uncompensated physician time as well as malpractice vulnerability. There are pros and cons to billing for phone calls.

Pros

  1. It can reduce overall healthcare costs. The office overhead expense associated with a face-to-face office visit can be considerable. As opposed to a regular office visit, there is no need for registration staff, nursing staff, office space use, and checkout staff with a phone call.
  2. It allows more flexible use of the physician’s time. The doctor can return that call at a time when he/she has a few free minutes rather than committing the doctor to a fixed appointment time for an office visit.
  3. It is more convenient for the patient. Having a medical problem managed by a phone call can obviate the cost of travel to the doctor’s office and the time involved in getting to and from the doctor’s office. For the patient who is a student or who is working, it also obviates the need to take time away from classes or time off work to go to the doctor’s office.
  4. It improves doctor satisfaction. Physicians have provided free medical care over the phone ever since phones came into existence. Knowing that you are getting paid something (even if not very much) can eliminate that sense of being taken advantage of that you otherwise would have. From my perspective, this is one of the most important reasons to bill for patient phone calls.
  5. It can create a barrier for patients who abuse the system. Every physician who practices outpatient medicine has had the last minute cancelation by a patient who then calls the office an hour later asking if the doctor can call them back and manage by phone the medical problem that they were supposed to come in for. The physician still has to pay the overhead cost of that no-show on the schedule in terms of the nurse’s salary, office rent, the receptionist’s salary, and the the utility bills not to mention the physician’s own salary. Every physician also has the patient who sends lengthy messages via the EMR patient portal on a daily basis or calls multiple times a week. The awareness that the patient (or at least their insurance) will be billed for those calls can reduce abuse.
  6. It encourages use of email communications through patient portals. Phone calls create more overhead expense than emails. There is the time the office staff takes to answer and transcribe patient messages, the time it takes someone to answer the phone when the physician calls back, the time it takes for the patient to actually get on the phone, the time it takes the physician to document the call in the medical record, etc. An email communication eliminates much of that overhead cost of office staff and physician time. Furthermore, when the patient has the doctor on the phone (as opposed to an email message), it often results in additional medical questions that follow the comment: “Oh, and while I have you on the phone…” and this adds additional time as well as complexity of medical decision making. I can answer 3 patient emails in the time it takes me to return 1 patient phone call.

Cons

  1. The patient has a co-pay. Although the reality is that at $2.50, it is a bargain. Nevertheless, for patients used to getting free medical advice over the phone, the co-pay can be surprising.
  2. The patient has to give verbal permission/acknowledgement that the phone call will be billed. The easiest way to do this is to incorporate scripting into the nurse or office staff who initially answers the phone and starts the phone message.
  3. Phone calls do not pay much. The cost of your revenue cycle department to submit and collect the phone call bill may be nearly the $14.78 you will be paid by Medicare for the phone call.
  4. It is not usually covered by commercial insurance. Usually, it takes commercial insurance companies a year or two to catch up to new CPT codes introduced by Medicare. Currently, few insurance companies cover phone calls so the patient may be charged the full amount. This can result in patient dissatisfaction (although it can be a deterrent to patients who abuse phone availability).
  5. The phone call must be for analysis or decision making that requires the physician. In other words, you should not be billing for a patient phone call that is simply to request to reschedule an upcoming office visit. It is the physician’s time that must be > 5 minutes and not the nurse’s time or the office staff’s time.
  6. The phone call must be at least 5 minutes. It only takes 1-2 minutes to send in a prescription refill and so it would be difficult to justify billing for a phone call simply to request a refill. However, for a patient with a COPD exacerbation, by the time the doctor reviews the patient’s past history in the chart, takes an interval history over the phone, checks for allergies, reviews the current medication list for potential drug interactions, sends a prescription for an antibiotic and prednisone to the pharmacy, and then documents the telephone encounter, it almost always takes at least 5 minutes. Be sure that the time spent on the encounter is documented in the medical record. Because Medicare auditors can audit time stamps in the electronic medical record, the amount of time between the physician initially opening the telephone encounter in the EMR until the time the physician closes that encounter must be > 5 minutes.
  7. It creates a disincentive for the patient to come into the office. Although it is true that you can practice a lot of medicine over the phone or over the internet, sometimes a physical examination is essential, even if just to get an accurate set of vital signs. Moreover, it becomes more difficult to arrange a needed EKG, a pulmonary function test, a chest x=ray, or blood tests when you are managing a patient over the phone as opposed to the patient being in the office where those tests are readily available in the office. If patients believes that they can get just as good of medical care with a phone call as they can by a face-to-face office visit, then they may stop coming into the office. Not only can this have the potential to jeopardize high quality care, but since the reimbursement for telephone calls is so low compared to an office visit, physicians who do nothing but phone calls all day long will soon go out of business.

When used appropriately, billing for phone calls is a win-win-win. The patient wins by getting their medical problem addressed without having to take the time involved in going to the doctor’s office or the emergency room. The insurance company wins because that $14.78 phone call can often avoid a much more expensive trip to the ER or an urgent care facility. The doctor wins because she/he now gets paid at least something with the psychological benefit to the doctor being worth considerably more than the financial benefit.

December 1, 2019

Categories
Physician Finances

Why Doctors Should Be Really, Really Afraid Of Inflation

We have been living in an era of incredibly low inflation rates. In fact, for the past decade, the inflation rate has been the lowest in U.S. history since the 1930’s and has averaged only 1.77% per year since 2010. But economic history teaches us that inflation rates will inevitably rise in the future and when they do, that rise will be especially harmful to physicians.

In the year that I started medical school, 1980, the inflation rate was an astounding 13.5%! Along with high inflation came high interest rates – in April 1980, the average 30-year fixed mortgage rate was more than 16%. Inflation means that the cost of goods and services goes up. Inflation is often measured by the consumer price index, which is derived from the cost of 8,018 items weighted for the amount of each of those items purchased by consumers the previous month. Inflation is heterogeneous in that the cost of some items will rise more than other items thus affecting some groups of people differently. For example, if the cost of gasoline preferentially increases, then the independent long-haul trucker will be affected more than the person who works from home and does not drive a car. Alternatively, if the cost of food preferentially increases, then the family with 4 teenagers will be affected more than the empty nesters who live next door.

Overall, when the cost of goods and services increase, the average worker’s wage generally increases in tandem. The group that gets hurt the worst with inflation is people with a fixed income, for example, retirees living off of pensions or Social Security. But because of the the way healthcare financing works in the United States, doctors are also ultimately on a fixed income.

The reason is that about 64% of U.S. healthcare spending comes from governmental sources – mainly Medicare, Medicaid, the Veterans Administration, and CHIP (Children’s Health Insurance Program). Physician payments for most of these governmental sources are tied to the Medicare Conversion Factor which is the amount of money that doctors get paid per RVU (relative value unit). When inflation rises, the Medicare Conversion Factor does not keep up. In the graph, we can see the effect of inflation compared to the change in the Medicare Conversion Factor since 1998. So, for example, in 1998, the conversion factor was $36.69/RVU and remained relatively stagnant for the next 20 years so that by 2019, the conversion factor was $36.04/RVU. On the other hand, goods and services that cost $36.69 in 1998 cost $58.46 in 2019 due to increases in the consumer price index (inflation). In other words, doctors get paid about the same to do a given medical service in 2019 as they did in 1998 but the cost of all of the goods and services that doctors purchase has increased by 62%!

Despite the static conversion factor, doctor’s incomes have increased since 1998 and kept up with inflation. There are three main reasons for this. (1) There has been a shift toward optimizing physician work efficiency by improving office workflows and improving hospital throughput; this has resulted in physicians being able to increase patient volumes. (2) Computerization of medical practice has also improved efficiency and physician work output; this has also resulted in increased patient volumes per workday. (3) There has been a shift from physicians being self-employed to being hospital-employed with hospitals now subsidizing physician salaries.

These three things have allowed physician income to rise but will they be able to keep up with inflation in the future? Most physicians would say that they are currently at the limit of the number of outpatients that they can see in a day. Most hospitalists would say that they are at the limit of the number of patients they can take care of during a hospital shift. Most hospitals have streamlined operating room throughput so that surgeons would say that they cannot do many more surgical operations on a given day. In other words, gains from increased operational efficiency of medical practice cannot be further increased in the future. And that means that in the future, cost of living increases in physician incomes will have to come from greater subsidization rather than greater revenue from clinical care.

Inevitably, with subsidization comes loss of autonomy. And if/when the inflation rate increases, the degree of subsidization will likely increase since there is no reason to expect that the Medicare Conversion Factor is going to increase based on the precedent of the last 20 years. Fortunately, there are a few things physicians can do to protect themselves from inflation:

  1. Invest. Except for the decade of 2000-2009 (the “great recession”), the increased value of stocks has outpaced the rate of inflation every decade for the past century. Although there can be considerable year-to-year fluctuations in stock market returns compared to the consumer price index, over time, the stock market always beats inflation. Given that physicians have relatively high incomes compared to the U.S. average worker, one of the best hedges against inflation for physicians is to invest and invest early in one’s career.
  2. Have a good electronic medical record and use it efficiently. It is said that “A cheap tool is an expensive tool”, essentially meaning that you get what you pay for and electronic medical records (EMRs) are no exception. An inexpensive EMR that does not improve physician efficiency will result in lower net physician income over time compared to an expensive EMR that allows physicians to perform documentation in less time. Moreover, the EMR is evolving from a computerized patient documentation system to a computerized patient management system by incorporating decision-making algorithms and artificial intelligence into the EMR program. Therefore, your EMR should not just make your documentation more efficient, it needs to make your patient management more efficient.
  3. Incorporate industrial engineering principles into office practice. A high-functioning factory is one where there is a minimum of unnecessary motions made by the workers, workers are properly trained to perform their assigned tasks, workers have the right tools they need to perform each task, and each employee works at the top of their skillset. By optimizing office practice efficiency, physicians can reduce overhead expenses, reduce billing costs, improve patient throughput, and reduce patients no-shows & cancelations. Together, these process improvements can reduce the amount of each RVU that goes towards overhead expense and increase the amount that goes toward physician income.
  4. Develop mutually beneficial financial relationships with hospitals. Currently, there are more physicians employed by hospitals than in physician-owned practices. This is even more pronounced for younger physicians – 70% of doctors under age 40 are employed by hospitals and this portends a future where few physicians will be self-employed. Physician-hospital partnerships that result in lower length-of-stay, lower readmission rates, lower pharmacy charges, and higher patient satisfaction will be more mutually financially lucrative in the long run – a hospital with a larger positive financial margin can afford to subsidize its physicians more than a hospital with a lower financial margin.
  5. Advocate for contractionary monetary policy when economically indicated. When consumers have too much money to spend, inflation occurs. A government can reduce spending by enacting contractionary monetary policy that takes cash out of circulation and moves that cash back to the government and banks. There are essentially three tools a government has to do this: (1) Increase interest rates – this is primarily done by interest rate decisions made by the Federal Reserve Board. (2) Increase the reserve requirements which is the amount of money banks are required to maintain on reserve when making loans – this is also determined by the Federal Reserve Board. (3) Reduce money supply by increasing government bond rates and by increasing income tax rates. Most Americans have a visceral distain for higher interest rates and higher income taxes but sometimes these are necessary to rein in out of control inflation.

It has been nearly 30 years since the annual inflation rate exceeded 4% and consequently most physicians have never experienced the effect of high inflation rates. When it comes to inflation in the future, the saying “Hope for the best but prepare for the worst” is good advice for physicians. In the event of unexpectedly high inflation, physicians would likely see a decline in their relative income compared to other professionals.

November 24, 2019

Categories
Academic Medicine Physician Finances

Optimizing RVU Production In An Academic Medicine Practice

The work RVU is the current medium of exchange in clinical practice for all physicians, both private and academic. And as the numbers of physicians employed by academic medical centers swells at the same time as the percentage of these physicians’ time dedicated to clinical practice grows, academic physicians in particular are under increasing pressure to maximize their RVU output. Consequently, many academic physicians find themselves struggling to produce their required numbers of RVUs. Historically, private practices were built around efficient RVU productivity but academic practices were not and consequently, the academic inpatient and outpatient practice environment and practice culture is not conducive to RVU maximization. Failure to meet annual RVU targets can result in loss of bonuses, salary reduction, career disillusionment, and general unhappiness. On the other hand, consistently meeting or exceeding RVU targets can provide job security and the freedom to chart one’s own career path in academic medicine. Here are some of the ways that academic physicians can optimize their RVU production.

In The Inpatient Setting:

  1. Don’t forget to submit your bill for your clinical services. This seems so simple but a few years ago, I did an analysis at our own hospital and found that 7% of inpatient services and procedures that were documented in the electronic medical record went unbilled. This was not because of a conspiracy by the physicians, it was simply because they forgot to enter a charge for a given day’s clinical work. It is easy to forget to submit a bill (often called the “charge capture” application in an electronic medical record). If you are busy trying to save a patient’s life, the lowest priority in your day is to put in a bill for that service. I consider myself pretty compulsive when it comes to billing and even I found times when I forgot to enter a bill for a consult, a return hospital visit, or a bedside procedure. Two strategies can help minimize forgotten charges: (1) work with your electronic medical record to create charge entry prompts when completing progress notes or procedure notes to make entering those charges easier and (2) develop a personal strategy to ensure that all services are billed each day – I print out a rounding list of all of my patients each day and note my E/M service & procedure charge on each patient as I enter charges; at the end of the day, I can take a quick look at the printout to confirm that every patient had a charge entered.
  2. Don’t avoid submitting a bill for your service. A number of years ago, one of our very best clinical educators stopped signing resident inpatient notes and inpatient charges. The excuse was that there just wasn’t enough time in the work day and it got in the way of bedside teaching. No note meant no bill for service. No bill meant no income. No income meant no job.
  3. Don’t under bill. Most large academic medical practices do billing audits by billing compliance personnel. These audits are largely defensive, designed to prevent over billing. This is because large medical practices (and particularly academic practices) are subject to billing audits by Medicare or other insurance companies. The bias from compliance audits is that it is better to err on the side of under billing than over billing. Over billing jeopardizes the organization but under billing jeopardizes the individual physician by making him/her do more work than is necessary to meet annual wRVU targets.
  4. In academic medicine, RVU production is like running a series of sprints but in private practice RVU production is like running a marathon. The academic physician has weeks of being really busy interspersed with weeks of “academic time” with relatively little clinical activity. This is particularly true for internal medicine specialties that provide inpatient care where inpatient service blocks can pack a lot of RVUs into a short period of time. In private practice, RVU productivity is more consistent from one week to the next. Over the course of a year, the total wRVUs by an academic physician will be close to or slightly less than a private practice physician in the same specialty. The academic physician has to prepare for the fact that on the weeks that he/she is on service, he/she is likely going to be generating more wRVUs than a private practice physician but when off service, the wRVUs will drop.
  5. Maintain an adequate consult census size. In order to generate a typical academic internal medicine specialty wRVU target, the physician has to have enough patients on the consult census to generate those wRVUs. The inpatient consult service will have a mixture of new patient consults and return visits and this typically works out to about 1.75 wRVUs per daily encounter. If that physician works every day of the week for 46 weeks a year and does 1 weekend coverage per month, then the physician needs to keep an average daily consult census of about 13 patients. However, if (as is more often the case), that physician has some academic time when he/she is writing papers, teaching classes, preparing lectures, and doing research, then when covering an inpatient consult service, he/she has to have a considerably higher daily consult census in order to generate the proper target of wRVUs to make up for the lack of wRVUs during academic time. So, if the physician wants 5 months of academic time (“release time”) per year, then when on the consult service, that physician needs to maintain a daily census of about 25 patients. There is a limit to how many inpatients a consultant can see per day – there will be times when, by necessity, the consult census gets up to around 35-40. This size of inpatient census cannot be sustained for very long because after a few days of this high of a census, it is too easy to start missing things like key changes in patients’ physical exams, key lab tests, conversion of IV to PO medications, etc.
  6. A consult is a gift. Historically, academic physicians often tried to keep their inpatient census down as low as possible and often tried to dissuade primary services from getting consults. The successful consultant will express gratitude for all consults, regardless of when they come in. So, if you get a 4:00 PM consult, you should not be throwing a tantrum, you should be sending the referring physician a fruit basket at Christmas. Actively avoiding consults results in career death by wRVU deficiency.
  7. There should be no such thing as a curbside consult. The curbside consult is when an admitting physician (or more likely a resident) asks an “off-the-record” clinical question of a consultant. There is no entry into the medical record by the consultant and there is no bill generated. If a consultant’s expert opinion is sought, that consultant should be paid for it. I was once an expert witness in defense of a university medical center. One of the residents had called a pathologist to ask an opinion about an inpatient case and made the mistake of documenting that conversation (and the pathologist’s name) in the medical record. The pathologist was named as a co-defendant in the malpractice suit. Even an off the record opinion can result in legal liability so you should bill for your expertise and opinion.
  8. Don’t sign-off too quickly. For many consulting physicians in academic practice, a major goal of the workday is getting the consult census list shortened as much as possible. Consult follow-up visits are beneficial to patient and the primary service because the consultant’s expertise can be applied to new test results and changes in the patient’s condition. This can reduce inpatient hospital length of stay. Those follow up inpatient encounters do not pay as much as initial consult encounters but they often take very little time and on a per-hour basis can generate more RVUs per hour than initial consults. Most initial inpatient consults require at least 2-3 follow-up visits and many will require daily follow-up visits until the patient is discharged. In academic practice, there is a strong tradition of being a “one and done” when it comes to consults. For a consultant, those follow-up visits take far less time than a follow-up visit by the admitting service (hospitalist, etc.) so you can perform a lot of follow-up visits in an hour. I believe that this is the #1 low-hanging fruit in academic medicine for increased wRVU generation.
  9. Your goal should be to generate an yearly average of > 2.5 work RVUs per hour. For a pulmonologist, such as myself, in order to generate your salary, you should spend 24 minutes or less per work RVU, when averaged over the course of a full year (assuming a 55 hour work week and working 46 weeks a year). In reality, no physician does 55 straight hours a week of purely clinical care, especially in academic practice. Therefore, during the time that you are actually taking care of patients, you need to generate more like 4-5 wRVUs per hour. If it is taking you an hour to place a central line (1.75 wRVUs), then you are losing money.
  10. Mundane tasks generate a lot of wRVUs but can melt your brain. EKGs and pulmonary function tests are commonly performed in large medical centers. On an individual basis, neither generates very many work RVUs. However, they take very little time to interpret and document and consequently, the cardiologist or pulmonologist can generate huge numbers of wRVUs very quickly. The problem is that reading PFTs and EKGs is boring and are often seen as an unpleasant necessity of specialty practice. My brain would melt if the only thing I did all day was read PFTs but by reading them for an hour or two a week, I can generate enough wRVUs to free me up to do the uncompensated things that I really like to do.
  11. You can often generate more RVUs on a weekend than you can on a weekday. Weekdays in the hospital are full of non-clinical stuff: meetings, phone calls, emails, grand rounds, etc. On the weekend, those non-clinical activities largely do not exist, leaving more hours in the workday to see patients on a consult service. For many physicians, the goal for a Saturday or Sunday is to get out of the hospital as early as possible, preferably before noon. As a consequence, there is a different level of care provided on weekends: patients are often not seen as regularly and tests/procedures are often put off until Monday. This is often reflected in the “weekend checkout list” when the doctor covering on the weekday hands off the consult service to the doctor covering on the weekend. I have my own translation of the weekend checkout list.
  12. Make your EMR work for you. Investing a little time developing disease-specific note templates, order sets, and order preference lists can pay enormous long-term benefits by creating time-saving shortcuts in your electronic medical record charting. I have different new consult templates for the inpatient conditions that I most commonly encounter: COPD exacerbations, pneumonia, asthma exacerbations, abnormal chest x-ray, pulmonary embolism, etc. I incorporate my own self-designed “smart lists” into the physical exam portion of my notes that default to the expected findings; for example, for an asthma consult note, the lung exam smart list defaults to “diffuse wheezing” whereas the pulmonary embolism consult lung exam smart list defaults to “normal breath sounds bilaterally”. This allows me to rapidly click through the physical exam and saves me precious keystrokes when creating my consult note. Copying and pasting can also shorten your documentation time but it can be hazardous if you are copying too much data from a previous day’s progress note because of the danger of importing out-of-date information (like vital signs, lab results, NPO status, etc.). By using templates for notes that automatically import new data into the daily note, you can avoid this. I limit my copying/pasting to just my “impression and plan” list so that I can remember what problems I am actively following and what my previous day’s recommendations were – I then edit the impression and plan as appropriate.
  13. Medicare’s gift to pulmonologists is CPT code 94003. As a pulmonologist making inpatient rounds, particularly in a long-term acute care hospital (LTACH), I often see 5-10 patients a day who are on a ventilator and my primary role is ventilator management. CPT code 99003 saves me many minutes of unnecessary documentation keystrokes every day. The advantage of the ventilator management codes is that they require very little documentation – just the current ventilator settings and your plan for any ventilator changes. They are not regular E/M codes but instead are procedure codes; therefore, there is no requirement for a certain number of physical exam points, history elements or complexity of decision-making. Normally, when seeing a new ventilator management patient, for me the decision is between billing an initial day ventilator management code (99002) or a level 2 or 3 new inpatient E/M code. In this situation, it is usually better to bill the E/M code and pay the time cost of the additional documentation. However, for the subsequent visit ventilator management charge, it is generally a decision about whether to bill a level 1 or level 2 subsequent visit E/M or the 94003 ventilator management charge. Because the wRVUs associated with a level 2 subsequent inpatient visit E/M and a subsequent ventilator management code are about the same, you are better off using the ventilator management code and reducing your progress note from one page to one or two sentences.
  14. Organize your rounding strategically. As a pulmonologist, I start off my morning looking at any new x-rays and chest CT scans to see which patients need a bronchoscopy. That way, I can get the bronchoscopy team mobilized early and ensure that the patient is made NPO before the breakfast trays arrive. For a cardiologist, that might be checking to see which chest pain admissions need a stress test or which heart failure admissions need a cardiac echo. For an infectious disease consultant, it may mean checking to see which patients need a new CT scan or MRI to guide therapy. I will pre-chart the outline of my progress note before I see a patient so that I know what new information I need to know about when I am talking to that patient and what problems I am actively following. I then try to complete the inpatient encounter note as soon after I see the patient as possible so that I don’t forget about important data. 
  15. You will get more efficient producing RVUs with age. There is a Starling curve of physician productivity. It takes about 7 years after finishing residency or fellowship to get proficient in getting clinical work done. Not only do physicians continue to learn new knowledge but they get more efficient in getting their daily work done with everything from history taking to progress note writing. For most physicians, productivity peaks in their mid-50’s. After that, they often start dialing back the amount of time they spend in clinical practice.

In The Outpatient Setting:

  1. Pre-chart your patient encounters. Each outpatient encounter will require a certain amount of time in the patient exam room and a certain amount of time outside of the exam room. You can either finish your charting at the end of the day, after the patient leaves or you can do that additional charting before the patient arrives in the clinic. Either way, it will be the same amount of time – either before clinic or after clinic. But by pre-charting and preparing for the patient’s visit, you can often shorten the amount of time spent during actual clinic hours – this can free you up to spend more time communicating with individual patients and allow you to see more patients in a given period of time.
  2. Utilize CPT code 99358. This code is for “prolonged service without patient contact”. It requires documentation that you spent at least 31 minutes doing the service and I primarily use it (1) when reviewing a lot of medical records in advance of a new outpatient consult or (2) after an initial consult when I receive a lot of requested records and radiographic images. In my own practice, most new outpatients come with lots of chest x-ray & CT images that I need to review and interpret, office notes that I need to review, lab results I need to review, and pulmonary function tests that I need to review and interpret. About half of my new patients have > 31 minutes of records to be reviewed and documented. This CPT code is worth 2.10 wRVUs and when combined with a level 5 new outpatient visit (3.17 wRVUs), you can generate a whopping 5.27 wRVUs (7.91 total RVUs) for that visit. I use this code 2-3 times a week. Also, if that new patient does not show up, I still am able to generate some wRVUs for my efforts.
  3. Utilize the other CPT codes that you forgot to bill. The common ones are 99497 (advanced care planning, 30 minutes: 1.50 wRVUs), 99406 (smoking cessation 3-10 minutes: 0.24 wRVUs), 99495 (transition care management, moderate complexity: 2.11 wRVUs), and 99354 (prolonged services > 30 minutes: 2.33 wRVUs). I wrote about these and other often-overlooked CPT codes in a previous post.
  4. Cultivate a referral base. For specialists, new patients can come from self-referrals, emergency department referrals, or physician referrals. Self-referrals and ER referrals are notorious for being no-shows and for having no insurance (or having Medicaid). You are better off filling your schedule with referrals from primary care providers and other specialists because those patients are more likely to show up for their scheduled appointment and generally constitute a better payer mix. The best way to cultivate those referrals is by human contact, either introducing yourself in person or by the occasional phone call. Those referral physicians will remember your name the next time they need a consult if they have shaken your hand or heard your voice. This is especially true for nurse practitioner or physician assistant primary care practices – NPs and PAs don’t have the same opportunities to network with specialists at medical staff meetings, the hospital’s physician lounge, or CME events. A phone call to a primary care NP can endear you to him/her for life. Referral letters are also a good way to cultivate referrals. Each referral letter is an advertisement opportunity for your practice: a poorly constructed letter that consists of 4 pages of electronic medical record documentation will create animosity but a 1-paragraph readable note in prose form will create goodwill.
  5. Make the outpatient EMR work for you. Reducing keystrokes saves you time that you can spend seeing more patients and generating more wRVUs. Just as in the inpatient setting, by creating note templates for common conditions that you use, you can reduce your documentation time; in my pulmonary practice, I have different templates for COPD, interstitial lung disease, asthma, abnormal x-ray, and bronchiectasis office notes. Pre-designed order preferences and smart lists can streamline your practice. Outpatient EMR optimization is a huge topic and I’ll devote a post just to this in the future.
  6. Schedule your patients strategically. I see many academic physicians schedule 20 or 30 minute return visits. By pre-charting those visits, you should be able to cut that return visit time down. I schedule my return visits every 15 minutes. In the long run, this can increase your wRVU output by 33% compared to 20 minute return visits. The increase in net revenue can be even greater because the overhead expense of 4 patients per hour is not very different than 3 patients per hour and that means that after you pay off the base clinic overhead (rent, nurse salaries, etc.), the physician ends up keeping more of the total revenue for his/her own salary.
  7. Convert patient phone calls into wRVUs. There are two ways to do this: get the patient into the office or use the new CPT code for telephone/EMR encounters. CPT code G2012 is for phone or EMR patient encounters that last 5-10 minutes for patients that are not seen for 7 days before or 24 hours after the phone/EMR encounter. It pays 0.25 wRVUs. The other strategy is to get those patients into the office – either at the end of the day or to fill in holes in the office schedule created by late cancelations. Alternatively, keep a open 15 or 30 minutes at the end of the day for add-on sick visits. I prescribe way too much steroids/antibiotics over the phone for COPD exacerbations, etc. that could at least be billed as a G2012.
  8. Be sure that you have the right number of exam rooms. Exam room space in most academic practices is both costly and scarce. Often, a physician will get 2 exam rooms so that the nurses can be rooming one patient while the physician is doing the encounter in the other room. But some specialties need 3 or 4 rooms per physician to create optimal efficiency. Getting the right number of exam rooms to generate the most RVUs without creating too much overhead clinic expense can be challenging and needs to be individualized to each physician based on their specialty, efficiency, extent of point of care testing, etc.
  9. Use the entire day.  I often see physicians start their morning schedule at 9:00 even though the nurses and registration staff all arrive at 7:30. Similarly, I see physicians schedule their last patient at 3:30 or 4:00 even though the staff are paid to be there until 5:30. Time = wRVUs. Be sure to fill the entire day’s clinic time with patients.
  10. Double book strategically. In my practice, there are almost always late cancelations and no-shows. By double booking a couple of slots in expectation of those cancelations and no-shows, you can ensure that the schedule stays full. I often see physicians double book at the beginning of their schedule – I think this is hazardous because if both patients show up, then the physician is behind the schedule for hours, creating exasperation for the physician and dissatisfaction for the patients. I think you are better off double booking a slot in the middle of the morning (or afternoon) and at the end of the day. this is because there are inevitably patients who show up 30 or 45 minutes early for their appointments so if there is a late cancelation, you can slip an early arriver into that slot, thus creating an opening in the middle of the afternoon (or morning) or at the end of the day that the double booked patient can fill.
  11. Make up canceled clinics. There should not be an expectation for making up clinics canceled for vacations and scheduled CME time off. However, in academic practice, there are always things that come up that conflict with the regular clinic times: academic retreats, medical staff meetings, visiting lecturers, new faculty candidate interviews, medical student lectures, etc. These activities fall under “academic time” (release time) and when those conflict with regular clinic time, necessitating canceling that afternoon’s clinic, then a make-up clinic should be scheduled. If your academic time temporarily displaces your usual clinic time then you should have an equal displacement of your usual academic time by make-up clinic time in order to keep your total weekly academic:clinic time ratio constant.
  12. Do point of care testing. For me, this means having an office spirometer (0.17 wRVUs per test). For others, it may mean an INR machine, an EKG machine, or a hemoglobin A1C machine.  In order to determine if you need a piece of equipment to do point of care outpatient testing, you have to do a pro forma that compares the cost of the equipment to the estimated income generated by that piece of equipment. It takes about 44 spirometry tests to pay for the cost of a spirometer, after that, all of the income generated by spirometry is profit.
  13. Partner with advanced practice providers. Everyone wants an NP/PA/LISW/pharmacist in order to make their practice more efficient and generate more wRVUs. But everyone also wants someone else to pay for that NP/PA/LISW/pharmacist. In a healthy clinical environment, the physician should work synergistically with advanced practice providers so that the total RVU productivity is greater than the sum of what that physician & advanced practice provider could generate operating individually. Examples are a physician assistant who does the post-op office visits so that the surgeon can do more surgeries or a nurse practitioner who sees routine follow-up heart failure visits so that the cardiologist can see more new patient consults that in turn lead to more cardiac stress tests and echos.

June 8, 2019

Categories
Outpatient Practice Physician Finances

What Doctors Need To Know About Apple Watch EKG

The computer engineering geniuses at Apple have done it again. They’ve created yet another device that I’m probably going to have to buy. The new Apple Watch (series 4) has the ability for anyone to monitor their EKG (sort of). But what are we as physicians going to do with this data? Most electronic medical records permit patients to upload images to their patient portals for their physicians to have access to. Inevitably, some patients will overuse this system – some physicians are already drowning in dozens of Apple Watch rhythm strips being submitted by a single patient. But even for the patient who sends in a single suspicious rhythm strip, if the physician is going to make a clinical decision based on the strip, what are the implications? So, this presents several questions for physicians.

What is it?

The Apple Watch 4 can monitor the heart rhythm in two ways. First, it can measure the regularity of the heart beat by essentially taking the patient’s pulse; this can be reported as regular or irregular. Second, it can measure a single lead EKG reading and it is this latter feature that is really innovative. All EKGs are done by positioning 2 electrodes on different parts of the body and then measuring the electrical signal between those electrodes. A full EKG uses 12 electrodes and produces 12 different wave forms, or leads. The first three of these leads are the limb leads I – III. Lead I measures the signal between the left arm and right arm. Lead II is between the left leg and right arm. Lead III is between the left leg and left arm. The problem with a watch is that an electrode sensor on the back of the watch only has contact with one arm but by placing a second electrode sensor on the knob of the watch, a person can touch that second electrode with a finger from the other arm, thus generating a lead I EKG tracing by having an electrode in contact with both the left and the right arms simultaneously.

What can it tell you?

Since the Apple Watch can only generate a single lead EKG, there are limitations about the amount of information it can provide. For example, you cannot diagnose a myocardial infarction from only one lead (you need all 12). The main information that the lead I tracing will give you is whether the patient is in sinus rhythm or atrial fibrillation. Apple claims that the Apple Watch is 98.3% sensitive and 99.6% specific for classifying atrial fibrillation. However, 12.2% of rhythms could not be classified by the Apple Watch EKG app. Although Apple only mentions atrial fibrillation on its marketing materials for the Apple Watch 4, any physician who looks at telemetry monitor strips in the hospital knows that there are other important rhythm abnormalities that can be identified from a single lead EKG tracing.

What should you do if the patient uploads a rhythm strip?

Although we all get trained in EKG interpretation in medical school, most physicians are not credentialed to read 12-lead EKGs. In most hospitals, physicians must apply for hospital privileges to interpret EKGs and generally, this will be limited to cardiologists; in smaller hospitals, it may be a general internist who has EKG interpretation privileges. Reading an Apple Watch rhythm strip is considerably less complicated than reading a full 12-lead EKG but nevertheless, physicians should know their own limits as to whether they can confidently identify atrial fibrillation (or some other abnormal rhythm) by a rhythm strip. So, for example, if you are a podiatrist or dermatologist and do not normally look at heart rhythm strips, you may want to tell the patient who uploads an Apple Watch rhythm strip to your electronic medical record that EKG interpretation is not part of your normal practice and that they should check with one of their other physicians. However, most primary care physicians are trained in the recognition of atrial fibrillation.

Can you bill for review of the rhythm strip?

The short answer is in 2018, no but in 2019… maybe. Lets take a look at the CPT code possibilities for Apple Watch rhythm interpretation.

  1. CPT code 93010 (Medicare reimbursement about $8.50). This is the CPT code for interpretation of a 12-lead EKG if someone else (usually the hospital) owns the EKG machine. It requires an order from a physician and a written interpretation. Since an Apple Watch rhythm strip is only 1 lead and since it is done by the patient’s initiation and not by the physician’s order, CPT 93010 cannot be used.
  2. CPT code 93042 (Medicare reimbursement about $7.00). This is the CPT code for rhythm strip interpretation of 1-3 leads of EKG tracings. Like the previous CPT code, this requires an order from a physician and a written interpretation. Although it is conceivable that 93042 could be used to bill for Apple Watch rhythm strip interpretation, I would be hesitant to bill it since the patient is submitting the strip without a physician order.
  3. CPT code G2010 (Medicare reimbursement about $6.50). This is the new CPT code for “Remote Evaluation of Pre-Recorded Patient Information” that was created as part of the 2019 Medicare physician fee schedule. This was designed for video or images such as photos of a rash, etc. that a patient creates and then sends to the physician for review. There are several restrictions when billing this CPT code, however. The physician doing the review of the pre-recorded information cannot have seen the patient for a regular evaluation & management encounter within the previous 7 days or within 24 after reviewing the images. Also, the physician has to interpret the image and communicate the findings to the patient within 24 business hours. We will not know for sure if Medicare carriers will accept CPT code G2010 for Apple Watch rhythm interpretation until the new fee schedule goes into effect after January 1, 2019 and we start submitting bills for it; however, it would seem like this CPT code would be the best fit.

Who should get one?

Since the main thing the Apple Watch EKG app does is tell whether there is atrial fibrillation, it will primarily be useful for patients at risk of atrial fibrillation or with a history of previous atrial fibrillation. Better identification of patients with intermittent atrial fibrillation really could save lives since about 15% of all strokes are the result of untreated atrial fibrillation. My suspicion is that a lot of other people with occasional PACs or PVC (premature atrial/ventricular contractions) will also be uploading rhythm strips to understand why they have occasional subjective “skipped heartbeats”. Although not designed for PAC or PVC identification, this could be a side benefit of the app. Similarly, ventricular arrhythmias such as non-sustained ventricular tachycardia may be identifiable. Bradycardic rhythms such as sinus bradycardia and various forms of heart block (1st degree, 2nd degree, and 3rd degree) may be identifiable. Even if these rhythms cannot be diagnosed with complete certainty, the tracings from the Apple Watch EKG app may be suspicious enough for the physician to direct the patient to seek medical attention where a full 12-lead EKG or a 24-Holter monitor can be performed.

I’ve never had atrial fibrillation or any kind of heart problem. So, am I going to get an Apple Watch 4 with an EKG app… well, yeah, probably.

December 20, 2018

Categories
Medical Economics Physician Finances

The Final 2019 Medicare Physician Fee Schedule: Some Winners, No Losers

Last week, CMS released the final rule for the 2019 Medicare Physician fee schedule. The initial proposed fee schedule was released last summer and would have radically changed the way that physicians are paid for outpatient clinical practice. There was a lot of criticism of the proposed fee schedule with most professional medical societies opposing it. To give CMS credit, they listened to the critics and modified the fee schedule accordingly. The end result is that not much will change in how physicians are paid next year.

At the core, the proposed fee schedule was going to establish a single CPT code for all new patient visits with a physician and a single code for all return patient visits with a physician. Thus, the current CPT codes 99202 – 99205 (new patient visits level 2 – 5) would be collapsed into a single CPT code. Similarly, the current CPT codes 99212 – 99215 (return patient visits level 2 – 5) would be collapsed into a single CPT code. The advantage of this is that it would have reduced documentation requirements, therefore reducing physician work. The disadvantage is that physicians would be paid the same amount for seeing and caring for a new patient with a cold as they would for seeing a patient with newly diagnosed breast cancer. Therefore, physicians who mainly take care of relatively simple medical problems would be winners whereas physicians who take care of a lot of complex medical problems would be losers. Since my outpatient practice is primarily limited to interstitial lung disease (a complex medial problem), I estimated that my total Medicare income would drop by 12%. In the outpatient world, about half of total income goes toward overhead expense and half goes toward paying the doctor – since overhead expenses would not change and would still have to be paid, the net effect of a 12% reduction in total Medicare revenue is that my personal income from seeing Medicare patients would drop by 24%.

After realizing this unintended consequence of the proposed 2019 Medicare Physician Fee Schedule, CMS decided to leave the current level 2 – 5 new and outpatient CPT codes in place and not consolidate them into single codes… at least for now. Instead, CMS plans to institute a revised version of this plan in 2021. The revised plan will consolidate level 2 – 4 outpatient visits into a single CPT code and leave the level 5 outpatient visit CPT code. Thus, instead of being 4 outpatient billing levels for physicians, there would only be 2 outpatient billing levels. The advantage is that there would less documentation requirements for all of the the lower level visits, thus freeing physicians from what is seen as a lot of unnecessary documentation in progress notes that requires a lot of physician time but adds nothing to the care of the patient.

The proposed 2019 Medicare Physician Fee Schedule would have also significantly reduced payment to podiatrists. However, the final schedule did not change podiatry reimbursement.

The proposed physician fee schedule was also going to cut by 50% the reimbursement for doing a procedure on the same day as an office visit. Therefore, a physician who saw a new patient and then did an EKG would only get paid 50% of the normal reimbursement for the EKG. This would have greatly impacted my practice since many (or most) of my patients get pulmonary function tests immediately before seeing me so that I can determine their response to treatment. In order to continue to be paid full reimbursement for these procedures, they would need to be done on a different day, thus requiring the patients to come in on 2 different days rather than getting their test and their physician visit on the same day. This would be a minor annoyance for patients who live in town but a significant burden on those patients who live 2-3 hours away. Fortunately, CMS decided to not institute this proposal in 2019.

So, in the end, not will change when it comes to physician reimbursement. However, there will be 2 important new reimbursable CPT codes that will allow physicians to now be paid for some of the services that they have been providing patients for free up to now. These are two new codes that pay physicians for telemedicine services. Physicians provide a lot of care over the phone and through patient portals of the electronic medical record systems. Sometimes, patients call or use the patient portal because it is more convenient than coming into the office. Sometimes it is because the physician’s regular office schedule is booked up and the patients can’t get in to see the physician. Sometimes, it is because a medical problem arises at night or on the weekend when the office is closed. And sometimes it is because the patient doesn’t want to pay a co-pay to be seen in person with an office visit. Here are the 2 new codes:

  1. G2012 – Brief communication technology-based service (virtual check-in). This will be used when a patient contacts the physician by phone or via an electronic medical record patient portal to decide if an office visit is needed. If the patient does end up coming into the office to be seen, you can’t bill the code but if the physician manages the patient’s condition by phone or via the patient portal without the patient coming into the office, you can bill the code. The patient cannot have seen the patient for a regular billable encounter for 7 days prior to the phone/portal encounter or for 24 hours after the phone/portal encounter. The medical discussion should be between 5 – 10 minutes. The patient will have to give verbal consent acknowledging that the telephone/portal visit will be billed. The patient must have been seen by the physician or a physician in the physician’s group within the past 3 years. This CPT code will be compensated at 0.25 work RVUs ($9.00).
  2. G2010 – Remote evaluation of recorded video and/or images submitted by an established patient. This will allow a patient to send the physician a photo or video for that physician to decide if an office visit is necessary. As an example, if a patient sends their physician a photo of a rash and the physician makes a diagnosis and directs treatment for the rash without the patient actually coming in to be seen. Similar to the “virtual check-in” code, patients cannot have been seen within the 7 previous days or within 24 hours after the video/image review. The patient must be an established patient of the physician. The patient must provide verbal or written consent acknowledging that the service will be billed. This CPT code will be compensated at 0.18 work RVUs ($6.50)

Lastly, CMS is going to give physicians a raise from $35.99 per RVU to $36.04 per RVU. That is a 1/10th of 1 percent raise in case you wondered.

November 9, 2018

Categories
Outpatient Practice Physician Finances

Improving Your Outpatient Revenue: The CPT Codes You Forgot To Bill

In my last post, I lamented that Medicare billing will earn me $614 per hour reading pulmonary function tests but only $107 per hour in outpatient clinical practice. We all have the impression that outpatient medicine does not pay very well. But there are some ways to improve your outpatient billing by making sure that you bill all of the CPT codes that you can legitimately bill for. Here are 8 CPT codes along with the Medicare reimbursable amounts that you can bill in addition to your regular evaluation and management CPT codes that will enhance your outpatient revenue:

  1. 99497 – Advanced Care Planning 30 Minutes (2.39 RVUs; $86). You can bill this code when you are having face-to-face discussions about hospice and DNR status with the patient, family members, or surrogate. Time must be documented to be between 16-45 minutes. There is no limit to the number of times this can be billed in a given year. If you spend more than 45 minutes, then you can also bill CPT code 99498 for each additional 30 minutes of face-to-face discussion. I see a lot of patients with idiopathic pulmonary fibrosis, an ultimately fatal disease, and end-of-life discussions are common and always take >16 minutes so this is a useful code.
  2. 99358 – Prolonged Service Without Patient Contact (3.16 RVUs; $114). You can bill this code for reviewing patient records before or after an office visit with a patient. For example, if you are seeing a new patient with extensive medical records and documentation. Time must be documented and you have to have at least 31 minutes spend reviewing material to bill this code. Bill this code on the day that you review all of the records. Not only does it pay reasonably well, it can make you more efficient – by pre-reviewing all of the old records before the start of your office hours, you can spend more time actually seeing patients so that your office staff are not sitting around waiting for you to review records before putting the next patient in a room. Code 99358 is for 31-74 minutes of record review. If you spend 75-104 minutes, you can additionally bill 9359 (1.52 RVUs). Many of my patients come to me with multiple CT scans that require review of the various images, pulmonary function tests that require interpretation, lots of lab test, cardiovascular tests, hospitalization records, and outpatient notes from the referring physician. It is surprisingly easy to spend >31 minutes sorting through all of the records, doing my own interpretation of the CT images and PFTs, and documenting all of these findings in our electronic medical record.
  3. 99406 – Smoking Cessation Counseling 3-10 Minutes (0.41 RVUs; $15). Few things that we do in medicine can have as great of an impact on our patient’s health than getting them to quit smoking, and Medicare will pay us to do it! You can bill this in addition to your regular evaluation and management CPT code. You need to document what you discussed and the number of minutes (I use a “smartphrase” in our Epic electronic medical record). If you spend more than 10 minutes, then you can bill CPT code 99407 (0.79 RVUs). Be sure to add a -25 modifier to indicate that the smoking cessation counseling was done in addition to your regular evaluation and management service that day. Although this CPT code does not pay very much, we almost always spend at least 3 minutes talking to the patient when we are counseling about smoking cessation so this is one of the codes I bill frequently.
  4. 94664 – Inhaler Technique Training (0.49 RVUs; $18). I once read a study that found that 50% of patients use their inhalers incorrectly. This code pays us to do the right thing and ensure that all patients are using the proper technique with their inhalers. There are so many new inhaler devices on the market now that just knowing how to use one device does not necessarily mean that the patient will know how to use another device. We do not keep samples in our office except for inhalers which we keep purely for the purpose of teaching our patients when prescribing a new inhaler. Make sure you document that inhaler technique training was performed (another smartphrase). Interestingly, this CPT code is composed of a practice expense RVU and a malpractice RVU but it has no work RVU associated with it. That is because you (the physician) should not be doing the inhaler training – it should be your nurses who do this. Many pharmaceutical companies will provide demonstration inhalers that do not contain any medication – I find these less satisfactory because the patients need to know the feel and taste of the medication when it is delivered with proper technique. I bill this CPT code every time I start a patient on a new inhaler.
  5. 90460 – Intramuscular Injection (0.58 RVUs; $21). This is billed in addition to the CPT code for any vaccine that you administer in the office. In other words, there is one code for the actual vaccine and one code for the injection. I often see physicians only bill the code for the vaccine and so they are leaving a lot of money on the table. If you give 2 vaccines to the same patient during one office visit, use CPT code 90461 for the second injection (0.36 RVUs). We have this CPT code bundled in with common vaccinations (influenza, 23-valent pneumovax, Prevnar-13, etc.) so that it comes up anytime I order the vaccine.
  6. 99490 – Chronic Care Management 20 Minutes (1.19 RVUs; $43). Use this code when you or your staff spend at least 20 minutes per month managing patients with chronic illness when they are not in the office (paperwork, emails, phone calls, etc.). I confess: I’ve never actually billed this code because I never remember to document my time for all of the things that I do to take care of patients and the requirements are just to onerous. However, every practice has a handful of patients who occupy a disproportionately large amount of your staff’s time and your time (think about the patient who calls your office twice a week, every week). Here are the requirements:
    • Patients have to have 2 or more chronic conditions that you manage.
    • The chronic conditions are expected to last for at least 12 months or until death.
    • There is a reasonable probability of death/decompensation/exacerbation/decline if the chronic conditions are not actively managed.
    • The patient has to agree to a chronic care management plan with you (probably safest to get this signed in case of an audit but at the very least, document your conversation with the patient to this effect in the patient’s chart).
    • You (or your office staff) have to document a total of 20 minutes per month doing things like coordinating home health care, filling out various forms related to the patient and their chronic condition, phone calls with the patient, emails to the patient (preferably via your electronic medical record for HIPPA compliance), etc. That means that every time you have a phone call with that patient, you have to document the number of minutes you spent on the phone and then documenting the discussion and your staff have to document the number of minutes they spent filling out the patients FMLA forms.
    • Only one physician (or NP or PA) can bill this code for any given patient on any given month.
    • You can bill this code once each month
    • You have to adhere to the CMS scope of service for this particular CPT code including:
      • Care management including medication management and management of the patient’s medical, psychosocial, and functional needs
      • Access to care management services 24-hours a day
      • Continuity of care
      • Creation of a patient-centered care plan that is documented in writing or in the electronic medical record
      • Management of care transitions (e.g. admission to a SNF)
      • Coordination with home-based services such as home healthcare and hospice
      • Multiple ways for the patient or their care giver to contact the physician and/or the office staff (e.g. phone, electronic medical record, email)
      • Use of a certified electronic medical record that is available 24-hours a day to any physicians (or NPs or PAs) that provide cross-coverage
  7. 99495 – Transition Care Management Moderate Complexity (4.64 RVUs; $167) and 99496 – Transition Care Management High Complexity (6.55 RVUs; $236). The nurse practitioner who I work with oversees our pulmonary transition clinic that has been incredibly successful at reducing our hospital’s 30-day readmission rate for COPD. CPT codes 99495 & 99496 are perfect codes to cover this service. To meet the requirements of this code, there has to be contact with the patient within 2 days of discharge from the hospital (this can be by phone from your office nursing staff) and there has to be a face-to-face visit with the physician (or NP or PA) within 14 days of discharge from the hospital (7 days for 99496). The reason that these CPT codes are associated with a high RVU value is that the first office visit after discharge from the hospital is bundled into it. That first face-to-face visit is not billed separately and is included in the CPT code but any additional office visits in the 30 days after discharge can be billed separately. The transitional care can involve things like reviewing the discharge summary, following up on any pending test results, arranging follow-up testing, medication reconciliation, etc.
  8. 99354 – Prolonged Services (3.69 RVUs; $133). Use this CPT code when you spend an excessively long amount of time with an office visit. I find this code particularly useful when I am seeing a patient for the first that one of my partners has previously seen within the past 3 years (thus prohibiting me from billing that patient as a new patient visit and forcing me to use the return patient visit codes instead). The time associated with this code is 1-hour but that translates to 31-74 minutes in CMS language. Importantly, that is on top of the time it would take for a regular evaluation and management code. So, for example, if you are billing for a level 5 return visit (defined as 40 minutes by Medicare), then you have to spend at least 70 minutes with that encounter and then you would bill both the level 5 return visit CPT code plus the prolonged services CPT code.

Outpatient practice can be challenging because there is a lot of time outside of the patient’s actual office visit that is required to care for the patient. Using these codes will not make you rich but they can at least partially pay for all of the non-compensated time that you have been providing in order to manage your outpatients.

October 13, 2018

Categories
Physician Finances

You Can’t Buy Happiness With An RVU

To some physicians, the words “relative value unit” or RVU were created by Satan to inflict pain and torment on physicians. But the reality is that an RVU is just another medium of exchange. A few years ago, we had a fellow in our department who was from Peru. He said that if a family did not have the money to pay their medical bills, they would give their doctor a chicken or do some yard work at the doctor’s home. Compared to bartering a chicken or a couple of hours of yard work, using money allows us to have put a relative value on individual services. The RVU is simply the way that physicians and Medicare agree on the price of the different services that physicians provide. RVUs are not inherently evil, they are just another way of stating what the fee is for any given service.

But no pricing system is perfect and some physicians will always be performing services that are over-valued or under-valued using the RVU system. If a doctor is getting a lot of RVUs for an hour of work doing a particular service or procedure, then that doctor tends to be quiet about it and not draw attention to him/herself so as to avoid someone from revaluing that service with a lower RVU. On the other hand, if a doctor is getting paid relatively few RVUs for an hour of work, that doctor is going to be very vocal about how their services are undervalued. The reality is that it is human nature for us to think that whatever service we are providing should be valued more and that we should get paid more for doing it.

Most physician practices will use the RVU as a measure of physician work effort as opposed to using the amount of cash collected. This has the advantage of overcoming the disparities between reimbursement by different insurance companies and eliminating the disincentive for individual physicians within a practice to care for uninsured patients and Medicaid patients. Therefore, physician practices will often set an annual RVU target for individual physicians to achieve in order to get paid a base salary and then provide a bonus to the physicians based on the number of RVUs they produce over that annual target.

In theory, the RVU system will generally reflect the amount of time a physician has to spend to do a given service plus the training and subspecialty expertise that goes into that particular service or procedure. However, the reality is that some procedures and services generate a lot more RVUs per hour than other procedures and services. Physicians tend to be pretty smart and they will quickly figure out which services they perform generate the most RVUs.

In my own world of pulmonary and critical care medicine, I know that the fastest way to generate a lot of RVUs is by interpreting pulmonary function tests. If I sat in front of a computer for an hour reading PFTs, I’d generate nearly 6-times more RVUs that I would by seeing patients in the office for an hour. I did an analysis of how much money I can generate per hour doing the various things I do as a pulmonary critical care physician, including my outpatient practice, working purely in the ICU, doing a combination of ICU and inpatient pulmonary consult work, seeing patients in an LTACH (long-term acute care hospital), and reading PFTs. I used the 2018 Ohio Medicare physician fee schedule and just used the work RVUs (wRVUs). I timed myself reading PFTs one day to determine how many PFTs I can read in a typical hour. I determined that I spend about 2 hours doing charting, making patient phone calls, managing test results, etc. for every 4 hours I see patients in the outpatient clinic. I timed myself doing LTACH rounds and doing a typical day of regular inpatient pulmonary/critical care practice. Overall, I can generate $614/hour reading PFTs but only $107/hour doing outpatient pulmonary practice.

For cardiologists, it is reading cardiac echos and stress tests. For neurologists, it is reading EEGs and EMGs. For sleep specialists, it is reading sleep studies. For each specialty, there are certain things the doctor does that can bring in a lot of RVUs for rather little time and effort.

But if all I did every day was read PFTs, I think my brain would melt. I might more easily hit my annual RVU targets and I might get a bigger bonus at the end of the year, but I wouldn’t necessarily be happy. The enjoyment I get from being a doctor is in the human connections made from doctor-patient relationships. The satisfaction I get is from knowing that at the end of the day, I made patients’ health a little better. I never go home at the end of the day telling my wife that I generated a record number of RVUs that day, instead, we talk about the patient whose cancer got cured or the patient who survived after getting an emergent coronary stent after an out-of-hospital cardiac arrest from an acute MI.

It is often said that money can’t buy you happiness. But money can buy you the time to do the things that can bring you happiness. Similarly, the RVU won’t buy you happiness but it does buy you the extra time to do the undercompensated things that doctors do that can bring happiness and professional satisfaction.

So, yes, every year I do spend hours in a room by myself in front of a computer reading pulmonary function tests. And I do it so that I can also have the luxury of the time to talk to my patients about their last vacation and the luxury of spending a little more time with a patient explaining the implications of a newly diagnosed disease. More than anything else, those PFT RVUs buy me the time to listen to my patients.

October 8, 2018

Categories
Physician Finances

Beware Of The Financial Lamprey: Investing 101

This post is about what I would want my children to know about investing in their first few years out of college. But it applies to anyone starting their career, including physicians. This is the time of year that a lot of our trainees are finishing up and ready to go out into the workplace. New doctors are like most people who are starting a career after finishing their education – they are changing from living off of borrowed money to now having an income stream and being able to save money.

No one prepares you for how to do this, however. So, when you are just starting with your new job, be prepared to get lots of financial advice – and be warned, most of it is going to be bad. All of this bad advice can come from a lot of different directions:

  1. Financial advisors. Whenever you finish school, your mailbox magically becomes full of cards and letters from financial advisors. They will check college graduation lists and network with people in order to get lists of potential clients who are completing training. You will get invited to free dinners to educate you about financial planning. You’ll get phone calls and emails from financial advisors all eager to serve your financial planning needs. Beware of them – some are very legitimate professionals who can help you invest wisely and protect your assets. But others are primarily interested in making money off of your money. They are like lampreys who parasitically attach themselves to your investment portfolio and slowly suck away at your assets. Some financial advisors will charge you by the hour for advice and consultation and then leave the investing up to you – more often than not you can trust them since they make a living by selling advice – those that give the best advice get the most clients. But other financial advisors will offer to invest your money for you – I am more skeptical about them because they make a living from the commissions they earn every time they make an investment transaction. This means that they will often steer you towards investments that they can make a hefty commission on rather than things like an index stock mutual fund that has minimal or no commission with it. Furthermore, every time you sell one investment and buy a different investment, they make an additional commission so you can be left wondering, “Is this really a good time for me to buy and sell this stock or does my advisor just need to make a mortgage payment on his vacation home this month?” Other financial advisors will charge you an annual percentage of your total portfolio’s value – in theory, the more your investment appreciates, the more the financial advisor makes; but in reality, they make money off of your portfolio even in years that you are losing money, just not quite as much. Beware of them – they will be charming and persuasive but they are ultimately salesmen and what they are selling is themself.
  2. Friends. Be prepared for one of your friends or neighbors to say something like “I just heard about this great new company and my advisor told me to buy $5,000 worth of shares…” Everybody is going to have a hot investment tip for you. Most of them are well meaning – they think they are doing you a favor and helping you out. But often, they are also trying to rationalize the last investment decision that they made.
  3. Family. Family members can be just as well meaning but give you just as bad of advice. Often, they will look back to some successful investment that they made 10 or 20 years ago and recommend that you invest in it since it made money for them. The problem is that the company that was so successful 20 years ago is not necessarily going to be just as successful in the future.
  4. Yourself. You can be your worst enemy when it comes to investment. Do not treat investment as you would gambling. Going to the casino is something you do for recreation with the knowledge that statistically, you are going to lose more money than you make in the long run – you go to the casino to spend a little money and have fun. Investment is something that you do to secure your future – with the knowledge that you are going to make more than you lose in the long run. If you approach investment by betting on a hot stock tip or buying into a “blue sky” real estate venture, then you are not really investing, you are gambling – and in the long run, you are more likely to lose money than to make money.

So, lets start with some basics about investing with some definitions of the things you can invest in:

  1. Stocks. When you buy a stock, you are buying part ownership in a company. If a company does well, then the value of that company goes up and therefore the price of its stock goes up. But if that company fails, then the price of its stock falls. As a general rule, larger companies are less likely to fail and smaller companies are more likely to fail. However, smaller companies are also more likely to undergo exponential growth than large companies – think of McDonald’s or Apple when they were in their infancy. Different stock indices contain different sizes of companies – the Dow Jones Industrial Index is a small group of very large corporations, the S&P 500 is a larger group of the biggest 500 corporations in the U.S., the Russell 2,000 is a larger group of 2,000 corporations, and the NASDAQ is a group of small companies. You make money from stocks in two ways: (1) by selling the stock when it is more valuable than it was when you bought it and (2) by getting “dividends” which is money paid to the stock owners periodically when the company is profitable (some companies will put profits back into the company to open new stores, or build new factories and other companies will give profits back to the company owners, i.e., the stock owners).
  2. Bonds. A bond is a loan to a company so when you buy a bond, you are loaning the company money for some defined amount of time. Not only do companies borrow money with bonds, but governments do, also. Maybe a city needs a new high school building so they sell municipal bonds. Or maybe the U.S. government needs money so they sell U.S. Treasury Bonds. Just like your car loan has interest on it, the bond will also have interest on it. But if the company goes under, the bond owner may not get paid back. As a general rule, the riskier the company is, the higher the interest rate they will pay on their bonds. The U.S. government is seen as a pretty financially solid institution so the interest on U.S. Treasury Bonds is pretty low. On the other hand, a new start up company is a much riskier venture so the interest on their bonds will be high. “Junk bonds” refer to those very high-risk bonds that pay a lot of interest but have a significant chance of going out of business. A bond that is set at 5% will pay the bond owner 5% of the total amount of the bond per year for the duration of the bond, exactly like you pay annual interest on your car loan to the bank that you took out the loan with. Bonds can also be bought and sold (“traded”). Depending on factors like the inflation rate and the company’s financial status, the price of that bond may go above or below the original amount that it was sold for. So, for example, a bond that was originally purchased for $100 at 5% annual interest in a company starts to lose money and looks like it might go out of business might now sell for $90. On the other hand, if that company starts growing and looking more profitable, that bond may then sell for $102.
  3. Mutual funds. Buying stock in one or two single companies is risky – you might make a huge profit if they do well but you can lose a lot of money if they do poorly. A product that is enormously popular today may not be popular at all in a couple of years. Similarly, the new CEO or new Board of Trustees of a successful company may make phenomenally bad business decisions in the future, resulting in the company failing. Therefore, buying individual stock in a company is pretty risky and can cross the line from investment and into gambling. Just like you wouldn’t go to the casino to try to grow your entire retirement account, you shouldn’t put your entire retirement account in a small number of individual stocks. The more different stocks you own, the more you become diversified with the result that if a few companies do poorly and lose money, then statistically, a few others will do well and make money. The more diversified you get, the more likely you are to make money in the long run than you are to lose money in the long run. And that is where mutual funds come in. When you buy a mutual fund, you are buying small amounts of stock in lots of different companies that are all bundled together in the mutual fund. Some mutual funds are made up entirely of a group of stocks and others are made up entirely of a group of bonds and still others are made up of a combination of a group of stocks and of bonds. Mutual funds can be grouped into 2 broad varieties: (1) managed mutual funds and (2) index mutual funds. A managed fund will have a fund advisor or group of advisors who select the various stocks and bonds to buy for the mutual fund. An index fund is composed of a portion of all of the stocks in a particular category – for example, the S&P 500 – a computer adjusts the amount of each stock held by the fund based on its value or number of shares. Occasionally, there will be an investment genius who always pick the right stock (think Warren Buffett) but most managed fund advisors actually do worse than index funds. Moreover, managed funds are expensive since you have to pay pretty high salaries to the fund managers out of the profits of the mutual fund whereas index funds tend to be cheap since you don’t have to pay a fund manager – instead, an inexpensive computer does all of the buying and selling of stocks within the mutual fund based on which companies are in that particular category that month (for example, the S&P 500).
  4. Savings accounts. This is money that you loan to a bank so that the back can then loan money out to other people. Because the bank has to pay its bills, it will always set the interest it pays you in your savings account a lot lower than the interest rate on the loans that it makes to other people (for mortgages, car loans, etc.). However, savings accounts are very secure and are insured by the federal government so that even if the bank goes under, you can still get your money back from the savings account. Savings accounts pay the lowest interest of all common investments but have the advantage that you can open the account with a very small initial deposit and that you can take money out anytime you want.
  5. Certificates of deposit. These are sold by banks and are a lot like a savings account but unlike a savings account, when you put your money in a CD, you agree to not take it out for some defined period of time, for example, a 6-month CD or a 3-year CD. Because the bank knows that it doesn’t have to worry about paying you back for this defined amount of time, it will pay you a higher interest rate than it would for a regular savings account.
  6. Money market accounts. These are held by banks or investment companies and are somewhere in between a savings account and a mutual fund. The money market fund will have some investments (generally things like CDs and bonds) and will pay you interest – that interest may go up or down depending on how the investments are doing. You can take your money out of the money market account anytime you want to and the interest paid by the money market account can go up or down. One key difference between the money market account and a savings account is that money market accounts will generally have a relatively high minimal deposit amount. Because of this, money market accounts pay you a little higher interest than a savings account.

Ranked from lowest risk to highest risk:

  1. Savings accounts
  2. Certificates of deposit
  3. Money market accounts
  4. Bonds
  5. Mutual funds
  6. Stocks

But the riskier the investment, the more you can potentially make from it, particularly if you hold that investment for many years. Ranked from lowest potential profit to highest potential profit:

  1. Savings accounts
  2. Certificates of deposit
  3. Money market accounts
  4. Bonds
  5. Mutual funds
  6. Stocks

As you can see, risk and potential reward go hand-in-hand. So, if you are just starting out your career and you finally have some extra money that you can put into savings or into retirement, how do you know what to do? Here are 15 guiding principles to begin investing with:

  1. Have an emergency fund. This is money that you can get to on short notice in case you have sudden unexpected expenses or lose your job. Some people will recommend that you have 3 months’ worth of expenses in your emergency fund, other people will recommend 6 months (for expenses, think what you pay each month for rent, food, bills, car insurance, loan payments, etc.). I don’t think that one number fits all people. If the job market is poor, you may need 6 months’ expenses in your emergency fund to get you through until you can get a new job and relocate. But if the job market is great and you are in a high-demand field where you know you can get a new job right away if you need to, maybe you only need 3 months’ expenses. Your emergency fund should be in a savings account or in a money market account that you can get to on short notice.
  2. Don’t rack up excessive debt. When you invest, you are making money; when you have debt, you are losing money. Always, always, always pay your credit card balance at the end of each month. And don’t take out a car loan to buy a Lexus when you are earning a used car salary. Some debt is necessary, such as student loan debt. Some debt is acceptable, such as a mortgage on your home. But some debt is frivolous and unwise, like extending your credit card balance so that you can buy a new set of golf clubs. But failing to pay off your credit card balance or taking out a loan for something that is not absolutely essential will result in you paying interest charges that will wipe out any gains that you make on your investments. Think of loans and debt as “anti-investments”.
  3. Don’t pay a person to invest your money. Investing is scary and it can be tempting to hire a financial advisor to invest your money for you because you’re afraid you are going to make a bad decision if left on your own. Financial advisors are expensive and they are not always terribly wise. Once you become a millionaire and need to do selective investment for tax-savings purposes or a wealthy politician and need to have someone direct your investments to protect you from conflicts of interest, then you can hire a financial advisor. But in the first few years of your career, I don’t think you need one. Don’t be lured in if a financial advisor wears really nice suits or has a really magnificent office – remember that it was the money that you and people like you pay them that allows them to have a beautiful office and a personally tailored suit. In your first few years of your career, you should do your own investing, just do it simply and intelligently. Your first investment should not be an investment of money but instead should be an investment of time in learning about the basics of investing so that you can do it yourself.
  4. Don’t buy individual stocks. If you want to buy individual stocks, wait until you are wealthy and can either buy stocks in a whole lot of different companies to create diversification or wait until you are wealthy and can afford to buy individual stock as a means for your own recreation and amusement. But for the new investor, individual stocks are too risky.
  5. Do buy mutual funds. I believe that diversification is always the right thing to do but when you are a new investor, diversification is the only thing to do. The simplest way to diversify is to buy into a mutual fund. That way, you spread out your investment over dozens or even hundreds of different companies’ stocks or bonds.
  6. Know your investment horizon. The sooner you think you will need your invested money, the lower risk you should take with that money. So, if you are saving up for a European vacation a year from now, go with a money market. If you are savings up to put a down payment on a new house 4 years from now, go with a bond mutual fund. If you are saving up for retirement 35 years from now, go with a stock mutual fund. The sooner you will need the money, the lower the risk you should take with your investment and the further in the future that you will need the money, the greater the risk that you should take with your investment.
  7. Your first mutual fund should be an index fund. I’ve already mentioned that index funds on average out-perform managed funds. This may seem counterintuitive but the fund managers are human and humans are fallible and an exceedingly small number of fund managers are actually smarter than the stock market. Picking winner stocks is a little like picking winning horses at the races – there is a little bit of science but a whole lot of luck and just because a particular fund manager did a great job of picking stocks last year does not mean that he/she will do an equally great job next year. Even if you find a fund manager that is omnipotent and consistently picks winners, that managed fund will be more expensive in terms of annual fees than the index fund. Look for an index fund that (1) gives you a broad exposure to a lot of companies, (2) has no “front load” (an initial charge to invest your money – usually some percentage of the total amount that you are depositing), and (3) a very low annual fee. Still don’t know what to do? Then start with the Vanguard U.S. Total Stock Market Index Fund and then compare the stock composition and annual maintenance fees of index funds offered by other investment firms to it as you are deciding on which fund to buy. Purchasing your first mutual fund is pretty easy – you can get on-line with a large investment firm (such as T. Rowe Price, Vanguard, or Fidelity) and set up an account while sitting at home on your couch.
  8. Dollar cost averaging is smarter than you are. Dollar cost averaging is the strategy of investing a set amount at regular intervals, for example, $100 every month. On months that the stock market is down, that $100 will buy you more shares of that particular mutual fund and on months that the stock market is up, that $100 will buy fewer shares. Many investors try to “time the market” and only buy shares of stocks or mutual funds when they think the prices are at rock bottom and are set to go up and then those same investors will sell their shares of stock or mutual funds when they think the prices are as high as they are going to go and will soon be falling. The problem is that almost nobody is smarter than the market and the stock market is just as apt to go down in the next few months as it is to go up in the next few months. Your best strategy, particularly for long-term investments such as retirement and children’s college funds, is to set up a monthly direct deposit from your checking account into your investment fund. If you think you’ll be able to afford to save $1,200 a year, then set up your direct deposit for $100/month.
  9. Don’t follow the herd. Everyone knows that the secret to successful investing is to “buy low and sell high”. That sounds great but it is completely contradictory to human nature. Our tendency is to do what everyone else is doing and if everyone is panicking and selling their shares in a falling market, our reflexive action is to also panic and sell, even when by doing so, we sell when the stock market is at a low rather than a high. For generations, stock markets go down and then they eventually go up and over time, they always go up. If you are investing for a long horizon, then news that the Dow Jones Industrial Index fell 2% today should be of no greater significance than the fact that it rained today. I do have a personal flaw, however – whenever the stock market is in a “correction” and has a lot of days/weeks of sustained losses and whenever our country finds itself in a recession, I buy more shares of stock mutual funds. I just can’t help myself. I know that no matter how dismal the financial news is and how bad the economic forecast is, stocks are eventually going to go back up. In this sense, I am being a contrarian, rather than following the investor herd.
  10. Buy it and then forget about it. Well, sort of… The more often you buy and sell, the more often you generate sales fees to brokers who facilitate those sales and purchases. Over time, those sales fees erode your net investment value. Think of investments like you would a tomato plant – put it in the ground once and let it grow and you’ll likely get lots of tomatoes later in the summer. But if you keep digging it up and replanting it trying to get in just the right amount of sun and better soil composition, then you’ll find that at the end of the summer, you don’t have as many tomatoes. That having been said, it is a good idea to look over your various investments about once a year to be sure that you have the right investment risk mix for your investment horizon. Just remember, investment is all about maximizing your proceeds long-term, not short-term. If you keep track of your investment fund value daily, you will go insane – instead, track it quarterly or annually.
  11. If you don’t understand it, don’t invest in it. A perfect current example of this is bitcoin. 90% of Americans have no idea what a bitcoin is or how bitcoin works but most Americans have heard about how bitcoin has increased in value exponentially over the past few years and suddenly, everyone wants to invest in bitcoin. This is like lemmings blindly running towards a cliff. The same thing happened 10 years ago with investors purchasing bundled mortgages.
  12. Buy insurance judiciously. Everyone needs health insurance (I mean, come on… I’m a physician!) and everyone should have disability insurance (if they can get it). Life insurance is a bit more optional. If you are single and don’t have any children, you probably don’t need any life insurance. If you have a spouse and/or children, then life insurance becomes more of a necessity. But buy a term life insurance policy, not a whole-life policy. Also, avoid annuities – they can be very complicated to fully understand and they are almost always way too expensive in terms of up-front costs and/or annual maintenance fees.
  13. Planning for retirement means not being that old guy in the little office at the end of the hall. Every company has this guy. He is the fellow who is 5 years older than the age that everyone else retired at. He is bitter at the world, laments for the “old days” and doesn’t really like what he is doing. He is in an office out of everyone else’s way and doing some menial task that no one else wants to do. The company keeps him on the payroll out of a sense of loyalty to him. He’s the guy who never saved enough for retirement. Once you have a paying job, you are never to too young to start saving for retirement and no amount is too small to save. Even if you can only save $500 this year for retirement, if you put it in a broad stock market index fund, then based on historical rates of return, in 35 years, that $500 will be $16,000.
  14. Choose retirement investment options strategically. In a previous post, I outlined my recommendations for physicians saving for retirement but these recommendations can really apply to anyone. For the background on why I recommend this approach, read that previous post. But to summarize, here is the priority for selecting among different retirement accounts (not all of these plans will be available to everyone):
    • Employer-matched 401(k)
    • 457
    • Non-matched 401(k) or 403(b)
    • Simplified employee pension plan (SEP)
    • Roth IRA
    • Regular investments
    • Traditional IRA
  15. When starting out, use an incremental investment strategy. Lets say you are a few months into your first paying job and you decide that you can save $100 a month. You would like to put that money into an index mutual fund but the minimum amount that it takes to open the fund is $2,000. And the minimum amount that it takes to open a money market fund is $1,000. No problem – start by putting $100 per month in a savings account and then when you have enough to open a money market account, transfer it there. Then when you have enough in the money market account to open the mutual fund, transfer the money there. Whatever you do, don’t abandon all hope because you think that the amount you can afford to put away each month is too small to make investing worthwhile.

I have had at least one friend or colleague who has made a mistake with at least one of each of these 15 guiding principles and then later regretted it. Investing means creating the freedom of your future. It is not difficult but it requires a little bit of planning and a lot of patience.

April 20, 2018

Categories
Physician Finances

Estimating Your Income Needs In Retirement

For many people, and most physicians, getting to a retirement age means being able to work because you want to work and not because you have to work. A year and a half ago, I wrote a 12-part post on financial planning for physicians, with one goal of saving enough for retirement. But how do you know how much money you are going to need in retirement if you stop working? There are a lot of on-line retirement income calculators but I find that they are too simplistic and can be misleading, mainly because they will ask you to make an assumption of what percent of your current income you will need in retirement – commonly 85%. What number do you use for your current income? Should you use your current pre-tax income, your current post-tax income, your current post-tax & post-retirement contribution income? There are just too many layers of financial nuance. These on-line calculators are convenient because they only take 1-2 minutes but projecting your retirement income warrants a bit more accurate analysis. I think that a relatively easy and much more confident way to estimate your retirement income needs is to make 3 calculations: determine what your current net disposable income is, what your projected retirement income will be, and what additional expenses you will likely have in retirement. It should take less than 15 minutes.

(1) Calculate your current net disposable income

The amount of money that you currently live off of is a great starting point for figuring out what you are going to need when you retire. If you are pretty happy with your current lifestyle and you can buy most of the things you really want and do most of the things you really want to do, then there is a pretty good chance that you’ll be happy in retirement if you have the disposable income that you have currently. To calculate your current net disposable income, you’ll need a few things: (a) a paycheck stub (preferably one from the end of the calendar year in December), (b) your last year’s income tax forms, and (c) a tabulation of everything that you put into retirement savings the previous year. You’ll then need to calculate the following:

  1. Your gross annual income. The easiest way to get this number is to look at your W-2 form in the box that has city income (box 18 on the W-2 form). This number will be higher than your federal income because it will include all of the money that went toward pension, 401(k), and other benefits. If  you have more than one W-2 form, then add up all of the city income numbers. If you additionally have self-employment income (reported on your federal income tax schedule C form, line 31), then add this in.
  2. Your total income taxes. Add up your federal income tax (form 1040, line 63), your state income tax, and your city income tax from the respective income tax forms from last year. You can also usually find the totals for your federal, state, and city income tax payments on your end-of-the-year paycheck stub.
  3. Your total retirement contributions last year. Look on your W-2 forms and add up any pre-tax retirement savings that you contributed to last year. This will include your portion of pension contributions (but do not include your employer’s portion of pension contributions), 401(k), 403(b), 457, etc. that will be reported on your W-2 form box 12 (typically with codes D through H) Add in any money that you put into an IRA, Roth IRA,  or SEP plan (the SEP contribution is on your federal income tax form 1040, line 28). Also add in any money that you put into your personal investments last year, such as stocks, bonds, or mutual funds.
  4. If you plan to pay off your house mortgage before you retire, then determine how much you are currently paying on your mortgage. The easiest way to do this is to multiply your current monthly mortgage payment by 12 and then subtract your annual property tax. This assumes that the bank that is holding your mortgage loan is currently paying your property taxes from the mortgage escrow account, which is usually the case. If you have other major loans (student loans, etc.) then treat them similarly.

Next, subtract your total income taxes, total retirement contributions, and mortgage payments from your gross annual income. This is your current net disposable income – essentially, what it costs you to live your current life style.

(2) Calculate your future net retirement income

This can be a little tricky and can get pretty complicated when you try to figure out which of your retirement funds are going to be income tax-free (e.g., a Roth IRA), which will be taxed at the capital gains tax rate (e.g., a mutual fund), which are going to be taxed at a regular income tax rate (e.g., a 401(k) or pension) and which will be taxed at a variable tax rate (e.g., Social Security benefits). Most people will have the largest percentage of their retirement savings in pensions and 401(k)s/403(b)s/457s. So, an easy way is to take a “worst case scenario” approach and just figure that all of your retirement savings will be subject to regular income tax. If you have a relatively large amount in non-retirement investments or in Roth accounts, then you can adjust your projected annual income taxes and capital gains taxes in retirement accordingly.

  1. If you have a pension, determine what your annual pension will be when you retire. Most pension plans (for example, State Teacher Retirement System of Ohio), will give you an annual report that will tell you what your projected annual retirement benefit will be based on when you plan to retire.
  2. Calculate the amount of money that you will have in retirement savings (other than pensions) when you retire. The easiest way to do this is to use an on-line compound interest calculator. If you know how much you have in retirement savings currently and your total retirement contributions from last year (as an estimate of what you are going to be contributing in the future), then you can get a rough idea of what to expect your retirement savings are going to be on the day that you retire. You will need to enter an estimated interest rate – if you are younger and exclusively invested in stock funds, then use 9-10%. If you are older and are more heavily invested in bond funds, then use 6-7%. If you are mid-career with a balanced retirement portfolio, then use 8%. This calculation works best if you are pretty close to retirement but if you are younger, it will underestimate your retirement fund’s future value because you will likely be adding more money to your pension or 401(k) in future years as inflation results in you having a higher annual income and higher 401(k) contribution limits.

Next, add these numbers together to get your future gross retirement income and then calculate your federal income tax – you can use a quick on-line income tax calculator to get a rough idea of your projected income tax. Do the same to estimate your state income tax. Add the estimated state and federal taxes together and subtract them from your future gross retirement income and that will give you your future net retirement income. In all likelihood, you will not need to pay city income tax on your retirement income so you won’t need to include city income tax in your calculations.

(3) Adjust for new expenses in retirement

The expense that people frequently overlook is health insurance. If you are working, the chances are that you are paying a portion of your health insurance premium and your employer is paying a portion. And it is likely that your employer is paying more than you are. The average healthcare costs per person in the U.S. is about $10,000 per person per year (this number will be lower for younger people and higher when you become older in retirement). You will also need to add in the annual costs for vision and dental insurance that are currently covered by your employer since in retirement, you will need to pick up the total cost of these premiums. If you retire before age 65, then you are going to have to purchase your own health insurance and this could cost around $18,000 for a couple. If you are over age 65, you still have to pay Medicare premiums as well as out of pocket deductibles and secondary insurance premiums.

Anticipate what you are going to be doing in retirement and factor that into your expenses. Planning on doing a lot of fishing? Then factor in the cost of  a fishing boat. Planning on doing a lot of traveling? Then factor in the cost of travel. Planning on taking up golf? Then factor in country club dues. Planning on buying a condo in Florida as a second home? Then factor in the mortgage costs.

Add up all of these projected new expenses and subtract them from your calculated future net retirement income. This will give you your future adjusted net disposable retirement income.

Is your future and current net income aligned?

Your goal is to be able to at least maintain your current lifestyle in retirement. So, you want to be sure that your current net disposable income matches your future adjusted net disposable retirement income. You’ll need to make one more calculation to determine if you are on target by adjusting for future inflation. It is not possible to know exactly what the inflation rate will be in the future since the inflation rate has historically fluctuated widely from one year to another. But use 3% annual inflation as an average. Take the current net disposable income that you calculated in (1) above and plug that into an on-line forward flat rate inflation calculator. This will tell you what your current net disposable income will be in retirement year dollars. If this number is lower than what you calculated your future net disposable retirement income to be in (3) above, then you are in great shape and you are going to have extra spending money in retirement. On the other hand, if this number is higher than your calculated future net disposable retirement income, then you are either going to have to save more for retirement or postpone your retirement date in order to maintain your current lifestyle.

Once your retirement savings plan results in equilibration between your current net disposable income and your calculated future net disposable retirement income, then you are in a perfect position for retirement. In the year that you retire, you want your current net disposable income to be aligned with your net disposable retirement income and that give you power. Power to continue to work because you want to work and not because you have to work. Power to change to a different lower-paying job that you always wanted to do but couldn’t afford to do in the past. Power to trade work for travel/hobbies/family. Retirement then becomes freedom.

April 10, 2018