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Physician Retirement Planning

You Just Inherited An IRA. What Do You Do Now?

The individual retirement account (IRA) is the cornerstone for many people’s retirement savings. They are easy to set up – you can open one through nearly all investment companies on-line in a matter of minutes. They are available to anyone with an income – you can contribute pre-tax dollars if you earn a low or middle income and post-tax dollars if you earn a high income. They are convertible – you can can move funds from your traditional IRA into a Roth IRA and you can (usually) move funds from other tax-deferred investments, such as a defined benefit pension, 401(k), 403(b), or 457 into a traditional IRA. And they give you almost limitless choices – you can invest your IRA into stocks, bonds, mutual funds, annuities, and even real estate. For these reasons, it is easy to understand the popularity of IRAs – 42% of American households have one and they account for one-third of all U.S. retirement assets. They are even more common among retirees – a whopping 52% of households headed by someone over age 65 own an IRA.

Make sure that any required minimum distributions are paid up from the IRA for the year the decedent dies.

Be sure that you take annual required minimum distributions from the inherited IRA if required by the decedent’s age at death.

Know your withdrawal options depending on whether you are a spouse, eligible designated beneficiary, designated beneficiary, or non-designated beneficiary.

Make withdrawals strategically in order to minimize income taxes.

Choose investments for the inherited IRA based on your specific circumstances

 

Because of they are so popular for retirees, it is common for Americans to inherit an IRA from a spouse, parent, grandparent, or some other relative when they die. The rules for inherited IRAs are a bit complicated and when you inherit an IRA you have many choices. These choices fall into two categories: (1) what you legally have to do with the money in the IRA and (2) what you strategically should do from an investment standpoint. The IRS rules regarding inherited IRAs are detailed in publication 590-B. For the purposes of this post, we will be looking at inherited traditional IRAs – inherited Roth IRAs are handled similarly but with some additional nuances.

What you legally have to do

The first branch in the decision-making tree regarding inherited IRAs is based on who you are in relation to the deceased owner of the IRA and can be divided into four groups: (1) spouses, (2) “eligible designated” beneficiaries, (3) “designated” beneficiaries, and (4) “non-designated” beneficiaries. The IRS has different rules for each of these categories so let’s start by taking a look at the withdrawal requirements for each of these groups.

  1. Spouses. If you inherit an IRA from your deceased spouse, you have the greatest flexibility and you can choose from four options to withdraw money from the inherited IRA:
    1. Transfer it to your own IRA. This is usually the best option for most people as long as they are the sole beneficiary of the IRA. In this situation, you simply move money from your deceased spouse’s IRA into your own IRA and then it becomes subject to the withdrawal rules that apply to your IRA. The downside is that you cannot withdrawn the funds before age 59 1/2 without incurring an early withdrawal penalty But the upside is that you would not have to start withdrawing the funds until your own required minimum distribution clock starts at age 73.
    2. Open an inherited IRA using the life expectancy method. In this situation, you would open an inherited IRA (“beneficiary IRA”) in your name that is separate from your own IRA. However, regardless of your age, you will have to begin taking required minimum distributions (RMDs) from the inherited IRA at the later of either (1) December 31st the year after your spouse’s death if your spouse was 72 years old or older or (2) the year your spouse would have turned 73 years old. The amount of those required minimum distributions are based on life expectancy – the IRS publishes tables of your life expectancy and the percentage amounts of required minimum distributions for every age (IRS publication 590-B, appendix B, tables I, II, & III). The required minimum distributions are based on either your life expectancy or your spouses, whichever is longer.
    3. Open an inherited IRA using the 10-year withdrawal method. With this option, you open an inherited IRA (“beneficiary IRA”) in your name and then you have until December 31st of the 10th year after your spouse’s death to withdraw the funds from the inherited IRA. If the decedent died before their age of required minimum distributions, then you can take as much or as little out each year as long as all of the funds are withdrawn by the end of the 10th year. If the decedent died after their age of required minimum distributions, then you have to take at least the RMD amount each year and all funds must be withdrawn by the 10th year. For most people, this option gives less flexibility than either transferring the spouse’s IRA into your own IRA or into an inherited IRA and using the life expectancy method.
    4. Take a lump sum withdrawal. On the surface, this may seem like the simplest option but it has huge tax implications that can cost you dearly. The IRS treats withdrawals from a traditional IRA as ordinary income – the more you withdraw, the higher your income for that particular year. And the higher your income, the higher your income tax rate. A common misconception among Americans is that income only affects tax rates when that income crosses into a higher tax bracket. The reality is that with our marginal income tax system, your income tax rate goes up by a small percentage for every additional dollar of income that you have. So, regardless of your tax “bracket”, you will pay a higher tax rate if you take a lump sum withdrawal and this could result in a huge tax bill that year.
  2. Eligible designated beneficiaries. These are beneficiaries who are not the spouse and fall into one of four groups: (1) minor children of the decedent, (2) chronically ill individuals, (3) permanently disabled individuals, and (4) those who are no more than 10 years younger than the decedent. “Chronically ill” is defined by IRS Code Section 7702B(c)(2)(A). Eligible designated beneficiaries have three options for withdrawing the funds:
    1. Open an inherited IRA using the life expectancy method. This works essentially the same as it does for spouses above. However, if the beneficiary is a minor child, then the life expectancy method automatically changes to the 10-year withdrawal method when that beneficiary becomes 21-years-old.
    2. Open an inherited IRA using the 10-year withdrawal method. This works essentially the same as it does for spouses above. Annual required minimum distributions will apply if the decedent reached the age of required minimum distributions at the time of death.
    3. Take a lump sum withdrawal. This works essentially the same as it does for spouses above.
  3. Designated beneficiaries. This is a more common situation than “eligible designated beneficiaries” and includes adult children, other relatives, and friends as long as they are not chronically ill, disabled, or close to the decedent’s age at death. A person who is listed as a beneficiary on the original IRA documentation is known as a “designated beneficiary”. Designated beneficiaries move the funds into an inherited IRA and must withdraw all of the funds from that inherited IRA within 10 years of the decedent’s death. In addition, if the decedent was old enough to have to take required minimum distributions from their IRA, then you will have to take RMDs every year during that 10-year withdrawal period. In other words, if the decedent was 73 years old at the time of death, then you cannot just sit on the inherited IRA for 9 years and then take a lump sum withdrawal on year 10.
  4. Non-designated beneficiaries. If the decedent did not list any beneficiaries on their IRA documents and that IRA becomes part of the overall estate to be distributed based on the decedent’s will, then the people who inherit that IRA as part of the estate are non-designated beneficiaries (as opposed to “designated beneficiaries” above). In this situation, a 5-year rule applies, meaning that all of the funds from the inherited IRA must be withdrawn by 5 years after the decedent’s death. If you own an IRA, you should always designate beneficiaries on the IRA documentation – otherwise, the IRA can be subject to probate, can be tied up if someone contests the will, and whoever ends up with the IRA will be bound by the 5-year rule (as opposed to the 10-year rule).

Importantly, when you open an inherited IRA (“beneficiary IRA”), it is essential that this be done by a trustee-to-trustee transfer of the funds. This means that whatever investment company holds the money in the decedent’s IRA transfers the money into whatever investment company you use to create your inherited IRA and you do not touch the money. If, on the other hand, you have the investment company holding the decedent’s IRA write you a check and then you cash the check and try to deposit the money into your inherited IRA, you won’t be able to. That is because if you receive that check directly, the IRS considers it a lump sum distribution and so you will have to pay an enormous amount of taxes on all of that money for the year you received the check.

You can take money out of an inherited IRA but you cannot put your own money into an inherited IRA. This means that you cannot make additional contributions to the inherited IRA from your own funds. The only exception to this is if you inherit an IRA from your spouse and then transfer that IRA into your own traditional IRA, in which case you can continue to contribute to the account since it is now your own traditional IRA. If you are not a spouse and you inherit an IRA, then you would need to open up a separate traditional IRA in your own name and then you can make contributions to that second IRA.

The pesky RMDs and basis

There are two kinds of required minimum distributions (RMDs) in an inherited IRA: the amount that the decedent has to pay and the amount that you have to pay. If the decedent was at required minimum distribution age, then the year that the decedent dies, there must be a withdrawal from the decedent’s IRA of at least the RMD based on the decedent’s age. The current required minimum distribution age is 73 but it has progressively increased from 2019 when the RMD age was 70 1/2. The specific RMD age for each year since 2019 is listed here on the IRS website. The RMD amount is calculated by dividing the amount of the IRA by the “life expectancy factor”. The older a person gets, the lower the life expectancy factor. So, for example, if you inherit a $100,000 IRA from your uncle who was 80 years old when he died on March 1, 2024, then the Internal Revenue Service life tables indicate that the life expectancy factor for an 80-year-old is 20.2. By dividing $100,000 by 20.2, the RMD for 2024 is $5,155. If your uncle already withdrew at least $5,155 from his IRA in 2024 before he died, then you do not need to make an RMD from the inherited IRA in 2024. However, if your uncle did not make any withdrawals in 2024 before he died, then you must withdraw at least $5,155 from your inherited IRA in 2024 to satisfy your uncle’s RMD obligation for 2024. Therefore, it is essential that you obtain records of the IRA account activity for the year of the decedent’s death so that you know whether or not you have to withdraw an RMD for the year you inherit the IRA. This can be particularly challenging if the decedent dies in December because you may not have time to get the decedent’s IRA transferred into your inherited IRA before the December 31st deadline to take an RMD withdrawal. If this is the case then either direct the executor or the trustee of the decedent’s IRA to make the RMD withdrawal to the decedent’s checking account or you can request a waiver from the IRS.

The other complicating factor is basis. Most people’s traditional IRA is derived from pre-tax dollars that they contributed to that traditional IRA as a tax-deferred retirement account. However, if your income is too high, you cannot contribute pre-income tax money into the IRA but you can contribute post-income tax money into the IRA. The total amount of any post-income tax contributions that you make to the traditional IRA over your lifetime is the basis of that IRA. When you withdraw money from that traditional IRA in retirement, you do not have to pay income tax on the amount of the post-income tax contributions but you do have to pay income tax on the return on investment of those contributions. For example, say your income in 2010 was too high to make a pre-tax contribution to your traditional IRA so you instead contributed $1,000 from your checking account after paying all of your 2010 income taxes. By 2024, that initial $1,000 has grown to $2,900. If you withdraw all of the money in that traditional IRA, you will have to pay income tax on $1,900 ($2,900 minus $1,000). Things get complicated when you have both pre-income tax contributions and post-income tax contributions to your traditional IRA over your lifetime. It is essential that you track all of your post-tax contributions so that you know what the basis of your IRA is; otherwise, you will end up paying income tax on the entire withdrawal – in essence being taxed twice.

It gets even more complicated if the decedent has more than one kind of IRA – the basis is determined by the sum of all of a person’s traditional IRAs, SEP IRAs, and Simple IRAs. As an example, I have a traditional IRA that is composed of both pre-income tax contributions and post-income tax contributions. In addition, I have an SEP IRA that is composed entirely of pre-tax contributions. Because the basis is determined by by the sum of these IRAs, I have both taxable and tax-free components to both my SEP and traditional IRA withdrawals in retirement, even though all of the original contributions to the SEP were made with pre-tax dollars. It can make your mind spin when doing your income taxes every spring.

When you inherit a traditional IRA, you need to track down any post-tax contributions that the decedent made to that IRA so you can determine the basis of the IRA. If you don’t, then you risk paying a lot more in income taxes than you have to. This is normally done on IRS form 8606 which serves as a historical cumulative record of the IRA basis.

The good news is that the basis in your own regular traditional IRA is not used in determining taxes owed on your inherited IRA withdrawals and vice versa. Your regular IRA(s) and your inherited IRAs are treated like completely separate accounts, each with their own basis used to calculate income tax on withdrawals. But this means that you will have to file two IRS 8606 forms with your income taxes each year – one for the inherited IRA and one for all of your regular IRAs.

What the wise investor should do

Once you have figured out whether or not you need to take an RMD for the year you inherit an IRA and once you figure out what the basis of the inherited IRA is, you then have to decide how you are going to invest the money in the inherited IRA and how you want to strategically withdraw money from that inherited IRA. Let’s take withdrawal strategies first.

You are going pay federal and state income tax on the withdrawals from the inherited IRA for each year that you take a withdrawal. Because those withdrawals are included in your gross taxable income for any given year, the more you withdraw, the higher your income tax rate will be for that year. Your goal is to keep your income tax rate as low as possible every year. Therefore, in years that your income is lower, you should make larger withdrawals from the inherited IRA and in years that your income is higher, you should make smaller (or no) withdrawals from the inherited IRA. It is not always possible to know in advance what your income for any given future year will be but here are some situations that could factor in:

  • You are 66-years-old and want to delay starting to take Social Security in order to maximize the amount of your Social Security payments. By taking withdrawals from your inherited IRA in the years prior to taking Social Security, you can avoid a high income (and a high income tax rate) once you start taking Social Security.
  • You plan to work part-time for a few years. Maybe you are going back to get an MBA in your 40’s or maybe you want to cut back on work for a couple of years after having a child. These are good years to take withdrawals from your inherited IRA to even out your taxable income and your income tax rates over future years.
  • You get a big bonus. Maybe you changed jobs and got a signing bonus this year or maybe your company went public with an IPO and you cashed in your stock options. If you have a windfall in income one year, then skip taking withdrawals from the inherited IRA that year.
  • You anticipate moving to a different state. If you currently live in a state like Florida where there is no income tax but in the future you plan to move to California where the income tax rate can be as high as 12.3%, then taking withdrawals from the inherited IRA when you are a resident of Florida can save you money.
  • If your federal tax rates are going up in the future. We are currently living in an era of historically low income tax rates but these current rates are set to expire at the end of 2025. If rates do increase in 2026 as Congress originally planned, then it is wise to take larger withdrawals in 2024 and 2025 before income tax rates go up.

After deciding when to withdraw the money from an inherited IRA, you have to decide how you are going to invest the money in the inherited IRA. What you invest the money in depends on your individual circumstances:

If your plan is to spend the withdrawal money. Most designated beneficiaries will have to withdraw all of the funds from the inherited IRA over a 10-year period. If your intention is to spend that money when you withdraw it, then you should invest the inherited IRA in a low-risk investment. For example, new 5-year U.S. Treasury Notes are currently being sold with annual interest rates of 4.6%. Bond mutual funds have recently taken a beating as the yields on component bonds have increased to match interest being paid on newly issued Treasury Notes and Bonds. Consequently, now is a great time to invest in bond funds while they are cheap. For money that will be withdrawn from an inherited IRA over the next 2-3 years, even a money market can be a great option (currently paying about 5.25% annual interest).

If your plan is to invest the withdrawal money. Let’s say you are mid-career and working and then you inherit an IRA and you want to use that money as a component of your overall retirement investment portfolio. You still have to withdraw all of the funds over 10 years and pay the income taxes. In order to minimize taxes, determine the proper mix of stocks:bonds in your overall retirement portfolio based on your investment horizon (your age) and your personal willingness to accept risk. Then put the inherited IRA in low risk investments (such as bonds) and move an equal amount of your other tax-deferred investments (from your regular traditional IRA, 401k, 403b, or 457) into higher risk investments, such as stocks. This strategy allows you to maintain your overall stock:bond ratio while minimizing the risk of increasing your income tax rates over the upcoming 10 years.

If you inherit an IRA from your spouse. Normally, you cannot convert an inherited IRA into a Roth IRA. The one exception is if you inherit a traditional IRA from a spouse. In this case, you can make the inherited IRA your regular traditional IRA in your name and then convert some or all that traditional IRA into a Roth IRA. This can be a particular good strategy if your spouse dies and leaves both an IRA as well as cash and regular taxable investments. If you are able to live off of that inherited cash and the taxable investments for a few years, then your taxable income rate will be relatively low. This is a great time to do a Roth IRA conversion because with a low income tax rate, you won’t have to pay as much in income taxes when doing the conversion.

If you plan a big purchase in the near future. Maybe you plan to buy a house in 3 years and will need cash for a down payment. Maybe you are planning an expensive wedding in 2 years. Maybe your child will be starting college in a year. If you will need a large lump sum withdrawal in the near future then invest the inherited IRA in a very low risk investment such as a CD or a money market. Just be sure that the maturity date of the CD is sooner than the date you need the money. In this situation, your primary goal is not minimizing income taxes, instead your goal is to ensure that your investment hasn’t lost money when you need to take it out, such as if the stock market nose-dives.

If you want to donate to charity. If you are younger than age 70 1/2, the only way to donate money in an inherited IRA to charity is to take a withdrawal, pay income taxes on that withdrawal, and then donate whatever is left after taxes to the charity. But if you are older than age 70 1/2, then you can donate to a charity directly from the inherited IRA, without paying any income tax by making a qualified charitable distribution. This means that the donations do not add to your taxable income and thus do not increase your effective income tax rate. The donations can count toward your required minimum distributions for that year. Also, because the money donated to charity is not taxed, the amount that the charity gets is greater. There are some rules, however.

  • The charity must be recognized by the IRS as a qualified charitable organization. This is generally a 501(c)(3) organization.
  • The donation cannot go to a donor-advised fund.
  • The total amount of all qualified charitable distributions allowed is $105,000 per person per year in 2024.
  • The donation must be reported as a death distribution from the inherited IRA.
  • The donation is not included in your Schedule A itemized deductions.
  • The donation must be made from the inherited IRA directly to the charity (“trustee-to-charity”), otherwise you would have to declare the money as income and pay taxes on it.
  • Two additional caveats: (1) make sure you get a receipt from the charity for documentation purposes and (2) each state has different rules regarding state income tax and qualified charitable distributions so check your specific state’s tax laws.

Inherited IRAs can be complicated

The rules regarding inherited IRAs are incredibly complicated – if there was ever a justification for simplifying the U.S. tax code, look no further than publication 590-B. Use this post for general guidance but read the sections of publication 590-B that pertain to your specific circumstances before making final decisions about managing your inherited IRA. If in doubt, get professional help from an attorney, accountant, or financial advisor with expertise in inherited IRAs.

May 6, 2024

Categories
Academic Medicine

An Insider’s Guide To The Medical Residency Interview

After more than 30 years of interviewing senior medical students for our internal medicine residency and interviewing residents for our pulmonary and critical care fellowship, I have interviewed hundreds of applicants. Every interviewer is different – we all prioritize different medical school metrics differently and we all prioritize different personal traits in an applicant differently. So, what impresses me may not be what impresses another interviewer. Nevertheless, here is what I looked for in all of those interviews. Although my background has been interviewing for internal medicine applicants, most of my thoughts apply to interviewing for a residency in any specialty.

Your best preparation is a good night’s sleep

During your interviews, you will have to be able to think quickly and think on your feet. If you only got 4 hours of sleep the night before, you will not be as mentally sharp. Furthermore, you will look tired and that is not the impression you want to give.

If you are a coffee drinker, drink judiciously the morning of your interview. On the one hand, you don’t want to experience acute caffeine deficiency during your interviews. And you definitely do NOT want to fall asleep during the grand rounds lecture that you attend as part of the interview day. But on the other hand, you don’t want to be squirming during your interviews because the 16 ounce Pistachio Mocha Frappuccino that you gulped down an hour ago is not fitting in your 10 ounce bladder. When in doubt, drink espresso.

Look the part

As doctors, we rely first and foremost on our physical exams to diagnose patients – and that exam always starts with observation. The same holds for a resident interview – the interviewer has already formed an opinion about you from the way you look, even before the conversation starts. You don’t have to wear formalwear but you do have to look neat.

If you are a guy and shave, make sure you shave that morning; if you have a beard, make sure it is trimmed. If you are due for a haircut, get one. Avoid appearances that make a statement because not every interviewer will interpret that statement the way you mean it. For example, the week before your interview is not the time to put blue and pink highlights in your hair – you may think it is fashionably avant-garde but the baby boomer cardiologist who is interviewing you may think it just looks weird. The same goes for tattoos – you never know what the interviewer thinks about them so you are better off wearing long sleeves. If you have piercings (other than earrings), take them out. Make sure your nails are trimmed and you don’t wear French Tips or artificial nails since most hospitals don’t allow them for employees, anyway. Avoid excessive jewelry, bling, cologne, or perfume.

When it comes to clothes, it is better to be over-dressed than to be under-dressed. For men, that means a dark suit and a tie (in a few hospitals, such as the Mayo Clinic, suits are required to be worn by physicians and students). For women, a dark skirt suit or pant suit is best. Your residency interview is arguably the most important job interview of your career so invest in it. If the suit you used four years ago when interviewing for medical school no longer fits or looks old, then get tailored alterations so it fits well or (better yet) buy a new one. This is not the time to borrow a suit from your brother who is 2 inches shorter and 20 pounds heavier than you. You only need one suit; no-one at the various hospitals you interview at will see you more than once. Don’t look rumpled – a permanent press shirt works best and if your hotel room has an iron, use it that morning. And don’t wear the shoes that you’ve been wearing on all of your clinical rotations that have gotten slimed by numerous patient bodily secretions for the past year. For women – similar recommendations. Avoid open toe shoes (most hospitals don’t allow employees to wear them). When in doubt about what to wear or not wear, look at the hospital’s dress code for employees – they are generally available on-line. Avoid wearing anything that could be polarizing – don’t wear your University of Georgia Bulldog tie when you are interviewing at the University of Alabama. And speaking of your tie, make sure the knot is neat and the bottom of the tie should just touch the top of your belt – it should not be higher or lower. Religious clothing accessories are fine – just be sure that they are clean and conservative.

The bottom line is that you want to be remembered for what you say during the interview and not what you wore during the interview. The attending physicians who interview you are going to interview dozens of other applicants over a 2-3 month period and you don’t want to be the one who is remembered as “…the guy with the nose ring and the skull and crossbones tattoo waring the too-short neon pink tie and tennis shoes“.

The pre-interview dinner

If there is a dinner or reception the night before the regular interview, dress based on the venue. If you aren’t sure what to wear, Google image search the restaurant to see what customers typically wear. Once again, being a bit over-dressed is better than being under-dressed. Nice-looking jeans and a blazer works for a casual venue, Kakis and a blazer usually works for nicer venues.

The pre-interview dinner is usually with a group of current residents. This is a great time to find out about “life as a resident” details. Usually, the residents will be able to tell you about how the call schedule works, the specific rotations assigned each year, the resident continuity clinic, etc. far better than the faculty members who do the actual interviews the following day.

What you say and do during the pre-interview dinner usually doesn’t help you to get into a residency but it can hurt you. The residents will report back to the residency program director if an applicant throws up red flags during the dinner. And don’t be lured by free food and alcohol – moderation with both is safest. If you drink alcohol, limit yourself to one drink for the evening. If the dinner is a la carte, don’t order the most expensive items on the menu.

Put your phone away

For many Americans, the cellphone is their reflexive default activity. Waiting at the airport? Pull out your cellphone. Commercial break on TV? Pull out your cellphone. Waiting for water to boil? Pull out your cellphone. But during a residency interview, your cellphone is a dangerous weapon that can cause self-inflicted fatal injury to your interview. If your phone ringtone goes off in the middle of an interview – you’re toast. If the residency program director hears you playing Super Mario in-between interviews – you’re toast. If an interviewer walks into the interview room and sees you watching replays of The Simpsons – you’re toast.

As interviewers, we are looking for applicants who are friendly, focused, undistracted, and professional. And nothing says “I’m bored” more than having your head buried in your phone. If you absolutely must have your phone with you in order to exchange contact information with interviewers or other applicants, then keep it turned completely off except when needed. Otherwise, you are probably better off leaving it locked up in your car to avoid temptation to use it. Most of us turn to our phones if we don’t have anything to do. There will be moments like that on interview days but you are far better off reading through the printed material that the residency program hands out (even if you have to read it 4 or 5 times), looking at stuff pinned to the bulletin board, or striking up conversations with other applicants.

When you have breaks in the interview day schedule, it is a good idea to write down your thoughts about different people that you interview with, features of the hospital, and unique aspects of the residency program. You are better off using a notepad than your phone or iPad – you don’t want to be misconstrued as playing video games when you are actually jotting down details about the hospital call rooms. You’ll end up with stuff you have to carry – a notepad, the brochure they give you when you arrive for your interview, your interview schedule, etc. But in this situation, less is more. If you can fit most of your stuff in your jacket pocket leaving you to only have to carry the brochure folder, that is ideal. If you must take some kind of accessory to carry your stuff in, make it small and new-looking. You DO NOT want to be carrying your backpack from one interview to another.

The office staff are more important than you think

I used my office assistant and my office manager as my spies. Most applicants can pull it together long enough to put their best face forward for a 30-minute interview with the attending physician but they often let their guard down when that attending physician is not around. They say things to the office staff that they wouldn’t say to an interviewer. An applicant who was rude or aloof to the staff while sitting in the waiting area earned a “thumb’s down” for the interview, no matter how good they seem on paper or how good they were when I met with them. How an applicant treats the office staff on interview day is an indication of how that applicant will deal with the nurses, respiratory therapists, pharmacists, custodial staff, and everyone else who works in a hospital that does not have an MD or DO after their name. Be friendly, stand up when they approach you, make eye contact when talking to them, and smile. Make small talk but don’t distract them from their work. The bottom line is to assume you are on-stage and someone is watching you from the minute you walk into the hospital until the minute you walk out.

Similarly, the residents who take you on a tour of the hospital, have dinner with you the evening before, or take you to lunch will report back to the program director or the the program’s administrative staff about applicants that stick out (either good or bad). Although it is true that you can often ask the residents questions that you are best not asking attending physicians during an interviewer, remember that those residents’ observations about you are part of your evaluation.

Do a little research

Read over the material on the residency program’s website and brochure. During the interview, if you ask questions about features of the program that are stated on the website, you will look like you didn’t care enough about the program to learn about it. The residency program director(s) and staff spent a lot of time creating that website and brochure and if it looks like you never bothered to read it, they will be disappointed. So, for example, if the website says that “First year residents get 2 months of electives.“, don’t ask “Do residents get any elective months?”. Instead ask, “I saw on your website that first year residents get 2 months of electives. What type of electives do most residents do?”. After 8 or 10 interviews, all programs start to sound a like so take some notes about each program from your research and re-read your notes just before the interview. It is a good idea to identify aspects of the residency program, the hospital, or the community that you have questions with after reading the program’s website. Write down those questions ahead of time and them take them with you on interview day.

It’s all about communication

As an interviewer, I have found that there is only so much I can learn about a person from a 30-minute interview. I learn the least from the standard questions like “Why did you choose internal medicine?” (I can get the answer from the personal statement in the application). Or, “Where do you see yourself in 10 years?” (most senior medical students do not have a clue and those that think they do are ultimately usually wrong). Instead, the three things that I look for during an interview are (1) overt psychopathology, (2) good communication skills, and (3) someone that I can trust to take care of my patients.

You can’t always identify psychopathology during an interview but there are frequently clues. Residents with psychopathology made my life as an attending physician worse. Clues that an interviewee will be belligerent as a resident, has an alcohol or drug use disorder, or has a personality disorder are red flags that the interviewee is going to be a problem child as a resident. For the ultimate psychopath who wriggled his way into internship, read the book “Blind Eye” that tells the story of serial killer Michael Swango, who killed at least 60 people, including several at the Ohio State University Medical Center when he was an intern. I was a senior medical student on-call in the ICU the night that one of his attempted murders by succinylcholine injection of a patient resulted in the patient being resuscitated and sent to our ICU. I can remember seeing him in the ICU that night – he had not been caught yet but I vividly remember looking at his wild-looking eyes and thinking at the time – “This dude definitely ain’t quite right“.

When it comes to communication skills, most people think about verbal communication. But there is far more to communication than just words. In the middle of the night, when a patient has a cardiac arrest and gets transferred to the ICU, I expect more from a resident meeting with the family than just the ability to speak English. Communication starts when you meet your interviewer – stand up, introduce yourself, shake hands (neither squeezing too firmly nor too softly), and wait to sit until the interviewer sits or directs you to sit. Eye contact is essential. Whether or not an applicant made good eye contact with me appeared on just about every interview summary that I’ve done for at least 20 years. You don’t need to constantly stare to the point of being annoying but keep coming back to the interviewer’s eye’s. Be relaxed with good posture. Using your hands as you talk is OK – just don’t overdo it. Don’t be checking your watch or a clock on the hall – it is the interviewer’s job to be aware of the time (or more likely an office staff member will knock on the door to give a 5-minute warning). Smiles can win hearts, especially when combined with eye contact.

I’m neutral about post-interview thank-you notes or emails. They seem like they have become almost obligatory and they all seem to end with the meaningless sentence: “I will be ranking your residency program highly.” The truth is that I fill out my evaluation of each applicant immediately after finishing my interview and by the time I get a thank-you note, I’ve already submitted my evaluation. My overall take is that thank-you notes don’t really help you but they don’t really hurt you either. If you do decide to send them, then whatever you do, proof-read them twice before sending. Nothing screams “I’m an idiot.” more than misspellings and bad grammar.

What about questions?

You can find loads of websites that list common questions that interviewers ask but the reality is that each interviewer is different. Be prepared for the questions that seem to come up consistently on the various websites and have general answers formulated in your mind. But as an interviewer, if I think your answers are overly rehearsed, I’m going to lower your final rank score for the interview. My practice was to read over the applicant’s application before the interview and pick out things that stood out as unique and then use those as the basis for my questions. So, if an applicant wrote down in their application that they spent a month in Guatemala at a missionary clinic in the mountains, I wanted to hear about it. Same with working at free clinics, gap year experiences, clinical electives out of state, or research. Be ready to talk about these experiences and make your answers like you are telling a story about those experiences and not just stating the facts about them. I also like to ask questions about hobbies and interests outside of medicine.

The reason that I find these questions so informative is not because of what the applicant says as answers but how they say it. I don’t know anything about medieval architecture in Prague but if that is what an applicant spent a summer studying when they were in college, I want to know if the applicant can make me understand it and make me interested in it by how he or she tells me about it. Can the applicant convey passion about their past experiences. If they can do that, I’m more confident that they can explain to a patient with angina what it means when their right coronary artery is 85% occluded on their cardiac cath. The other reason I like these kinds of questions is that I get bored after asking 100 applicants the same routine questions and hearing the same routine answers 100 times.

I want to know: is this applicant an interesting person who I (and my colleagues) are going to enjoy working shoulder-to-shoulder with for the next three years? Is this person going to bring unique experiences that are going to make the residency program richer? Can this applicant work as a team member with the other physicians and non-physicians? Can this applicant communicate with patients and their families?

A lot of interviewers will as the question “Tell me about a patient that had a particularly big impact on you“. I personally never really liked that question and only asked it if I ran out of other questions. Nevertheless, if you interview at 13 residency programs, at least one interviewer at some program is going to ask it, so be prepared. But once again, don’t just give the facts, tell the story of the patient.

In days past, there were some interviewers that would treat the interview like an oral exam. Fortunately, those days are pretty much gone but occasional some codger attending will blindside you with: “What would you do if the nurse calls you at 3:00 in the morning with a patient with AML who just spiked a fever to 103 and has a heart rate of 140?” My best advice is do what candidates do at presidential debates: when asked a question you don’t know the answer to, answer some other question that you do know the answer to. So, in this situation, the answer could be: “As an intern, my role is to do an initial assessment perform any emergent stabilization measures and then contact my supervising resident so that together as a team, we can formulate a more definitive management plan.” And then if the interviewer presses you, an acceptable answer to 90% of clinical scenarios is to put the patient on oxygen, start fluids, and get some labs.

Two things to avoid are swearing and jokes. F-bombs are increasingly (and tiringly) ubiquitous in American culture but you are interviewing for a professional position. No swearing and no slang. Humor is not what you think is funny, it is what the person listening to you thinks is funny and you don’t really know what your interviewer thinks is funny. Even the best stand-up comic bombs with some audiences. If 99% of people would laugh at something you say, then the chances are that your interviewer will be the 1 person who is offended by it. You have very little to gain with humor but you do have a lot you can lose.

What questions should you ask?

It is best to let the interviewer take the lead in questions. But if there is a pregnant pause in the interview or if the interviewer leaves time at the end for you to ask some questions, be ready. But don’t be rehearsed – I could usually tell when an applicant asked me a standard question like “What do you think the residency programs strengths are?” immediately after I asked they had any questions for me. Instead, personalize your questions in a way that shows you are interested in that particular interviewer, residency program or hospital. For example, ask what drew the interviewer to work at the hospital. Ask about the interviewer’s area of clinical interest. Ask about how the new hospital wing under construction will impact future patient management.

It is important to be somewhat strategic in your questions and what you ask will depend on who is interviewing you. The program director or department chairman will be knowledgeable about how many residency graduates went on to do fellowships or went into private practice. But the nephrologist who spends 10 months a year in his research lab and 2 months out of the year on the nephrology consultation service may be clueless about these kind of details. Similarly, An attending hospitalist can tell you details about how patient admissions come in from the ER but the outpatient endocrinologist who hasn’t admitted a patient in 15 years probably won’t know a thing. So, have a lot of questions prepared before the interview but ask them selectively based on the specific interviewer. If you get the interview schedule in advance, then pull up each interviewer on the hospital’s website to help you pick questions appropriate to that particular interviewer. Residency programs interview hundreds of applicants each year and each applicant usually has 3 or 4 individual faculty interviews. That means that the residency program administrative assistant has probably been emailing and calling every faculty member they can think of, desperately trying to find someone to fill interview slots. Often the attendings who do the applicant interviews are not those who are most intimately familiar with residency program details.

But as an interviewer, there are some questions I don’t want to be asked. And if the last thing that I talk about with the applicant during the interview is something that doesn’t make me happy, that is going to sour my memory of the applicant when I do my final scoring. Here are some of the things I don’t want to be asked about:

  • Resident call rooms. I have no idea, I haven’t slept in one for 35 years. This is a better question to ask the residents.
  • The process about how residents report duty hour violations. That immediately makes me wonder if you’ll be calling the human resources department if you are in the middle of doing CPR on a patient at the stroke of 6:00 PM when shifts change.
  • Politics. I want to know if you are going to be a good doctor and a good team member. Asking me about my opinions about some international conflict or my views on immigration has little or nothing to do with it.
  • Physician unions. Some attending physicians love them, some tolerate them, and some hate them. Unionization can bring good things to workers but unions can also be antagonistic to the hospital and the attending physicians. If residents go on strike, then the attending physicians have to pick up extra patient care duties and that engenders resentment. Like it or not, an applicant who sends signals that he or she wants to unionize the residents sends a signal that he or she is going to be a problem child.
  • “What are your pronouns?” I can’t figure out why some people ask me this – I’m a gray-haired, bearded, bald, 65-year-old who has been happily married for more than 40 years and has 4 kids and a bunch of grandkids. You use pronouns when you are talking about someone, not when you are talking to someone. When you ask a baby boomer what their pronouns are, it just confuses them… and then the’ll tell you to get off their lawn.
  • What are the program’s weaknesses? Some attending physician interviewers take this as a fair question. I always interpreted it as a way to get the dirt on the program. I do think, however, that it is fair game to ask about specific safety concerns, such as what the hospital process is dealing with unruly patients. Just don’t ask open-ended questions about everything and anything bad about the hospital. If I walk out of the interview feeling negative vibes, that affects my overall impression of the applicant.
  • Vacation time and moonlighting policy. These questions leave me wondering if the applicant is really going to be hard-working and focused on the primary job of taking care of patients and learning the practice of medicine. It is safer to ask the residents during the pre-interview dinner.
  • I don’t have any questions. If I ask you if you have any questions with 10 minutes left in the interview and you don’t have any, it means one of two things. Either I was a genius and completely won you over so that there is absolutely no question that you are going to rank our residency program #1 or (exponentially more likely), you’ve made up your mind that you aren’t ranking us and you are just trying to get done with the interview. Always be prepared to ask something. The absolute worst interviews are those when both the interviewer and the applicant run out of things to talk about with 15 minutes still left to go in the interview.

The bottom line

The medical residency interview is really a two-way interview: you are being interviewed by the residency program and the residency program is being interviewed by you. What I am looking for as a faculty interviewer is whether the applicant is going to be an effective member of the healthcare team and whether the applicant will be enjoyable for me to teach medicine to. But the applicant needs to be using the interview as a way to determine if the residency program is a good fit for him or her, also.

The best residency program is the one that is best for you and not necessarily the one that is most famous, most prestigious, or best for someone else. The purpose of a residency is to make you into the best possible physician you can become and central to this is whether you are happy in the residency program. You will probably become a better doctor by attending a good, solid residency that you are happy in than by attending a highly prestigious residency program that you are unhappy in.

Interviewing is a skill and like any skill, you get better with practice. It is a good idea to schedule the first one or two interviews at programs you think you are less likely to attend so that you can hone your interview skills before interviewing at programs that you are most interested in.

Your goal in the interview is to leave the interviewer with the idea that you are intelligent, mature, well-trained, and a hard worker. You want the interviewer to know that you have excellent communication skills, are eager to learn, and understand your role as a member of a healthcare team.

May 1, 2024

Categories
Outpatient Practice

Physicians Should Promote Over-The-Counter Influenza Testing

When the COVID history books are written, one of the good things to come out of the pandemic is the public’s successful use of home antigen testing for viruses. Forty years ago, if you wanted any kind of diagnostic medical test, you had to go to a doctor. The U.S. Food and Drug Administration (FDA) took the position that the general public was just not sophisticated enough to perform any kind of home testing. Then, in 1976, the FDA made a ground-breaking approval of e.p.t. – the Early Pregnancy Test which became the first over-the-counter pregnancy test that anyone could do. By 1988, 33% women of child-bearing potential had used a home pregnancy test. Today, global annual sales of home pregnancy tests are $705 million and they are well-accepted for their ability to accurately identify pregnancy as early as a week after conception.

Home glucose testing followed a similar timeline. The first glucose test strip, Dextrostix, was developed in 1965 and for the next fifteen years, the use of test strips was limited to physician offices. In 1980, the Dextrometer was launched and home glucose testing rapidly became the standard of care.

But it wasn’t until the COVID pandemic that home testing for an infection became available. Indeed, the home tests for COVID became one of public health’s most valuable tools to identify infections early in order to isolate contagious persons and slow the infection rate in communities. I can remember the earliest COVID home tests that required a person to use a camera on a phone or computer to link with a person trained in proctoring the steps in testing and in interpretation of the results. Those test kits gave way to tests that anyone could do on their own, without telemedicine proctoring. It turned out that the general public was more sophisticated than the health community had thought and were able to correctly perform and interpret these tests without proctoring.

Labcorp’s Pixel test can diagnose RSV and influenza infection in addition to COVID. Anyone can buy an over-the-counter Pixel test and do the nasal swab themself at home; however, it must be mailed to Labcorp for analysis and the results can take 2 days to come back. This delay of 2 days to make a diagnosis renders Pixel of limited use since rapid influenza tests can be performed in a doctor’s office in a matter of minutes. Thus, if a person is worried that they have influenza, it is far more expedient to go to their doctor, an urgent care center, or an emergency department for a rapid flu test.

Last year, in February 2023, the FDA approved Lucira, a home test for both COVID and influenza. This test, produced by Pfizer, correctly identified 90% of positive influenza A samples and 99.3% of negative influenza A samples. Lucira also detects influenza B but there were few cases of influenza B circulating at the time that Lucira was tested for accuracy. Unlike Pixel, Lucira tests are done by having the person do their own nasal swab and then perform testing and test interpretation themselves. The test requires a battery-powered device to analyze the specimens (the device and batteries are included in the Lucira kit). The total amount of time to perform the nasal swab and run the test through the device is about 35 minutes. Lucira is available through Amazon and costs $50 for one test kit. You can read the full kit instructions here, at the FDA’s website.

Why aren’t more people using Lucira tests?

Lucira has been a major breakthrough – a home influenza test that anyone can do and get immediate results. Diagnosing influenza early is crucial for infection control and treatment efficacy. You get influenza by being exposed to an infected person’s respiratory droplets. Thus, early diagnosis permits isolation of an infected person so as to reduce the chance of spreading influenza to family members, co-workers, or classmates. We have a very effective treatment for influenza – oseltamivir (Tamiflu), made by Genentech. However, for oseltamivir to be effective, it should be started within 2 days of the onset of influenza symptoms. This limits the usefulness of the Pixel tests since by the time the results get back, it is often too late to start Tamiflu. For these reasons, you would think that Lucira would be flying off the shelves but the reality is that few Americans (including doctors) have even heard of it. So why is it being so woefully underutilized?

  • It is only available through Amazon. In larger communities, Amazon can deliver a Lucira test kit the same day it is ordered. But in some areas of the country, it can take longer. Most people would prefer to stop by their local pharmacy to buy a test kit on-demand when they first develop flu symptoms but you can’t buy Lucira at a CVS or Walgreens. By limiting sales through Amazon, there is an access and time barrier to obtaining a test kit.
  • It is expensive. Personally, I would be more than willing to pay $50 to find out as early as possible if my fever and cough are due to influenza or not. But $50 can be a cost barrier to many people, especially since a COVID-only test kit costs less than $20 (for 2 tests in a kit) at your local pharmacy.
  • It is not being marketed. The American public is inundated with TV commercials for drugs. That’s because there is money to be made when pharmaceutical companies sell more of those drugs. Pfizer has relatively little to gain by selling its Lucira test kits. If Genentech produced an influenza home test kit, it would have an enormous financial incentive in the form of greater sales of Tamiflu from all of those early influenza diagnoses. Pfizer lacks an incentive to put money into advertising Lucira or to reduce the price of Lucira.
  • The public has COVID fatigue. Let’s face it, we’re all tired of COVID and just want it to go away. And the truth is that COVID hospitalizations were lower last week than any week since June 2023. We are also at the end of influenza season and flu cases are dwindling. If you get flu-like symptoms today, it is statistically more likely to be some other respiratory virus that there is no treatment for, anyway. COVID and influenza are out-of-sight, out-of-mind in the American public’s consciousness.

So, what can we do?

I’ve seen many people die from influenza during my career. As a pulmonologist, I know that the best way to reduce the chance that my patients will die from influenza is to diagnose it as early as possible. But I also know that it can be difficult for patients to get in to see a doctor within 48 hours of onset of flu-like symptoms. Patients will often call their doctor or message their doctor through their electronic medical record patient portal when they have flu-like symptoms but most doctors will not prescribe Tamiflu unless they have confidence that the patient actually has influenza as opposed to some other respiratory virus. So, what can we do to improve the use of home influenza testing?

  1. Make it more widely available. Don’t get me wrong, I buy a lot of stuff through Amazon. I’m surprised that Jeff Bezos doesn’t send me a fruit basket every Christmas in gratitude. But by limiting distribution to Amazon, the test kits are just not readily available to many (or most) Americans. Physicians should ask Pfizer to sell Lucira at brick and mortar pharmacies.
  2. Increase competition. Adam Smith, the father of supply and demand economics, identified that the best way to improve the quality and availability of a good or service as well as reduce the price of that good or service is through competition. Right now, Pfizer has a monopoly on the home influenza test kit market and is not incentivized to reduce the cost of test kits or to improve those kits. The FDA needs to authorize home influenza test kits from other manufacturers. It’s industrial competition that makes America great.
  3. Physicians need to educate themselves. We are influenced the greatest when a trusted peer advocates a new test or treatment. This can be through formal educational programs, such as grand rounds, or through informal settings such as department meetings or medical staff meetings. We need to spread the word about the availability of home influenza testing – not only among ourselves but also among our patients.
  4. A perfect opportunity for telemedicine. My inbasket in our electronic medical record was always the bane of my existence. I would tediously clear out all of the test results and patient messages every evening but by the next day, that inbasket would be full again. Physicians don’t like providing health advice or treatment via a patient portal or phone call because it takes up a lot of time and they don’t get paid (or if they do, they get paid very little). But with the expansion of telemedicine reimbursement during the COVID pandemic, a doctor can get paid for their time and expertise while improving the health of their patient expediently. Home influenza testing creates an ideal opportunity to utilize telemedicine – the doctor can observe the patient’s general condition and look at the test result via the video link. If the test is positive, a prescription for Tamiflu can be sent to the pharmacy without the patient having to come to the doctor’s office (and potentially infect patients in the waiting room, the office staff, or the doctor him/herself). Ideally, medical practices should make same-day telemedicine encounters available for any patient with a positive home influenza test. Every hour faster that we can prescribe Tamiflu is better for our patients.

At age 65-years-old, I recognize that I am at higher risk of death or serious illness from either COVID or influenza. Even if the infection doesn’t make me sick enough to be admitted to the hospital, those infections will still make me feel pretty crappy for several days and I don’t particularly like to feel crappy. I’m financially secure enough (and value my health enough) that next fall, when influenza season starts, I’ll spend the $50 and buy a Lucira kit through Amazon and leave it in my medicine cabinet for a year in case I develop symptoms. But I think that we can do better – and by we, I mean doctors, the FDA, and kit manufacturers. I’m hoping that like e.p.t. paved the way for other home pregnancy tests, Lucira will pave the way for other home influenza test kits that are easier to use, more accurate, more available, and less expensive.

April 25, 2024

Categories
Medical Education

Every Residency Program Should Offer Virtual Interviews

In the “before times”, all interviews for residency and fellowship positions were performed in-person. Then came COVID when in 2022, 94% of programs offered virtual interviews exclusively and an additional 4% of programs performed more than three quarters of interviews virtually. With the pandemic fading, programs are facing the decision of whether to return to in-person-only interviews. There are compelling reasons why they should not.

The advantages of the in-person interview

I have interviewed hundreds of students applying to residency and residents applying to fellowship. As a faculty member who served for many years on our internal medicine resident selection committee and our pulmonary and critical care fellow selection committee, I believe that in-person interviews are usually preferable to virtual interviews.

For the interviewer, you get better information about the applicant’s communication skills, both verbal and non-verbal. It is also insightful to observe how the applicants interact with other applicants being interviewed on the same day and how applicants interact with the non-physician members of the office staff. The in-person interview day usually includes a lunch or dinner with some of the current residents or fellows – this is a time when applicants often reveal more of their true personality and behavior. All of these observations can impact how high an applicant is ranked on the program’s match list.

For the interviewees, an in-person interview is an opportunity to see what the facilities are like. This can include the layout of the hospital(s), inpatient rooms, outpatient clinic sites, the educational facilities, the call rooms, the library, and even the cafeteria. The applicant can get a better idea of how the current residents interact with each other, with the faculty, and with the hospital staff. One of the most overlooked advantages of in-person interviews is the opportunity to talk with other applicants being interviewed on the same day – they can often provide first-hand knowledge of other training programs and that knowledge can help an applicant decide which additional programs to interview at (or not interview at).

But in-person interviews are costly

The main disadvantage of in-person interviews is the cost – both to the applicant and to the residency (or fellowship) program. For the applicant, the time cost of each interview is considerable. To interview at a residency program within a 2-3 hour drive requires a full day to drive to that program, interview, and drive back home. To interview at a residency program farther away, it can take 2 or 3 days when factoring in travel time. This means that the senior medical student must either make arrangements to be absent from their clinical rotation for that time period or to schedule a vacation month and try to fit as many interviews into that month as possible. In addition to the time cost, there is considerable financial cost for each interview. The travel costs for interviews that the applicant can drive to are relatively low but for those interviews that require an air flight to reach, costs can add up quickly. This is especially true if an overnight hotel stay is necessary. For many applicants, there is a wardrobe cost – medical students who have been wearing kakis or scrubs with a white coat for clinic rotations for the past couple of years need to buy one or two sets of business wear for interview days. To successfully match to a residency program, students must interview at an average of 14 programs, costing them thousands of dollars in travel and wardrobe expenses. Because 71% of medical students owe debt on educational loans (with the average amount of those loans about $200,000), most students have to take out additional loans just to go to in-person interviews.

Interviews are also expensive for residency programs. A staff member must be dedicated to chaperone the interviewees and coordinate all of their schedules. Programs must usually pay for a lunch and/or dinner for the interviewees. Many programs will also cover the cost of a hotel room for interviewees traveling from out of town.

The greatest advantage of virtual interviews

In the past, here at the Ohio State University, we did not get a lot of residency applicants from students at west coast medical schools – it was just too costly for them to travel to Columbus to interview. An interview generally would require three days for a west coast medical student – one to fly to Columbus, one to interview, and one to fly back to the west coast. Instead, most of our applicants came from midwestern medical schools where applicants could drive to Columbus – often making the roundtrip drive on the same day as the interview.

For residency programs, the greatest advantage of virtual interviews is that they give you access to a larger pool of applicants. This allows the program to be more selective about the applicants that the program decides to offer interviews to and rank on the program’s match list. For some residency programs, this can mean interviewing more students with high medical school grades or test scores. For other programs, it can mean interviewing more students who fit best into the residency program. As an example, some residency programs emphasize didactic teaching whereas others emphasize more hands-on autonomy in patient care. One applicant may thrive in a residency program with a lot of lectures and research opportunities whereas another applicant may thrive in a residency program that requires residents to function more independently in patient care.

For applicants, the greatest advantage of virtual interviews is that they improve the chance that you get into a residency program that you will be happy and successful in. The most important factor in choosing a particular residency program is whether that program will allow you to reach your greatest potential as a doctor. In turn, that requires two things: the program must match your preferred method of learning and you have to enjoy being around the people that you work with. To learn any skill requires a combination of three things: observing experts, didactic education, and practice. For example, to learn how to golf requires watching how golf pros play the game, taking golf lessons, and then getting on the course and practicing. Medicine is the same but each of use has our own personal optimal ratio of observation to didactic education to practice. Finding a residency program with that offers a similar ratio of these three to your personal optimal ratio is the key to reaching your potential. The residency program that is optimal for one student may not be optimal for another student. But no matter how well a residency program fits your mode of learning, if you do not like the people that you are working with, you can never reach your fullest potential. Using virtual interviews allows the student to expand the geographic area of residency programs they consider and increases the chance of finding programs that best match the student’s preferred mode of learning, that has other residents the student enjoys being with, and has faculty that the student would like to have as mentors.

My recommendations

For residency programs: When feasible, do in-person interviews – you will get more information about an applicant than you can by a virtual interview. But offer virtual interviews as an option, especially for those applicants who would otherwise not apply to your program if in-person interviews were mandatory. For example, offer out-of-state medical students the option of either in-person or virtual interviews. Or offer virtual interviews to students living more than 120 miles away. For a residency program in Seattle, the best candidate might be a medical student in Florida but there is little chance that student is going to even apply for residency if it would require flying across the country for an in-person interview. Your future chief resident might be a senior student currently in a medical school 2,500 miles away.

For medical students: When feasible, do in-person interviews. You will learn more about the facilities and the people you will be working with than you can get from the residency program’s website and virtual interviews with two or three faculty members. You can often improve your chances of getting into a residency program because an in-person interview can make you more of a known entity to the program. Interviewing in-person can also indicate your interest in the program since you took the time and expense to travel for the interview. But take advantage of interviewing virtually for those residency programs that you would not have applied to if it required traveling for in-person interviews. This can allow you to interview at more programs that you would have interviewed at had you needed to travel to for in-person interview. It can also save you money for interviewing at residency programs that you would otherwise need to fly to. For more information, see my previous post on making the most of your virtual interview.

Remember who you are competing with

The purpose of a residency program’s resident selection committee is to identify and recruit the best possible medical students. Each residency program competes with all of the other residency programs for those best students. The residency program that offers virtual interviews has a competitive advantage over programs that only offer in-person interviews.

The reason a medical student interviews with multiple residency programs is to get into the residency that he or she is going to learn best in and be happiest in. Each student is competing with all of the other students for the best residency programs. The student that interviews virtually at geographically distant residency programs has an advantage over students who are only willing to do in-person interviews.

April 12, 2024

Categories
Medical Economics

Why Hospitals Should Pay Attention To Zoning Laws

This week, Columbus Mayor Andrew Ginther submitted a plan to the City Council to completely revamp the city’s zoning laws and this could have a huge impact on regional hospitals. Columbus, Ohio is not unique – many U.S. cities are changing zoning laws to increase housing density in urban areas with the effect that we may see significant shifts in population growth.

For decades, the American dream was to own a house with a yard, and a 2-car garage in the suburbs. This led to urban sprawl – low density residential developments on the outskirts of cities and towns. Americans’ preference for automobiles over mass transit helped to fuel urban sprawl. In order to maintain housing low density homogeneity. communities adopted zoning laws that restricted building height, restricted the number of housing units per land parcel, and mandated a certain number of parking spaces per multi-family residential buildings. Over the past 100 years, our metropolitan areas rapidly grew outward and the demand changed from townhouses with no yards to quarter-acre lots and then to half-acre lots for single-family homes. As a result, previously rural towns became suburbs, highway outer belts became inner belts, commute time to work increased, and previously affluent communities close to downtown became low-income communities.

And then came COVID and working from home.

Zoning changes in Columbus, Ohio

Cities like Columbus rely on its tax base to support services and maintain infrastructure. As upper and middle class families moved outward into suburbs, cities were often left with a population of relatively lower income residents and lower property values. The result was lower city revenue from property taxes. Cities could still rely on income taxes from those workers who live in suburbs but commute to work in the city and income tax comprises the largest source of revenue for Columbus. As an example, the 2022 Columbus city revenue sources are as shown in the figure below:

Columbus, Ohio 2022 City Budget

Some states and cities do not have an income tax. In these cities, alternative sources of revenue fund the city budget, such as higher property taxes, sales taxes, and higher charges for permits and licenses. For example, there is neither Tennessee state income tax nor Nashville city income tax so Nashville’s city revenue comes from other sources, mainly property tax and sales tax. This gives Nashville a strong incentive to encourage residential high-density housing within the city since that translates to higher revenue from property taxes. Because those city residents tend to make purchases close to home, it also translates to higher city revenue from sales taxes.

With COVID came a shift in white-collar jobs from working in centralized offices to working from home. In many cases, the income taxes previously collected from the cities hosting business offices are now collected by the suburbs where work-from-home employees live. One strategy for cities to maintain revenue from income taxes in a work-from-home world is to grow the number of people living within the city limits. But city limits are generally land-locked by the surrounding suburbs making geographic expansion impossible so the only option is to increase population density within the city. And that is where zoning law changes become necessary.

Many of the land parcels close to downtown Columbus are zoned for commercial use only. Those zoned for residential use generally have a height restriction of 35 feet tall and require 1.5 parking places per residential unit. The Mayor’s proposal would designate certain areas along major transportation corridors as “urban core”. These areas would no longer be restricted to commercial use and would be permitted to be up to 12 stories tall (16 stories tall if affordable housing units are included). A second group of areas would be designated as “urban center” and would permit buildings up to 7 stories tall. Neither the urban core nor the urban center areas would have any requirements for off-street parking. Instead, residential parking would be left up to the free market, with developers determining the amount of parking necessary to provide in order to compete for occupants to fill those residential units.

The Columbus metropolitan region is growing and expected to have a shortage of 110,000 housing units by 2032. Without the zoning changes, the affected land parcels could be converted into 6,000 housing units but with the zoning changes, these parcels could become 88,000 housing units. By limiting the zoning changes to corridors with mass transit availability, there will be less need for households to own multiple cars. In fact, currently 30,000 Columbus households do not own a car and rely on mass transit, instead.

So, what does this have to do with hospitals?

People need healthcare and they want those healthcare services close to where they live. These services include inpatient hospitals, outpatient physician offices, urgent care centers, rehabilitation centers, and diagnostic centers. For the past 40 years, there has been economic pressure for hospitals to relocate services from city centers to suburban areas because that is where the patients are (and in particular, the well-insured patients). Many downtown hospitals closed while new hospitals were built in the outlying suburbs. The same has happened with multi-specialty outpatient clinics.

But as cities like Columbus change their zoning laws, there will be a reverse population migration that will return to the downtown areas. There are several reasons why our hospitals need to begin planning for this population change.

  • Emergency squads go to the closest hospitals. One of the main drivers of the relocation of hospitals to the suburbs is that EMS squads typically take patients with medical emergencies to the nearest hospital – having a cardiac catheterization lab at a downtown hospital doesn’t do you any good if EMS squads take heart attack patients to suburban hospitals. In the future, there will be a need for emergency hospital services closer to downtown areas.
  • Patients prefer to see primary care doctors who are close to home. All other things being equal, parents prefer a pediatrician office that is 1 mile from home rather than 10 miles from home. In the near future, we will need more physician outpatient practices located near downtown areas.
  • Patients usually go to the closest urgent care center. When a person is sick and cannot get in to see their PCP that day, they go to an urgent care center. Unlike primary care where patients have allegiance to their usual PCP, patients have no allegiance to urgent care centers. They just look on Googlemaps to see where the closest urgent care center is located. Urgent care centers will be needed in new areas of increased population density.
  • Access to mass transportation will be increasingly important. Buses, light rail, and commuter trains are only economically feasible if there is sufficient population density to support mass transit. As population density increases, so does the availability and frequency of mass transit services. Hospitals and outpatient services need to be located along main mass transportation corridors to optimize patient access.

There are several tactics that hospitals should be taking when city zoning regulations change:

  1. Project the effect of zoning changes on residential housing construction. An increase of 500 housing units may not have much impact on local healthcare utilization but an increase of  50,000 housing units can make expansion of healthcare facilities more financially viable. This means speaking not only with city officials (who are prone to being overly optimistic) but also developers (who are the ones who will be making actual construction decisions).
  2. Determine the demographics of population growth. Single room apartments will primarily attract young singles who have less need for inpatient care but will need outpatient primary care providers. On the other hand, condominiums may be more attractive to retirees who are more likely to use inpatient services. Multi-bedroom apartments and single-family homes will attract families with children and urgent care facilities will be in demand. It is not simply the number of people moving into a re-zoned area but the ages of those people that dictate the type of healthcare services to be anticipated.
  3. Buy property parcels. Re-zoned areas in cities are currently relatively inexpensive but as developers began to move in, the cost of those parcels will go up dramatically. Hospitals should purchase land now in anticipation of building facilities in 5 – 10 years. Even if the hospital ultimately decides against new construction, those parcel purchases will likely be excellent long-term investments as they can later be sold at a premium to developers.
  4. Stake your claim early. A primary determinant of whether to build a new hospital or outpatient facility is what the competition is in the immediate area. The first health system to publicize building plans in a re-zoned area can often ward-off other health systems from building competing hospitals.
  5. Plan outpatient expansion. Unlike a new hospital that costs hundreds of millions of dollars and requires many years of construction, office space can be rented and renovated for outpatient medical services in a matter of months. One of the first things a person does when moving into a new community is find a new primary care provider. A health system would be wise to grow primary care services as the population density in rezoned city areas increases. Early on, the population growth in a re-zoned area may only require 2 primary care providers but as additional housing units are built, the need may increase to 8 primary care providers. Inevitably, the initial outpatient office will outgrow its space so it is better for the hospital to buy or lease more space than they initially need so that they can grow into it.
  6. Don’t forget about parking. In the zoning changes proposed for Columbus, the decision about how many parking spaces will be left up to the developers. Parking lots are very expensive – a large surface lot consumes a large and expensive land parcel. A parking garage requires less land but is very expensive to build. In most urban hospitals, scarce (and expensive) parking is a major complaint by patients, visitors, and staff. By locating a healthcare facility along a major mass transit corridor, hospitals can reduce the need for parking. Innovative strategies can include providing free mass transit vouchers for patients and constructing bus and train stops inside of buildings (or at least with roofed protection from weather). Strategies for staff can include charging for on-site automobile parking but providing free mass transit vouchers, providing free bicycle parking, promoting work-from-home when feasible, and providing free remote parking with shuttle bus service to hospital facilities.
  7. Not all cities are the same. Different metropolitan areas have different growth potentials. Currently, many midwestern cities are often losing population while many southern cities are rapidly gaining population. A zoning change in a city losing population will have little impact on healthcare resource allocation whereas a similar change in a city gaining population can have a big impact. The best information about changes in city populations comes from the U.S. Census Bureau data. The graphs below show the change in populations in metropolitan areas in the United States between April 2020 and July 2023. In all, there are a total of 393 different metropolitan areas listed. For the purpose of simplicity, the areas in the graphs below include only the largest city in the metropolitan areas. So, for example, the Dallas, TX metropolitan area actually includes the Dallas-Ft. Worth-Arlington region. The top graph shows the 32 metropolitan areas with the largest population gains. Zoning regulation changes have the greatest potential impact on healthcare delivery in these metro areas. The bottom graph shows the 32 metropolitan areas with the greatest population losses. Zoning regulation changes will likely have minimal impact on healthcare delivery in these areas. It is important to note that the period 2020 to 2023 was affected by COVID with work-from-home initiatives causing many workers to relocate from some cities – it is unclear if these trends will continue as work-from-home opportunities level off and as many workers return to offices.

And back to Columbus…

With an increase of 41,330 population between 2020 and 2023, Columbus had the 32nd greatest growth in population out of the 393 U.S. metropolitan areas. Future projections are for this population increase to continue over the next decade with several large manufacturing and corporate building projects underway. Therefore, apartments and condominiums creating denser urban populations will likely come from net population growth rather than relocation of existing populations. So, hospitals in Columbus would be well advised to start planning for how to provide healthcare services to this expanding urban population now. The same holds for other metropolitan areas with high population growth and recent zoning reform.

In most communities, the zoning commission is not on the public’s mind, unless you are trying to build an addition on the back of your house. But zoning regulations can have an enormous impact on our nation’s health systems by affecting urban population density and growth.

April 10, 2024

Categories
Medical Education

Abortion And OB-GYN Residency: Training In Jeopardy

20% of OB-GYN residents receive their training in states that outright ban abortion. An additional 14% train in states that severely restrict abortion. As a result, one-third of OB-GYN residents face barriers to get adequate training in performing abortion. Unless these residents make special training arrangements, they will be unprepared to safely perform abortions as practicing physicians, even in cases of rape or medical threat to the mother’s life.

ACGME training requirements in OB-GYN

The Accreditation Council for Graduate Medical Education (ACGME) is the organization that sets training requirements for all specialties, including residencies and fellowships. If a residency program fails to meet ACGME requirements, that residency risks losing its accreditation, which can have implication for funding and physician recruitment. Residency programs that are not accredited by the ACGME cannot receive Medicare funding from CMS for Direct Graduate Medical Education (DGME) and Indirect Medical Education (IME). For physicians to obtain board certification, they must train at an ACGME-accredited residency program. Training programs that lose their ACGME accreditation must assist residents to transfer to another residency program and cannot participate in the Match Program. The work that these residents had done must then be performed by attending physicians, at significant cost to the hospital.

The ACGME publishes the requirements for every specialty, including the requirements for OB-GYN residencies. One of these requirements is that OB-GYN residents must be trained to perform abortions; however, residents can opt-out of abortion training if they have religious or moral objections. The converse is not true – residency programs cannot “opt-out” of providing residents training in abortion procedures. In states where abortion is illegal, to be compliant with ACGME requirements, OB-GYN residency programs and their sponsoring hospitals must make arrangements and provide financial support for its residents to get abortion training in another state. The specific wording of these ACGME requirements are:

IV.C.7.a).(2) Residents must be involved in educating patients on the surgical and medical therapeutic methods related to the provision of abortions.

IV.C.7.a).(3) Residents must participate in the management of complications of abortions.

IV.C.7.a).(4) Programs must provide clinical experience or access to clinical experience in the provision of abortions as part of the planned curriculum. If a program is in a jurisdiction where resident access to this clinical experience is unlawful, the program must provide access to this clinical experience in a different jurisdiction where it is lawful.

IV.C.7.a).(4).(a) Residents who have a religious or moral objection may opt out and must not be required to participate in training in or performing induced abortions.

IV.C.7.a).(4).(b) For programs that must provide residents with this clinical experience in a different jurisdiction due to induced abortion being unlawful in the jurisdiction of the program, support must be provided for this experience by the program, in partnership with the Sponsoring Institution.

 

This year, there were 1,557 first-year residency (PGY-1) positions in OB-GYN offered in the 2024 Match. OB-GYN residency lasts for 4 years and thus there are about 6,230 OB-GYN residents in training at any given time in the United States. About 1,260 of these residents are in states where abortion is completely illegal. Unless these residents attest that they have moral or religious objection to abortion, their hospitals must arrange and provide financial support for them to get this training in another state. An additional 848 OB-GYN residents are in states that severely restrict abortion and many of these residents are unable to obtain adequate experience in first and second trimester abortions, as required by the ACGME.

As an example, the University of Texas Southwestern Medical Center in Dallas has the country’s largest OB-GYN residency – 1 out of every 80 OB-GYN physicians in the U.S. did their residency at UT Southwestern. In Texas, abortion is illegal and a physician who performs an abortion is subject to first or second degree felony prosecution. The OB-GYN residency program at UT Southwestern states on its residency website regarding its 4-week family planning rotation: “During this rotation, fourth-year residents have the ability to travel out of state to receive induced abortion training.

What states ban or restrict abortion?

Since the U.S. Supreme Court overturned Roe v. Wade, it is now up to each state to make its own laws regarding abortion. As a result, these state-specific laws now range from outright bans to restriction based on the number of weeks of gestation to no restrictions on abortion.

In 14 states, abortion is illegal: Alabama, Arkansas, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, and West Virginia. In an additional 7 states, abortion is severely restricted to less than 6 weeks (Georgia and Alabama), less than 12 weeks (Nebraska and North Carolina), less than 15 weeks (Arizona and Florida), or less than 18 weeks (Utah). In the remaining 29 states, as well as in Puerto Rico and the District of Columbia, abortion is legal with either no gestational limit or a gestational limit sometime in the second trimester of pregnancy.

Implications for the future

In most states, abortion training is a regular component of family planning rotations for OB-GYN residents. Any OB-GYN resident can opt out of this training for religious or moral reasons. OB-GYN residencies in states that prohibit abortion must still provide abortion training as the default option for residents. In the words of the ACGME: “Programs must be structured such that residents may “opt out” rather than needing to “opt in” to this experience.” Nonetheless, there are obstacles that residents in these states face in order to get training in abortion procedures. They have to travel to another state for a month or more of their residency, they have to find and pay for housing in that state, they have to obtain hospital credentialing where they will get the additional training, they have to obtain a state medical license in that state, and they have to be separated from their families for a month or more. There are also burdens on the residency programs. The residency program must still pay the resident’s salary when that resident is out of state getting additional training. Also, when a resident is out of state, that resident has to be taken off of the call schedule and as a result, the rest of the residents must pick up additional nights on-call.

So far, OB-GYN residencies in states that ban or severely restrict abortion have not had their recruitment significantly impacted. In the 2024 residency match, there was no difference in the percent of available PGY-1 resident positions filled in states with an outright ban (99.0%), states with severe restrictions (99.5%), and states with no or minimal restrictions (99.2%). Similarly, there was no difference in the percent of available positions filled by U.S. senior medical (MD) students in states where abortion is illegal (70.5%), states with severe restrictions (73.6%), and states with minimal or no restrictions (71.1%).

But the 527 OB-GYN residents currently training in states that ban or severely restrict abortion face challenges in arranging and paying for out-of-state abortion training during their residency. For many of them, the obstacles attendant to out-of-state training will be too great and they will elect to opt-out of abortion training. As a result, in the future, it may be difficult for them to get jobs in states where abortion is legal. If they do not get training in abortion procedures and post-procedure patient management, then they cannot get hospital privileges to do abortions. This means that even if a woman has a life-threatening complication of her pregnancy, an obstetrician without hospital privileges for abortion procedures must find someone else to perform a life-saving procedure. In states where abortion is legal, given two otherwise equally qualified applicants, the obstetrician applying for a job who is able to perform an abortion will have an advantage over the obstetrician who is not trained in abortion.

Obstetric residents who are not trained in abortion can always get a job in a state where abortion is illegal. However, even in these states, there is usually a provision allowing an obstetrician to perform an abortion if the mother’s life is imminently threatened. An abortion in these women is generally much more complicated and much higher risk than an abortion in an otherwise healthy woman. But if none of the obstetricians in town were trained in performing abortions and in the management of abortion complications, there will not be anyone who can safely do an abortion in a women dying from a complication of pregnancy. You can’t learn how to do any medical or surgical procedure competently by just watching a YouTube video five minutes before you perform your first one. Competently performing an abortion in a high-risk patient is no different.

There are also legal uncertainties in the future for OB-GYN residency programs in states that are dominated by politicians with extreme social conservative stances. For example, will these states withdraw state government funding from hospitals that send their trainees out of state for abortion training? Will they require state-supported hospitals to publicize the names of OB-GYN residents who do out-of-state family planning rotations that include abortion training? Will they revoke the state medical licenses of OB-GYN residents who participate in abortion procedures in other states?

Idaho has one of the most restrictive abortion laws in the country. Since that law went into effect, 22% of its total obstetricians and 55% of its high-risk obstetricians left the state. Idaho is one of six states without an OB-GYN residency program so Idaho’s abortion law has not affected residency training. But medical students are not stupid – if they see that obstetricians are leaving states that ban abortion, they will be a lot less likely to rank OB-GYN residency programs in those states very high on their match rank list.

What can we do now?

It is in our country’s best interest to have our obstetricians trained in the safe performance of abortions and the management of complications of abortions. Otherwise, where will the 12-year-old pregnant rape victim go? Or the woman with an anencephalic fetus? Or the woman with a 15-week pregnancy needing to start chemotherapy for newly diagnosed acute leukemia? Fortunately, there are some specific tactics we can take today.

  1. Create training opportunities in OB-GYN residencies in states where abortion is legal. As a general rule, residency training programs do not like to accept visiting residents for a 1 or 2 month rotation. There is a lot of paperwork, there is uncertainty about the skill and ability of visiting residents, and the visiting residents can encroach on the training opportunities of the regular residents. Residency programs and hospitals need to create formal pathways for these OB-GYN residents and take down barriers for these guest residents coming from states where abortion is illegal or severely restricted.
  2. Hospitals need to have expedited pathways for credentialing “visiting” OB-GYN residents and should assist them in obtaining state medical licenses for the state that they will be doing their additional training. This could include partnering with residency programs in states with abortion bans in order to streamline the credentialing and licensure process.
  3. Not-for-profit organizations need to create funding to assist OB-GYN residents in states where abortion is illegal or severely restricted in order to obtain additional training. This could create grants to help pay for the cost of travel, housing, childcare, medical licensure, etc. Most residents owe money on educational loans with the average amount of those loans about $200,000. Without such grants, many debt-burdened residents simply cannot afford to travel out of state to get abortion training.
  4. Medical schools should advise students applying to OB-GYN residencies about the implications of attending residencies in states that ban abortion. This includes how training in these states could potentially affect job prospects in other states where abortion is legal.
  5. OB-GYN residency programs in states where abortion is legal can promote to applicants the advantages of training in their program versus programs where abortion is banned. This is a particularly good tactic when the applicants are on-site for their residency interviews and can give the residency program a competitive advantage over residency programs in states where abortion is illegal.
  6. OB-GYN residency programs should offer virtual interviews, especially for students applying from out-of-state medical schools. It could be cost-prohibitive for a medical student in Texas to fly to Ohio to interview for an OB-GYN residency position. But by allowing that student to interview virtually from Texas, the OB-GYN residency program in Ohio can open itself up to a larger pool of applicants and potentially end up with a higher quality group of students matching to the residency program. OB-GYN residency programs in states where abortion is legal should now be able to recruit the best student applicants from medical schools in states where abortion is illegal.
  7. Hospitals in all states need to review credentialing procedures for obstetricians applying for hospital privileges to perform abortion, even if abortion is only permitted when a pregnant woman’s life is in immediate jeopardy. With one-third of OB-GYN residents training in states where abortion is banned or severely restricted, is is less certain than ever before that an obstetrician who did residency in those states can competently perform an abortion or manage complications of an abortion. This may require hospital credentials committees to remove abortion procedures from the “core privileges” list for OB-GYN and moving them to the “optional privileges” list. Documentation of training should be required.

It’s a new era in OB-GYN

One of the most important (and most frequently forgotten) rules of law-making is that there is always unintended consequences. For example, let’s say that the anti-necktie lobby group got the state legislatures in 21 states to pass a law making it illegal for men to wear a necktie except for Leap Year Day. That would mean that a man could only wear a necktie on one day every 4 years in those states. Eventually, no man in those states is going to remember how to competently tie a necktie and no boys are ever going to learn how to tie a necktie. Men in the 29 states where neckties are legal would have a competitive advantage when it comes to dressing in formalwear. The same thing happens in states with abortion bans – it will not be too long until no one in those states knows how to competently perform an abortion even in the event of rape or the mother’s life being in danger. OB-GYN residency programs in the states (plus Puerto Rico and the District of Columbia) where abortion is legal now have the opportunity to take a competitive advantage in recruitment.

April 8, 2024

Categories
Medical Education

The 2024 Residency Match

This month, the results of the main residency match for 2024 were released by the National Residency Match Program (NRMP). The results of the match give important insight into how medical students see prospects for different specialties in the future and also give hospitals insight into the future supply of various specialists. A record-high 50,413 applicants registered for the match this year and 44,853 applicants ultimately submitted a residency rank list. Overall, 80.2% of applicants submitting a rank list for a PGY-1 residency position successfully matched.

A little background on the match

In about September every year, senior medical students decide what specialty they would like to practice and send applications out to residency programs that they are interested in. The residency programs then select which students to interview for those positions and those interviews are carried out in the fall and winter. In February, after all of the interviews have been completed, the medical students create a ranked list of all of the residency programs that they would consider. Residency programs also create a ranked list of all of the medical students they would consider. In March, the NRMP computers “match” the medical students’ ranked lists with the residency programs’ ranked lists. On March 15th (“Match Day”), the NRMP releases the results of this match and the medical students find out where they will be spending the next 3 – 7 years of residency training.

The applicant pool is divided into six groups: (1) senior students at MD schools, (2) previous graduates of MD schools, (3) senior students at DO schools, (4) previous graduates of DO schools, (5) U.S. citizens who attend foreign medical schools, and (6) non-U.S. citizens who attend foreign medical schools. Students from U.S. medical (MD) and osteopathic (DO) schools tend to be more competitive than students from foreign medical schools.

U.S. citizens who attend foreign medical schools are categorized as U.S. international medical graduates (U.S. IMGs) and often attend medical schools in the Caribbean. Non-U.S. citizens who attend foreign medical schools (also known as non-U.S. IMGs) typically come to the United States on a training visa because high-quality specialty training is not available in their own country. Non-U.S. IMGs tend to be less competitive for residency positions than U.S. citizens. Although many non-U.S. IMGs return to their home country after completing residency, some elect to stay in the U.S. and pursue citizenship.

The largest number of applicants were U.S. MD senior students (19,755), followed by non-U.S. citizen IMGs (10,021), U.S. DO senior students (8,033), U.S. citizen IMGs (4,751), previous graduates of U.S. MD schools (1,662), and previous graduates of U.S. DO schools (616).

How many residency programs do students list?

This year, the average applicant who got into a residency ranked 12.14 residency programs and the average applicant who did not get into a residency ranked 4.13 residency programs. The implication is that the more residency programs a student interviews at and ranks, the more likely they are to obtain a residency position. However, these results can be a bit misleading because applicants to highly competitive residencies (such as vascular surgery) may need to rank more residency programs in order to ensure they get a residency position whereas applicants to less competitive specialties (such as family medicine) may only need to rank a small number of residency programs in order to insure that they match. The average number of residency programs that students ranked varied by the type of student:

There is also variation by specialty. For example, although the average U.S. MD senior student ranked 11.3 residency programs, the range was from a high of 21.9 programs per vascular surgery residency applicant to a low of 4.0 programs per internal medicine primary care track residency applicant. An important factor that influences the number of programs any given applicant ranks is how many programs that applicant interviews at. This in turn is influenced by how selective residency programs are in offering applicants interviews and whether those interviews are in-person or virtual. It is easier and less costly for applicants to interview at a large number of residency programs if those interviews are conducted virtually, thus obviating the time and expense of travel to those residency locations.

Residency programs that filled in the match ranked an average of 81.47 applicants (12.76 ranks per available position). Residency programs that did not fill in the match ranked an average of 63.05 applicants (8.73 ranks per available position). Because residency programs vary in size, the average number of ranked applicants is not terribly informative. However, the number of ranks per available residency position is informative and indicates that the more applicants any given residency program ranked, the more likely that program was to fill all of its available positions.

Results by specialty

As in previous years, categorical internal medicine had the largest number of filled positions (9,767). This is the traditional internal medicine track and a large percentage of these residents go on to do subspecialty fellowships after completing their internal medicine residency. The second most positions were in family medicine (4,577).

Every year, some specialties are more competitive than others. Competitive specialties have most or all of their residency positions fill in the match whereas less competitive specialties have a lower percentage of available positions that fill. Four specialties were highly competitive and filled all available residency positions: internal medicine/pediatrics, neurosurgery, plastic surgery, and thoracic surgery. Twelve specialties filled between 99% and 100% of available positions: anesthesiology, orthopedic surgery, otolaryngology, general surgery, radiology, neurology, OB/GYN, psychiatry, physical medicine, dermatology, internal medicine primary care, and vascular surgery. The specialties with the lowest percentage of filled positions were PGY-1 (first year after graduating from medical school) transitional and surgery preliminary; however, these are 1-year slots that are meant for applicants who are going on to do another specialty that does not begin until the PGY-2 year after medical school (such as some physical medicine and neurology residencies). The graph below includes residency positions that begin in both the PGY-1 and PGY-2 years.

Another way to determine which specialties are most competitive is to look at the percentage of available positions that were filled by U.S. MD graduates. Four specialties filled ≥ 90% of positions with U.S. MD graduates: thoracic surgery (98%), plastic surgery (94%), otolaryngology (91%), and neurosurgery (90%). These are considered to be extremely competitive specialties. At the other extreme, five specialties filled < 50% of their filled positions with U.S. MD graduates: family medicine (30%), categorical internal medicine (36%), emergency medicine (45%), pathology (46%), and pediatrics (49%). These are less competitive specialities. The graph below includes residency positions that begin in both the PGY-1 and PGY-2 years.

Specialties taking non-U.S. IMGs

The number of non-U.S. international medical graduate applicants increased significantly this year. In 2023, there were 8,469 of these applicants and that number rose to 10,021 in 2024, an increase of 1,552. This represents an 18% increase in non-U.S. IMG applicants in 2024. This has been a trend for the past decade as American residency programs become increasingly desirable to foreign medical students. The number of non-U.S. IMG applicants who matched to a residency position also increased from 5,032 in 2023 to 5,864 in 2024.

Non-U.S. international medical graduates tend to get into residencies that are not filled by U.S. MD and U.S. DO senior students. Four specialties had > 20% of available positions filled by non-U.S. IMGs: categorical internal medicine (30.3%), pathology (27.2%), neurology (22.6%), and internal medicine primary care (21.9%). On the other hand, five specialties had fewer than 2% of available positions filled by non-U.S. IMGs: thoracic surgery (0%), orthopedic surgery (0.2%), otolaryngology (1.3%), physical medicine (1.7%), and dermatology (1.9%).

Other notable observations

There were 1,218 couples who entered the couples match in 2024. This number has been relatively stable for the past 5 years. The match rate for couples match applicants was 93.6%, which has been relatively stable for the past 45 years.

Emergency medicine applicants have rebounded after a 3-year decline. Last year, only 81.6% of emergency medicine residency positions were filled but this year, that percentage rose to 95.5%. This increase was largely due to an increase in U.S. DO applicants applying to and accepted into emergency medicine residencies. In 2023, U.S. DO applicants comprised 24.3% of filled positions and in 2024, that number increased to 34.6% (an increase of 317 accepted applicants). The number of U.S. MD applicants applying to and accepted into emergency medicine was unchanged. Overall, this is good news for hospitals. Had the decline in filled positions that occurred during the COVID pandemic continued, hospitals could face staffing shortages in emergency departments. The increase in filled emergency medicine residency positions ensures that there will be an adequate future supply of emergency physicians.

OB-GYN remains competitive, but with a caveat. Historically, OB-GYN residency programs have had a low number of unfilled positions in the match. Similarly, there have been relatively few international medical graduates matching to OB-GYN because the vast majority of positions are filled by U.S. MD and U.S. DO senior students. Between 2018 – 2022, less than 1.5% of OB-GYN matched applicants were international medical graduates (including both U.S. citizen IMGs and non-U.S. IMGs). In 2023, the percentage of OB-GYN matches filled by international medical graduates rose to 5.8%, leading some observers to postulate that the overturning of Roe v. Wade was making OB-GYN a less desirable specialty to U.S. medical and osteopathic students. In 2024, 6.2% of OB-GYN residency matches were filled by international medical graduates. The majority of these were U.S. citizen IMGs (53 vs. 43 non-U.S. citizen IMGs). Overall, 99.6% of OB-GYN positions filled in the 2024 match, indicating that it remains competitive. However, the increase in international medical graduates matching to OB-GYN positions relative to historical numbers indicates that OB-GYN may have lost a bit of allure to U.S. MD and U.S. DO students since the overturn of Roe v. Wade.

What happens to applicants who do not match?

There were a total of 8,869 applicants to PGY-1 residency positions who were unmatched. Of those, 1,290 were U.S. MD senior students, 902 were previous graduates of U.S. MD schools, 621 were U.S. DO senior students, 323 were previous graduates of U.S. DO schools, 1,570 were U.S. citizen IMGs, and 4,157 were non-U.S. IMGs. There are a number of options for these unmatched applicants

After the results of the match are released, a program called the Supplemental Offer and Acceptance Program (SOAP) opens to allow applicants who did not match to a residency position to obtain a position in a residency program that did not fill in the match. This year, there were 2,562 residency positions in 787 residency programs that went unfilled. Historically, about 95% of unfilled positions ultimately get filled in the SOAP. The majority of these SOAP positions go to U.S. MD and U.S. DO senior students or graduates. For example, in 2022, there were 2,111 residency positions filled in the SOAP. These positions were filled by 911 U.S. MD senior students (43%), 125 U.S. MD graduates (6%), 511 U.S. DO senior students (24%), 91 U.S. DO graduates (4%), 305 U.S. citizen IMGs (14%), and 168 non-U.S. IMGs (8%). The data from the 2024 SOAP is not yet available but is likely to be similar to previous years.

Applicants who do not obtain a residency position in the SOAP can pursue a variety of career options. Some get non-physician jobs in a clinical setting, such as a scribe or an electronic medical record trainer. Some enroll in another graduate program, such as a PhD, MPH, or MBA. Some obtain jobs in research laboratories. Some obtain a job in an industry where an MD or DO degree is valued, such as insurance or pharmaceuticals. Some take a year to study and take the USMLE step III exam (usually taken by physicians during their first year of residency) – a favorable score on this exam can improve an applicant’s chances of matching to a residency program in the future. Others drop out of the workforce altogether; however, for the majority of U.S. applicants who have large education debts, this is not really an option.

Lessons for future residency applicants

After deciding on a specialty, medical and osteopathic students need to decide which residency programs to apply to. Once offers to interview are extended, they then have to decide how many programs to interview with. After all the interviews are completed, they then have to decide how many residency programs to rank and what order they will rank those programs. Each of these decisions is influenced by how competitive the specialty is and how competitive the applicant is.

A student who chooses a highly competitive specialty, such as vascular surgery, will need to apply to dozens of residency programs, interview at as many as possible, and rank at least 22 programs to ensure getting a PGY-1 position. On the other hand, students applying to a relatively non-competitive specialty, such as family medicine, may only need to apply to, interview at, and rank a handful of residency programs. Applicants to non-competitive specialties can afford to limit the geographic parts of the country that they are willing to consider for residency but those applying to highly competitive specialities must be less geographically selective. Applicants to the most competitive specialities, such as neurosurgery, plastic surgery, orthopedic surgery, and otolaryngology may need to have a back-up plan and apply to residencies in a second specialty in case they do not match to their primary choice.

An applicant can never make too long of a rank list but they can (and frequently do) make too short of a rank list. You never know what is going through the minds of residency program selection committee members and there is a great danger for applicants who overestimate their competitiveness. In general, applicants should rank all residency programs that they would even remotely consider. Even the lowest ranked program on an applicant’s rank list is usually preferable to whatever residency programs are left unfilled after the match in the SOAP.

Applicants must be realistic in their assessment of their own competitiveness, also. A student at a prestigious medical school who has excellent grades and USLME scores can afford to apply to, interview at, and rank a relatively small number of residency programs but students from lesser known medical schools and those with less than stellar academic performance must apply to, interview at, and rank a larger number of residency programs. This is particularly complicated for students entering the couples match – the student entering the more competitive specialty or with the lower grades may need to dictate the number of programs that both students in the couples match ultimately rank on their match lists.

An event like no other…

In the United States, match day is a day like no other. It is the one day out of the year that all senior medical students learn where they will do their residencies – what state, city, and hosptital they will be doing the most important part of their medical training in. It can be a day of great joy for students who land a residency that is high on their rank list and can be a day of despair for those who do not match to a residency program. The best way to fall into the former category rather than the latter is to have a high degree of self-awareness and be strategic in creation of the rank list submitted to the match.

March 28, 2024

Categories
Physician Finances

Paying For Your Child’s College Education

Raising a kid is expensive. And it all culminates with the cost of a college education. One of the most gratifying things about being a parent is seeing your child be successful and one of the best ways to ensure that success is a strong education. Thus, one of the most important gifts we can give our children is a college education. But that education is expensive and gets even more expensive every year.

Summary Points:

  • College costs rise faster than inflation.
  • To pay for a child’s college education, it is important to start saving as early as possible.
  • Saving options include (1) uniform gifts to minors accounts, (2) Coverdell education savings accounts, (3) Taxable brokerage accounts, (4) Roth IRAs, (5) 529 plans, and (6) loans.
  • The best option depends on the parents’ unique individual financial situation and the likelihood that at least one child will attend college.

The U.S. Bureau of Labor Statistics reports that for the 40 years between 1980 and 2020, the consumer price index rose by an average rate of 3.54% every year. The College Board tracks trends in college pricing and notes that the average annual increase in tuition and fees at four-year public institutions between 1980 and 2020 was 3.4% above inflation. For private nonprofit four-year institutions, the average annual increase over the same period was 2.6% above inflation. Taken together, these statistics indicate that the cost of college education has increased 7% per year for public colleges and 6% per year for private colleges over the past 40 years. The good news is that for the past year, college costs have risen less than the rate of inflation: between February 2023 and February 2024, college tuition and fees increased by 1.3% whereas the consumer price index increased by 3.2%. However, it is not clear whether this lower increase in the cost of college is sustainable – given the reductions in state government support for public higher education and the declining enrollment in U.S. colleges, it is more likely that college education inflation will return to its historic annual rates of 6-7% in future years.

The cost of college 18 years from now

The cost to attend college includes tuition, fees, books, room, and board. The price of tuition varies considerably, depending on whether a student attends an in-state public university or a private university. As an example, I have children that attended the University of Notre Dame (private), the Ohio State University (in-state public), and the University of Dayton (private). For this analysis, let’s assume an average annual inflation rate of 5% for the total cost of college with the assumption that tuition and fees will increase about 6-7% per year but room and board will be closer to the consumer price index average of 3% per year. For a freshman entering this year, the Ohio State University currently costs $27,241 for the first year and $108,964 for four years. The University of Dayton currently costs $63,240 for the first year and $252,960 for four years. The University of Notre Dame currently costs $80,071 for the first year and $320,284 for four years. But with an annual increase of 5%, in 18 years, those costs will rise to $282,566 (Ohio State), $655,978 (Dayton), and $830,562 (Notre Dame). If I was starting my family today, it would cost me more than $2.4 million to put my four kids through college.

You can’t count on financial aid

The most recent data from the U.S. Department of Education’s National Center for Education Statistics showed that 72% of undergraduate students receive some form of financial aid. 55% received federal aid, 23% received state aid, and 28% received institutional aid. The most common type of aid received were grants and scholarships (64%) followed by student loans that the students took out themselves (36%), work-study (5%), federal direct plus loans that parents took out (4%), and veterans education benefits (2%). The average total annual financial aid package was $14,100.

Because much of financial aid is based on income, children of physicians (and other well-compensated professionals) are usually only eligible for athletic or academic scholarships. As a result, if you are a physician, attorney, dentist, or business executive, your dependent children will not be eligible for most forms of financial aid because your income is too high. Because a college education is projected to be so expensive, you need to start saving for your child’s education starting on the day that child is born.

A colleague of mine in academic medicine had not given a lot of thought about saving for college until his children were in high school. When the first tuition bills came due, he did not have enough saved up and so he took out a second mortgage on his house to pay for his kid’s college education. He ended up postponing his retirement by several years in order to pay back the money he had to borrow. The lesson is that you cannot start saving for college too early but you can start too late.

Six ways to save for a child’s college education

There are several different ways to save for college and each has advantages and disadvantages. In my opinion, 529 college savings plans are the best way to go for most people but I will review other options as well.

(1) Uniform Gifts to Minors.

This program was created in 1956 by the Uniform Gifts to Minors Act. A very similar program in some states is the Uniform Transfers to Minors. It allows parents to give their children financial assets. The parent (or some other designated adult) is appointed as the custodian and controls those assets until the child reaches the age of majority. The age of majority varies by state but in most states is between 18 and 21-years-old. The money in the account can be used for any purpose. Additionally, these gifts are irrevocable, meaning that the parent cannot take the money back to use for some purpose other than support of the child. Any unearned income from the investments can be reported on the parent’s federal income tax returns as “kiddie tax” meaning that the first $1,250 of unearned income is not taxed, the next $1,250 is taxed at the child’s income tax rate, and anything over $2,500 is taxed at the parent’s income tax rate. There is no limit to the amount that a parent can put into a uniform gifts to minors account but contributions greater than $18,000 per year are subject to federal gift tax laws.

The biggest disadvantage of uniform gifts to minors (or the similar uniform transfers to minors) is that because the account is the property of the child, that child can use the money for whatever he or she wants after reaching the age of majority. If the age of majority is 18-years old in your state, then when the child turns 18, that child can use the money to buy a Corvette instead of using it for college and there is not a thing you can do about it. This happened to a friend of mine who regularly saved for his son’s college education by contributing to a uniform gifts to minors account. His son ended up getting a scholarship and then when he turned 21 (the age of majority in his state), he had $75,000 in spending money that he used to travel around the world. The father would have liked to use that money to pay off the mortgage on the family home but there was nothing that he could do about it.

The main advantage of the uniform gifts to minors accounts is that they can be used for anything for the child and not just the child’s education. Because the first $1,250 of annual unearned income (interest, dividends, and capital gains) are not taxed, this can be a great way to save up for expenses such as summer camp, skiing lessons, or a car for the child before that child reaches the age of majority for your state. But as a way to save for college, there are better options.

(2) Coverdell education savings accounts.

These are accounts that can be opened for a child under age 18 to pay for educational expenses. The money in the account grows tax-free and withdrawals are not taxed as long as they are used for educational purposes. Unlike the uniform gifts to minors accounts, any residual funds that the child does not use for his or her education can be transferred to another family member’s account. They are limited to parents with incomes of less than $220,000 (married filing jointly). The maximum contribution is only $2,000 per child per year. Because of the parental income limit, these accounts are generally not an option for most physicians or other well-compensated professionals.

(3) Taxable brokerage accounts.

If you (the parent) want to have the greatest flexibility for how the money you are saving can be used, then open a brokerage account in your name and contribute to it regularly with the intention of using the money in that account to pay for your child’s education. The account is in your name (just like any other investment account you have) so if your child does not need the money for a college education, then you can use it for your own purposes since it is your money.

The disadvantage of a taxable brokerage account is the taxes. You will pay capital gains tax when you sell the investments and you will pay regular income tax on annual unearned income (interest and non-qualified dividends) from the investments. Money used to pay for the child’s college education can also be subject to the gift tax limits which is $18,000 per child per year in 2024. There are ways around that limit, however. Money that you as a parent spend for tuition is not included in the gift tax limit as long as you pay the college directly from your own accounts (and not give the money to the child for him or her to write a tuition check from his or her account). Also, the gift tax limit is $18,000 per parent so if you are married, you and your spouse can each give the child $18,000 each year ($36,000 total) to cover their non-tuition living expenses.

(4) Roth IRAs.

Most people are familiar with using a Roth IRA to save for their own retirement. You take money that you have already paid income tax on and put it into a Roth account and then when you are retired, you can take money out of the Roth account tax-free. If you take money out of the Roth IRA before age 59 1/2, then you have to pay a penalty to the IRS. However, you can take money out of your Roth IRA before age 59 1/2 if you use it for educational expenses for yourself, your spouse, your children, or your grandchildren. The IRS will likely look at those early withdrawals so it is important to maintain careful records documenting your child’s enrollment in college and receipts for tuition, fees, books, and room and board. The nice thing about this college savings strategy is that any money that you don’t use for the child’s education can just remain in the Roth account for you to use in your own retirement.

There are some notable restrictions to Roth IRAs, however. You can only contribute directly to a Roth if your income is less than $240,000 (married filing jointly) and you can only directly contribute a maximum of $7,000 per year ($8,000 if you are over age 50). You can get around the income limit by doing a “backdoor Roth IRA”, meaning that you contribute first to a traditional IRA and then immediately convert the money in that traditional IRA into a Roth IRA. The maximum contribution to a traditional IRA is also $7,000 per year. Another noteworthy feature of Roth IRAs is that the penalty for early withdrawal before age 59 1/2 only applies to earnings from the money in the Roth IRA and not on the initial contributions. In other words, you can always take out an amount equal to the amount that you originally contributed to the Roth IRA anytime, for any purpose, without penalty. Note, however, that if you take more money than your initial contributions out of your Roth IRA to pay for your child’s college expenses, you will have to pay regular income tax on the amount of earnings withdrawals – you just don’t have to pay the additional 10% penalty. Withdrawals of earnings from a Roth IRA are also subject to the 5-year rule: the first contributions to the Roth IRA must have been at least 5 years prior to the earnings withdrawal to avoid a penalty (even if the withdrawals are used for educational expenses).

Because Roth IRA earnings are taxed when withdrawn before age 59 1/2 (even for educational purposes), the best way to use a Roth IRA for your child’s college education is to limit the amount of withdrawals to the amount that you initially contributed to the Roth account. As an example, say you put $8,000 into a Roth IRA this year when your child is born and 18 years from now, that Roth IRA is worth $32,000 ($8,000 initial contribution plus $24,000 earnings from interest, dividends, and capital gains). You can take $8,000 out of your Roth IRA for your child’s college expenses without penalty and without paying tax on it, leaving you with $24,000 in the Roth IRA that you can keep there to eventually withdraw tax-free in your retirement. If you were to take the full $32,000 our of your Roth IRA for your child’s college expenses, you would have to pay regular income tax on $24,000 (the earnings portion), but you would not have to pay the additional 10% penalty since it is for a qualified education expense.

(5) 529 plans.

These are accounts that are in the child’s name but that the parent controls. The investment grows tax-free and when withdrawals are used for educational expenses, the withdrawals are not taxed. Each state has its own 529 plan with its own investment options. Also, each state has different tax rules regarding 529 contributions. For example, here in Ohio, we can deduct the first $4,000 of contributions to each child’s Ohio 529 account, each year from our Ohio state income taxes. In 14 states, contributions are not tax-deductible from state income taxes. It is important to familiarize yourself with the tax rules unique to your particular state of residence.

Because the parent controls withdrawals and because those withdrawals can only be used for educational expenses, there is no risk that a child can take the money out to buy a Corvette on their 18th birthday. In addition, if there is money left over after one child finishes college, you can roll the residual funds over into another child’s 529 account. Or roll those funds into a 529 account for a grandchild. Or if you want to go back to school to get a Master’s degree, roll the funds into a 529 account for yourself. Living in Ohio, the tax advantages and the flexibility of the 529 plans make them unbeatable as a tool to save for college.

However, like any investment, you have to critically study exactly what it is you are investing in. Because each state’s 529 plan has different investment options, some states offer investments into mutual funds that charge relatively high expenses or that underperform compared to other mutual funds. As an example, when I first started contributing to 529 plans, Ohio only offered a group of managed mutual funds with high expense ratios and that had fairly low rates of return. Instead of contributing to Ohio’s 529 plan, I opened an account in Iowa’s 529 plan because they offered low-cost Vanguard index mutual funds. At the time, I had never even stepped foot in the state of Iowa. Once Ohio’s 529 plan changed to low-cost index funds, I transferred the money from Iowa’s 529 plan into Ohio’s 529 plan in order to reap the benefits of the tax deduction on contributions on my Ohio state income tax return.

The only disadvantage to 529 plans is that if you withdraw the money for something other than educational expenses, you get penalized. These penalties include paying federal and state income tax on the earnings withdrawals, a 10% federal penalty, and state-specific penalties. Nevertheless, even if you don’t use all of the money in your child’s 529 plan for their education and you don’t have any other family members with 529 plans to roll the residual funds into, you can still take the withdrawals and pay the penalties. This at least leaves you with something, unlike the uniform gifts to minors accounts where all of the withdrawals go to your child to spend anyway they want. Also, there are some exemptions to the 10% penalty, for example, if your child attends a U.S. military academy, gets a tax-free scholarship, or dies.

(6) Loans.

This is the least desirable option to pay for college. These can take the form of a government student loan taken out by the parents (such as federal direct plus loans), a loan taken out from a commercial lending company such as a bank, or re-financing the mortgage on a house. The interest that you will pay on these loans is expensive, especially now with mortgage interest rates are in the 6-7% per year range. A significant problem with student loans taken out by the parents is that those parents are generally in their 40’s our 50’s and the payments on these loans represent money that the parents could have been investing for their retirement. As a result, the parents will either have to retire at an older age than they had planned or have to live on a smaller annual income in retirement than they had planned.

Education loans taken out by the child are a bit different. Attending college is an educational investment in one’s career, allowing that person to have a broader range of job opportunities and allowing that person to have a higher income from those jobs than if they did not attend college. Thus, the loan is paid off by the child’s future working income rather than the parent’s future retirement income. Furthermore, if the child takes out federal direct student loans and then after college gets a job in a government organization or a non-profit company, then the principal on the loan can be forgiven after 10 years of working through the federal Public Service Loan Forgiveness program. Therefore, loans taken out by the child are not as bad of an option as education loans taken out by the parents for that child. Whether or not to the child should resort to taking out education loans depends on the parent’s financial ability to save for the child’s college education over 18 or 20 years and how much the parents prioritize education.

So, how much do you need to save?

If we go with the assumption that college education expenses continue to increase at 5% per year, then you should plan on your child’s college education account having at least enough to cover 4 years at a state-supported public college in 18 years for a child born today. Using the Ohio State University as an example, this means that you will need to have $282,000 in that child’s account in 18 years. There are several ways to get to this amount. The key is to take advantage of compound interest, meaning that the earlier you start, the easier it is to end up with $282,000 in the account. Ideally, you should put in an initial contribution at birth and then contribute a smaller amount every month for the next 18 years. Here are three options, assuming an 8% average annual rate of return on the account’s investments:

  1. Initial contribution of $20,000 plus $417 per month for 18 years.
  2. Initial contribution of $10,000 plus $500 per month for 18 years.
  3. Initial contribution of $0 plus $583 per month for 18 years.

If your goal is to send your child to a private college such as the University of Notre Dame, then plan on saving even more. You will need to have an initial contribution of $25,000 plus $1,500 per month for 18 years!

My recommendations

There is no single best solution for every parent. The more likely that a child will attend and complete college, the more important it is that the parents start saving early for that child’s college education. If one parent graduated from college, then the chances of a child going to college increases. If both parents attended college, then those chances increase even more. The more children you have, the more likely it is that at least once of them will attend college.

High chance at least one child will go to college. In this situation, the 529 plans just cannot be beat, especially if you live in a state like Ohio that overs a large tax deduction from state income taxes on annual 529 contributions. If the oldest child does not go to college (or gets a full scholarship to college), you can roll the money from that 529 account into another child’s 529 account. In the worst-case scenario and none of your children go to college you can withdraw the funds from their 529 plans for your own use – you will have to pay income tax and a 10% penalty on the earnings (but not the amount of your original contributions). Thus, you will still have made money off of the investments in the 529 plan, just not as much as if you had put the money directly into a taxable brokerage account in your own name. We had 529 plans for each of our four children and when each one graduated from college, we rolled the residual balance in their 529 account into the other children’s 529 accounts. Now that we have grandchildren (all out of state), we have opened accounts for each of them in Ohio’s 529 plan.

Low chance that your only child will go to college. If you only have one child and you are uncertain whether that child will attend college, you may want to put money in a Roth IRA instead of a 529 plan. Then, if a child does end up attending college or vocational school, you can withdraw the amount of your original Roth IRA contributions without penalty to pay for their education. You will still have all of the earnings that you made off of those contributions remaining in the Roth IRA for you to use in your retirement. If your child does not end up attending college, then just leave the money in the Roth IRA for you to take out tax-free in retirement. If both you and your spouse contribute the maximum to a Roth IRA (currently $7,000 per year per person), then in 18 years, there will be a total of $252,000 of contributions in your Roth IRAs, nearly enough to pay for 4 years of public university education 18 years from now. However, you should only use this strategy if you have additional other ways of saving for retirement, such as a 401(k), 403(b), 457, SEP IRA, etc. Otherwise, the total amount that you have saved for retirement will fall short.

Low chance that your multiple children will attend college. If you have more than one child and you are not sure if any of them are going to attend college but want to be prepared in the event that two or more do eventually go to college, then you can start with the Roth IRA plan as in the previous paragraph. By maximizing Roth IRA contributions for both you and your spouse, there should be enough in the Roth IRA contributions to cover one child’s college education without having to tap into the Roth IRA earnings. Then open a taxable brokerage account in your own name that you earmark to tentatively use for a second child’s education. You will have to pay annual income tax on interest income and non-qualified dividend income and you will have to pay capital gains tax when you sell the investment (for most people, the capital gains tax rate is lower than their effective income tax rate). However, these taxes will be less than the income tax and 10% penalty that you would have to pay if you had put the money in a 529 plan and then withdrawn the 529 earnings should your children not attended college.

The child is not going to college but will have other monetary needs after high school. Maybe your child’s dream is to open a pet daycare center and will need seed money to start their business. Maybe your child wants to be an Uber driver and will need money to buy a car. Maybe your child is a sculptor and will want to travel abroad for for artistic inspiration. In these situations, a 529 plan is not a great idea because you cannot take the money out of the account without penalty since it will not be used for bonafide educational expenses. Uniform gifts to minors savings may be a better option since this allows the child to use that money to launch his or her career.

The most important thing you can give your child

I’m one of those people who thinks that his life is great but that the lives of the next generation are going to be even better. But more than any other time in human history, that depends on education. The most important gift a parent can give to a child is education and I prioritize education much more than gifts of things like clothes, cars, or exotic vacations. For me, Ohio’s 529 plan was clearly the best choice to save for my children’s education. For you, another option might be preferable. But whatever you decide to do, start saving early and save at least a little bit every month. There will come a time in your life when watching your children succeed in life is more important to you than your own successes.

March 19, 2024

Categories
Physician Finances

Your Inflation Rate Is Not My Inflation Rate

Inflation is the increase in the cost of goods and services over time. A little inflation is a good thing and indicates adequate consumer demand and a healthy, growing economy. But too high of an inflation rate can be a sign of an unhealthy economy. The biggest danger of inflation is when the inflation rate is higher than the simultaneous increase in wages – in this case, a person’s net purchasing power decreases, meaning that the person is unable to afford as many goods and services as in they could in the past.

To understand inflation, you first have to be able to measure it. In the U.S., the most commonly used measurement of inflation in the consumer price index (CPI), which is reported monthly by the U.S. Bureau of Labor Statistics. When most people talk about the CPI, they are talking about the “Consumer price index for all urban consumers: US city average, all expenditures“. There are some caveats about this measure, however. It only includes people living in urban and metropolitan areas. Although this accounts for a little over 90% of the U.S. population, it does not include rural residents, farming families, and members of the military – the inflation rate for these latter groups could be higher or lower than the inflation rate for urban residents. The CPI is reported in three ways: (1) as an index compared to the benchmark of prices during the period of 1982-1984, (2) as the percent change in CPI over the past 1-month and (3) as the percent change in the CPI over the past 12-months. The benchmark of prices in 1982-1984 is defined as an index of 100 and as prices go up, that index goes up. The index in February 2023 was 300.840 and the index in February 2024 was 310.326.

The percent change in CPI is also reported as “unadjusted”, and “seasonally-adjusted”. This is important because the price of some goods and services normally varies by season. For example, the price of fruit and vegetables normally goes down in the summer when these foods are freshly harvested whereas the price of gasoline normally goes up in the summer when vacation travel increases. The seasonally-adjusted CPI is generally preferred over the unadjusted CPI when looking at the 1-month change in CPI. The 12-month CPI does not require seasonal adjustment since it encompasses all four seasons of the past year.

In addition, there can be significant geographical differences in inflation depending on where in the United States a person lives. For example, for the 12-months between February 2023 and February 2024, the CPI increased by 3.2% for the U.S. in total. But the CPI increase in specific regions varied: northeast 2.4%, south 3.7%, west 3.2%, and midwest 2.8%. Even more specifically, the 12-month CPI increase for Cincinnati was only 1.1%, Milwaukee 1.8%, San Francisco 2.4%, Miami 4.9%, and Dallas a whopping 5.3%.

The CPI can be subdivided into different categories of goods and services and there can be tremendous variation in the 12-month change in prices of these categories. The graph below shows the 12-month CPI change for selected goods and services and ranges from automobile insurance that increased 20.6% to health insurance that decreased 19.7%. The average CPI for all goods and services was 3.2% (red bar below).

In February 2024, the 12-month increase in average hourly wages was 4.3% (green bar above). This means that the overall inflation rate (3.2%) is lower than the increase in wages, indicating that the average worker can buy more stuff with their earnings than they could a year ago. For any category of goods and services with a percent change in CPI less than the percent change in wages of 4.3%, the average worker can buy more of those goods and services. For any category with a percent change greater than 4.3%, the average worker could buy less of it. Therefore, even though the CPI for food cooked at home rose by 2.2% in February 2024, the average worker could buy more food at the grocery store with his or her paycheck whereas that worker could buy fewer restaurant meals, which increased by 4.5%. Inflation is often said to be hardest on retirees with fixed incomes. But this can be misleading because fixed incomes are not always really fixed. For example, in 2023, Social Security checks increased by 8.7% in order to keep up with increases in the cost of living.

Your personal inflation rate

How inflation affects you personally depends on how much your income increases each year relative to the increase in the CPI. It also depends on the increases in the CPI of individual things that you spend your money on and where in the U.S. you live.

For me personally, I live in the midwest where the CPI increased less than for the U.S. in general. I also do not spend much on goods and services that have had a large increase in price: my house is paid off so housing costs are negligible, I rarely eat in restaurants, and I don’t smoke cigarettes. What I do spend money on are goods and services that have decreased in price: I heat my house with natural gas, I recently booked airline tickets for 3 trips, I rented a car for one of those trips, and I just bought a new computer to replace my 10-year old laptop. So, my personal inflation rate is quite low and overall, I am paying less for the goods and services that I buy than I did a year ago. The bottom line is that my personal economy is currently not just good, it is outstanding! On the other hand, a smoker who lives in Texas, eats at restaurants a lot, and rents an apartment is facing a relatively poor personal economy (public service announcement: if you are a smoker, you can make your personal economy a lot better this year by quitting).

The aggregated CPI is very useful from a macroeconomic standpoint for government policy makers looking at the country as a whole. But it is less useful for individuals whose spending patterns and geographic location can vary considerably compared to the average. Making an annual household budget every year and then incorporating data from the Bureau of Labor Statistics CPI reports into that budget is a great way to ensure that your personal inflation rate does not unexpectedly bite into your checking account mid-year

The cycles of life

Our lives go through a series of cycles. We start in our education years, followed by our early working years, our child-raising years, our wealth-accumulation years, and finally our retirement years. Inflation affects us differently at each of these stages. It also affects us by the expenditure choices that we make during each of these stages. The way to make your personal economy beat inflation is to make those expenditure choices wisely: when the CPI for eating at restaurants goes up, cook your meals at home. When the CPI for airline travel goes down, book a vacation. Much of our personal inflation rate is ultimately under our own control.

March 13, 2024

Categories
Hospital Finances Operating Room Procedure Areas

Financing Medical Equipment: Purchase vs. Pay-Per-Use?

Innovations in technology have given us better and more powerful medical equipment but have also increased the cost of those devices. A reader recently asked when is it better to purchase medical equipment outright as opposed to pay-per-use financing? As always, the answer is… it depends.

When purchasing a high-cost piece of equipment outright, the hospital (or medical practice) either pays for the entire cost upfront or pays for it in installments. It is like buying a new car – you can either pay cash at the time of purchase or you can finance it over a period of a few years. A second method of acquiring that same piece of high-cost medical equipment is by a pay-per-use contract. In this acquisition model, the manufacturer lends the hospital the equipment for free and instead charges the hospital each time that equipment is used. There are situations when outright purchase is better and there are other situations when pay-per-use is better. For this post, I’ll use the example of a surgical robot but the principles apply to any high-cost piece of medical equipment. The total cost of a surgical robot system varies depending on model, price negotiation, and types of robotic arms used. But we’ll assume a fairly typical $2 million purchase price, $2,000 per operation consumables (eg, robotic arms), and $180,000 annual service contract.

First, create a pro forma

In hospital financing, a pro forma is a document that projects the total costs and total revenue from a proposed new service or piece of equipment purchase over time. Because of the high cost of a surgical robot, no hospital will purchase one just because a surgeon goes to the CEO and says the justification is “Because I want one“. Instead, the hospital is going to want to know whether in the long run the hospital is going to make money or lose money on the surgical robot. However, when I look at a pro forma, it is not just the dollars and cents that are important. There can be non-monetary benefits that can justify purchase of a surgical robot, even if the hospital is not going to make money on the robotic procedures. For example, shortened time in the operating room per surgical procedure, shorter patient recovery vs. non-robotic surgery, fewer surgical complications, improved patient satisfaction, attraction of new patients who prefer to have robotic surgery, etc.

When drafting a pro forma for outright purchase of a medical device such as a surgical robot, you need to look at all of the costs. This includes the purchase price of the equipment, the cost of consumables (such as the surgical arms that can only be used for a fixed number of surgeries), the cost of a service contract, and the cost of personnel. When possible, convert non-monetary factors into dollar-equivalents – for example, determine the cost per hour of an operating room and then include cost savings of a shorter OR procedure time with a robotic versus non-robotic operation. Conversely, if the robotic surgery will take longer than a non-robotic surgery, include this as a cost rather than a cost savings. The type of physicians and the types of procedures will need to be estimated. For example, if the surgical robot will be used by general surgeons, colorectal surgeons, gynecologists, urologists, and ENT surgeons then the relative costs of each of these different types of robotic surgeries needs to be included. Other costs to be factored in can include the cost of any building renovation required to accommodate the new equipment, the cost of training personnel to use the new equipment, the cost of insuring the new equipment, the cost of advertising the availability of the new equipment, etc. The service contract costs must be factored in as well. If a surgical robot is used 18 times per year and the service contract is $180,00 per year, then that works out to an expense of $10,00 per case. On the other hand, if the surgical robot is used 500 times a year, the expense is only $360 per case.

The revenue from a surgical robot will require an estimation of the volume of surgeries performed each year and the expected reimbursement. Reimbursement needs to be stratified by all of the different procedures that will be performed, for example, a robotic cholecystectomy vs. a prostatectomy vs. a hysterectomy. This can be pretty complicated because the reimbursement for an operation such as a cholecystectomy can vary depending on whether it is being paid for by Medicare, commercial insurance, Medicaid, or self-pay (note: self-pay usually translates to no-pay).

Central to a pro forma is the concept of depreciation. This is the expected number of years of life of that piece of equipment before you have to buy a new one. Medical equipment is often depreciated over 5 years. For example, a surgical robot that costs $2 million to purchase and is expected to last 5 years can be depreciated over those 5 years at $400,000 per year. In this example, the pro forma should include tables for each of the 5 years of depreciation. If the hospital projects doing 500 robotic cases per year, then the capital equipment costs would be $800 per case ($400,000 per year ÷ 500 cases per year).

Once you create a pro forma for outright purchase, you then need to create a pro forma for pay-per-use financing. Include all of the costs and revenues you used with the outright purchase pro forma but instead of equipment cost depreciated over the depreciation period (eg, 5 years), include the total annual pay-per-use costs over those 5 years. It is essential to clarify whether servicing the equipment is included in the pay-per-use contract. Usually it is but if the hospital is required to purchase a separate $180,000 per year service contract, then the financial advantages of pay-per-use acquisition can disappear.

Hospitals are unique environments compared to business and manufacturing. Proposals for capital equipment purchases should not be finalized until they have been evaluated and approved by the biomedical engineering department, the infection control department, the staff responsible for structural engineering, radiation safety personnel, etc.

Variables affecting the decision to purchase outright vs. pay-per-use

The decision of whether to buy a piece of medical equipment or pay-per-use is much more complex for a hospital than the decision of whether to acquire a piece of manufacturing equipment by outright purchase or pay-per-use for a factory. There are variables that are inherent in healthcare that do not exist in manufacturing and these variables can have a profound effect on how to pay for a new medical device. Here are some of the variables that the hospital must factor in to the decision-making process.

  1. The number of physicians who will use it. If only one surgeon or one physician group will use a piece of equipment, then there is the risk that if that surgeon or group leaves the hospital to practice elsewhere, then the hospital could be stuck with an expensive device that just gathers dust in a closet. Just like it is risky to put your entire retirement investment portfolio in a single stock (as opposed to a mutual fund), it is risky to base the entire pro forma on the equipment’s use by just one physician.
  2. The number of specialties that will use it. In the example of a surgical robot, it is far better to buy a robot that will be used by general surgeons, cardiothoracic surgeons, urologists, ENT surgeons, and gynecologists rather than just one of these specialties alone. This ensures that the device can be used every day, Monday through Friday, all year. This overcomes specialist slow downs due to medical conferences, outpatient clinic days, procedure seasonality, etc.
  3. The hospital’s cash flow and budget. A $2 million purchase for a surgical robot can wipe out most of a small hospital’s annual new equipment budget. If the hospital lacks sufficient cash to purchase an expensive piece of equipment, then a pay-per-use model may be preferable since there will be an immediate return on investment. Otherwise, it could take several years of use to generate enough revenue to cover the cost of outright purchase.
  4. Anticipated volume. If you anticipate a relatively low procedure volume each year, then it could take many years before you recoup your return on investment for the purchase and you’d be better off with the pay-per-use model. The more procedures you can do, the more likely you will be better off purchasing equipment outright.
  5. Expectation of a new model in the near future. Medical equipment manufacturers usually keep dates of release of new models of their equipment secret until the last minute (sort of like Apple staying mum about new iPhone models until they are ready to be released). Nevertheless, a little detective work can give you an idea of whether a new version is on the future horizon. If so, you are often better off with pay-per-use initially and holding off on purchasing until the new model comes out. This also holds if you would be happy with the older (current) model since manufacturers will generally discount them to clear out their inventory once a new model comes out. The surgical robot model costing $2 million this year might drop to $1.5 million next year when the next model is released.
  6. Commitment by the physicians. I got burned several years ago when our gastroenterologists insisted that we needed to start doing endoscopic ultrasound pancreatic biopsies. We spent a half million dollars on new endoscopic equipment that could only be used for those procedures and also invested in cytology telemedicine so that cytopathologists at another hospital could read the needle aspirates real-time during the procedure. Five years later, the gastroenterologists had not done a single endoscopic ultrasound procedure at our hospital and we basically wasted the money. If there is any uncertainty about whether the doctors will use the equipment, then a per-use model (at least at first) is preferable until the doctors prove that they will actually use it.
  7. Procedure payer mix. A manufacturing company can determine the price it will charge for a product and base it’s pro forma on just one sales price. In medicine, however, the hospital gets paid different amounts by different payers for doing any given procedure or service. This means that creation of an accurate pro forma requires the hospital to not only project the total annual volume of procedures to be performed with a new device but also the projected payer mix for those procedures and the financial margin for each payer. Reimbursement from Medicare and Medicaid is fairly easy to project since they are fixed by CMS. However, each commercial insurance company will reimburse different amounts for any given procedure, depending on the hospital’s negotiated contract with that insurance company. Imagine the complexity of a manufacturer who projects that by installing new factory equipment, it can make and sell widgets. But sales contracts dictate that 30% of customers pay $10 per widget, 15% of customers pay $5 per widget, 25% of customers pay $18 per widget, 15% of customers pay $27 per widget, and 15% of customers don’t pay anything and get their widgets for free. In general, per-procedure hospital reimbursement is highest for commercial insurance, a bit lower for Medicare, lower still for Medicaid, and negligible for self-pay. We once had a surgeon who specialized in surgically implanting very expensive medical devices. When we did the initial pro forma, it looked like the hospital would net a small profit each year on the procedures. But after a couple of years, we noticed we were losing tens of thousands of dollars. It turned out that the surgeon was performing implants on commercially insured patients at a private hospital in town and only operating on Medicaid and self-pay patients at our hospital.
  8. Non-monetary benefits. The decision of whether to purchase a piece of equipment outright or utilize a pay-per-use financing should not depend solely on the expense vs revenue columns on a pro forma. There can be non-monetary benefits that the hospital may value, even if the new equipment does not increase revenue. These can include attraction of new patients, improved patient satisfaction scores, reduced mortality, reduced complication rates, shortened operative times, etc. It is also important to keep the doctors happy because if the physicians really want to use a new piece of medical equipment and the hospital won’t buy it, those physicians will leave to go practice at another hospital that will buy the equipment. In this case, a pay-per-use acquisition model may allow the hospital to keep the doctors happy while eliminating or at least minimizing financial loses.
  9. Connectivity. In an increasingly electronically interconnected world, the ability of medical equipment to connect to the monitors, electronic medical record, scheduling software, and billing software is essential. If there is concern about electronic compatibility, then pay-per-use might be a better option until optimized connectivity issues can be resolved.

The bottom line: its complicated

All too often in hospitals, the person who is the most eloquent, loud, or otherwise persuasive is the one who most heavily influences purchasing decisions. And this person is usually a powerful, silver-tongued physician. The hospital’s best defense against undue influence is the requirement to create a pro forma. This can guide the hospital about whether it is better in both the short-term and the long-term to purchase an expensive piece of equipment outright or utilize a pay-per-use acquisition model. One hospital may find that outright purchase is preferable whereas another hospital in the same town may find that pay-per-use is preferable. An accurate and well thought out pro forma is like a vaccination against future regret. No big-ticket equipment purchase should be put on the hospital’s final annual budget without one.

March 12, 2024