What I've Learned As A Hospital Medical Director

The U.S. stock market and U.S. bond market are both down 18% since December 2021. Neither are showing any signs of recovery. On the other hand, money market accounts are doing quite well with rising annual yields. This has caused many people to invest new money into money market accounts. An advantage of these accounts is that they are covered by FDIC insurance, giving investors a sense that their money is secure. But investors need to research their money markets carefully because not all of them are actually insured by the FDIC.

What is a money market account?

A central tenet of any financial plan is to have an emergency fund that can cover at least 3 and preferably 6 months of household expenses. This emergency fund should be held in “cash”. From an investment standpoint, cash means an account that is secure, non-volatile, and immediately available. The three types of accounts that are considered as cash accounts are (1) checking, (2) savings, and (3) money markets. These are often called “transactional accounts“. Although some financial experts also consider certificates of deposit to be cash accounts, they are better considered to be low-risk investments because the money deposited in them cannot be accessed for a set number of months. Because of this, money in certificates of deposit cannot be used in an emergency. The Federal Reserve reported that as of 2019, the median amount of money Americans held in transactional accounts was $5,300 however the mean amount was much higher, $41,600. This discrepancy is due to a small number of Americans holding a very large amount of money in transactional accounts, resulting in the average being skewed.

Most financial experts recommend maintaining 1-2 months’ worth of expenses in a checking account and 2-4 months’ of expenses in savings or money market accounts. Money market accounts and savings accounts are very similar but there are several important differences. Money market accounts often come with check-writing and debit card options, unlike savings accounts. Money market accounts generally pay higher interest rates than savings accounts to depositors. However, money market accounts usually require a much larger initial deposit than savings accounts with the interest rate varying depending on the amount deposited and held in the money market account.

Checking accounts generally earn little to no interest; indeed, many banks charge a monthly fee to checking account owners. Savings accounts do earn interest but it is minuscule – currently, savings accounts at large national banks typically only earn 0.01% annual interest. For the past several years, money market accounts also had very low interest rates that were about the same as savings accounts but in the past 6 months, these interest rates have risen to 3 – 4% annualized.

When a person deposits money in a money market account, the bank then uses that money to invest, typically in short-term bonds and treasury bills. The bank makes its money off of the interest on those investments by making the interest it pays the depositor slightly lower than the interest rate on the bank’s investments. As an example, at last week’s auction by the U.S. Department of the Treasury, the annualized interest on treasury bills ranged from 4.22% on 4-week bills to 4.70% on 26-week bills. Last week, my bank was offering money market accounts with a 3.50% annualized yield. So, if the bank uses money market deposits to buy treasury bills, it can make a net profit of about 1%. Banks can also use money deposited into money market accounts to make bank loans, such as mortgages, car loans, and business loans. The interest the bank charges on these loans is even higher than treasury bill interest rates. Banks assume that there is a predictable amount of money being deposited and withdrawn by money market account owners and assumes that everyone does not decide to withdraw all of the money market funds all at once.

What does being FDIC-insured mean?

An advantage of transactional bank accounts is that they are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is a United States government corporation created in 1933 in response to runs on banks that contributed to the Great Depression. Banks that are members of the FDIC pay the FDIC annual fees that are similar to insurance premiums. The FDIC then uses the proceeds of these fees to build up its reserves in order to insure the checking accounts, savings accounts, money market accounts, and certificates of deposit at member banks. Importantly, the FDIC is self-funded, meaning that it is not supported by public funds and does not depend on congressional appropriations.

Each transactional account at member banks is insured for up to $250,000. That means that if you have a checking account, savings account, and money market account at an FDIC member bank, each of them is insured for $250,000 for a total of up to $750,000 if you put $250,000 into each of these three accounts. Any amount over $250,000 deposited in an account is not insured and can be lost if the bank goes under. The FDIC’s reserves are currently $1.28 billion. In the event of massive bank failures, the FDIC also has a line of credit of an additional $100 billion from the U.S. Treasury Department. Because of this, FDIC-insured transactional accounts are considered the safest of all types of investments.

Money market funds are not FDIC-insured

Money market accounts are issued by banks. Money market funds are issued by investment companies. Although these two types of money markets are similar, there are important differences, the most important being that money market funds are mutual funds and are not insured by the FDIC. However, that does not necessarily mean that FDIC-uninsured money market funds are less safe than FDIC-insured money market accounts. As is often the case, the details are in the fine print.

When you deposit money in a bank’s money market account, the bank leverages that money to make loans and investments. The bank does not just keep that money in a vault somewhere. This creates a problem if there is a run on the bank by depositors because the bank does not have enough cash on hand to pay off all of the depositors at once. If this happens, the bank can become insolvent and go under, such as happened with Silicon Valley Bank recently. Unlike banks, investment companies do not make loans so all of the deposits in a money market fund are used for investments, typically in short-term U.S. government bonds and treasury bills. As an example, the Vanguard Cash Reserves Federal Money Market Fund has 99.5% of its funds held in cash or U.S. government securities (U.S. government bonds, treasury bills, and U.S. government securities repurchase agreements). The yield that a money market funds pays to its investors is directly related to the interest that the fund is getting from the government securities it buys. This week, Vanguard’s money market fund has an annualized yield of 4.55%. This is higher than the annualized yield of bank money market accounts but slightly lower than the current interest on 26-week treasury bills. Other money market funds offered by investment companies may be invested in municipal bonds, making the yield tax-exempt to depositors. High-risk money market funds may invest in corporate bonds or foreign currency certificates of deposit.

Money market funds also differ from money market accounts by check-writing and debit card privileges. These are not typically offered by investment companies to money market fund depositors. It also takes longer to withdraw money from a money market fund than a money market account. Generally, it takes 2-3 days (and up to 7 days) for money to transfer from a money market fund in an investment company into a checking account at your bank. However, most money market accounts held by your bank can transfer funds immediately into a checking account held in that bank.

When you invest money in an investment company’s money market fund, you are purchasing shares of that fund. The fund managers generally keep the price per share at $1.00. When the fund makes money, it pays you in dividends (not interest). So, when you make income off of the money invested in the money market fund, the price per share does not change but you end up with dividends. Usually, those dividends get reinvested in the money market fund resulting in you owning more shares of that money market fund. During the 2008 financial crises, the price per share of most money market funds dropped to $0.97, so investors lost 3% on their money market fund investments.

When depositing money in a bank’s money market, it is important to read the details carefully to be sure that the bank is offering an FDIC-insured money market account. As an example, Chase Bank does not offer a money market account through its regular banking services but it does offer a money market fund through its affiliated investment company, JP Morgan Asset Management. The current annualized yield on this money market fund is 4.47% but it is not FDIC-insured.

Caveat emptor

Nowhere does the phrase “Let the buyer beware” apply more importantly than investing. In this time of financial uncertainty with bank failures and the impending U.S. debt ceiling, it is essential that all investors be sure of the details of their investments. Money markets are currently highly attractive because they are generally safe and currently paying annualized yields that are better than can be had with stocks or bonds. Here are some of the considerations to take into account when considering a money market:

1. Is your bank a member of the FDIC? If it is, then money market accounts offered by the bank are likely FDIC-insured. There are a few banks in the United States that are not insured by the FDIC so be sure that yours is an FDIC member bank. Credit unions are not insured by the FDIC but are insured by the equivalent National Credit Union Administration (NCUA).
2. Is the money market offered by your bank insured by the FDIC? If your bank is an FDIC member and offers a money market account directly, then the money market is insured. But you do need to be careful because many banks will link their websites to their sister investment companies, often called “asset management” or “wealth management” companies with a similar name as the bank’s. These money market funds are generally not FDIC-insured.
3. How much money are you putting in a money market? In general, you should avoid putting more than $250,000 in any single money market account. A common scenario is buying a new house. Let’s say you sell your current house for $500,000 and you are buying a new house for $500,000 but the closing date for purchase of your new house is two months after the closing date for sale of your old house. So you need to park $500,000 somewhere safe until you close on your new house. It is better to split the money into two $250,000 money markets – either into one owned by you and one owned by your spouse at a single bank or into two money market accounts in two different banks.
4. Money market account versus money market fund. The deposits in an FDIC-insured money market account will be slightly safer than deposits in a non-insured money market fund. However the money market fund will probably pay a higher annualized yield than the money market account. You will need to weigh the risk versus reward associated with an account versus a fund.
5. What is the money market fund invested in? If you do decide to deposit money into a money market fund, be sure that you read the details of how the fund manager uses those deposits. A money market fund that is totally invested in U.S. government securities is safer than a money market fund invested in municipal bonds. A money market fund that is invested in corporate bonds or foreign currency certificates of deposit is considerably riskier.
6. How fast will you need to move the money? You can wire money from your bank’s money market account immediately but it can take up to a week to transfer money from your investment company’s money market fund into your checking account.
7. Do you want to write checks on your money market? Although every bank and investment company has different rules, most banks will allow you to write a check or use a debit card to access cash in your money market account. Most investment companies do not offer check-writing or debit cards to withdraw cash from money market funds.
8. Know your tax implications. Money market accounts will pay you interest, which is taxed at your regular income tax rate. Money market funds will pay you dividends, instead of interest. Dividends come in two types: ordinary dividends and qualified dividends. Qualified dividends are taxed at the dividend tax rate of either 0%, 15%, or 20%, depending on your taxable income. For most people, the dividend tax rate is lower than their regular income tax rate. Ordinary dividends, on the other hand, are taxed at your regular income tax rate, just like interest is taxed. Most money market funds will pay out ordinary dividends and not qualified dividends. Money market funds invested in municipal bonds are generally tax-exempt.
9. When to consider treasury bills instead of a money market. Every week, the U.S. Treasury Department auctions federal securities. Treasury bonds mature in 20-30 years, treasury notes mature in 2-10 years, and treasury bills mature in less than 1 year. For some people, purchasing a treasury bill directly from the Treasury Department can be a good alternative to a money market. Treasury bills are similar to a certificate of deposit in that the money cannot be accessed until the bill matures. The advantage of a treasury bill is that it generally pays a higher rate of return than money market accounts at a bank. Just be aware that if the federal government reaches the debt ceiling without congressional action, you may not be able to get paid once a treasury bill reaches its mature date. Currently, treasury bills with mature dates of 4, 8, 13, 17, and 26-weeks are available for purchase. The most recent annualized rates range from 4.22% for 4-week bills to 4.70% for 26-week bills.

The good news is that both money market accounts and money market funds are generally safe and currently offering better annualized yields than other common investments. Just be sure you know what you are putting your money into before you hand over your cash.

Today, the results of the 2023 National Residency Match Program were released. Every year, the match determines where medical students in their senior year will be doing their residencies starting in July. There are some important take-away lessons from this year’s match.

The number of applications increased.

There were 48,156 applicants in this year’s match, up from 47,675 applicants last year. This was driven by an increase in foreign medical graduates (707) and U.S. osteopathic school seniors (153). Notably, the number of U.S. medical school seniors applying to the match dropped by 236 this year. Not all applicants certified a rank order list of residencies but of those who did submit a rank list, 81.1% matched to a first-year residency position. There were 1,239 couples (6% of match applicants) in this year’s match and they had a higher match rate of 93%, which has been constant for the past 35 years.

There were a total of 40,375 residency positions available in this year’s match, 3% more than last year. 93.3% of these positions filled in this year’s match. There were a total of 2,658 unfilled residency spots in this year’s match that will be available to unmatched students in the Supplemental Offer and Acceptance Program. This program is currently actively filling open positions so the results of the SOAP are not yet available.

Foreign medical graduates are back.

Until the COVID pandemic, foreign medical graduate applicants in the match had been steadily increasing. In 2022, there was the first-ever fall in the number of foreign medical graduates, primarily due to COVID travel restrictions and fear of the United States’ high COVID prevalence and high COVID death rate. In 2023, the number of foreign medical graduates increased to the highest number on record. Foreign medical graduates continue to have the lowest match rate with only 59.4% matching into a PGY-1 residency.

U.S. MD applicants once again had the highest match rates.

Seniors at U.S. medical schools had the highest match rate at 93.7%. This is similar to the match rate for these students over the past 40 years. Seniors at U.S. osteopathic schools had the next highest match rate at 91.6% which is the highest match rate ever for these students. U.S. citizens attending foreign medical schools were next with a 67.6% match rate and non-U.S. citizens from foreign medical schools had the lowest match rate at 59.4%.

The most popular specialties.

Categorical internal medicine had the most filled positions (9,345) followed by family medicine (4,511), categorical pediatrics (2,900), emergency medicine (2,456), and psychiatry (2,143). Several specialties have the option of either matching into an integrative PGY-1 position or matching into a PGY-2 position after doing a transitional or preliminary residency year. In the graph below, the specialties include the number of applicants matching into both PGY-1 and PGY-2 positions.

The above graph only includes 25 largest specialties and does not include specialties with small numbers of residency positions such as nuclear medicine.

Specialties with the largest growth in number of residency positions offered compared to last year include categorical internal medicine (+335), family medicine (+172), psychiatry (+117), emergency medicine (+79), anesthesiology (+65), neurology (+49), general surgery (+48), and primary care internal medicine (+24),

The most (and least) competitive specialties.

Competitive specialties are those that have the highest rate of filling either by U.S. medical school (MD) senior applicants or by total applicants. The major specialties with the highest percentage of available positions filled by U.S. medical school (MD) applicants were all surgical specialties: plastic surgery (92.3%), neurosurgery (86.8%), thoracic surgery (83.7%), otolaryngology (83.1%, and vascular surgery (80.6%). Ten specialties filled all available positions (100%) when considering all applicants: plastic surgery, thoracic surgery, dermatology, orthopedic surgery, anesthesiology, interventional radiology, radiation oncology, child neurology, physical medicine, and neurology.

Five major specialties filled fewer than 50% of available positions with U.S. medical school (MD)  applicants: emergency medicine (42.3%), pathology (39.5%), categorical internal medicine (36.9%), family medicine (29.2%), and preliminary surgery (21.7%). When considering all applicants, four specialties matched fewer than 90% of available positions: family medicine (88.7%), transitional year (87.8%), emergency medicine (81.6%), and preliminary surgery (51.4%).

The more competitive a specialty is, the larger the number of programs are ranked by each applicant. The largest average number of residency programs ranked by each U.S. medical school (MD) applicant were vascular surgery (19), neurosurgery (18), thoracic surgery (17), plastic surgery (15), and otolaryngology (14). On the other hand, primary care specialties had fewer average rankings per applicant: family medicine (4), internal medicine (5), emergency medicine (7), and pediatrics (8).

Which specialties are in trouble?

Emergency medicine has seen a fall in the total number of filled positions over the last 3 years. In the past, emergency medicine filled >99% of available positions but this dropped to 93% in 2022 and 82% in 2023. This year, emergency medicine had 554 unfilled positions, second only to family medicine (577 unfilled positions). Because of its past competitiveness, emergency medicine residencies have historically accepted relatively few foreign medical graduates. This year was no exception and foreign medical graduates only accounted for 2% of filled emergency medicine residency positions. The number of residency positions offered in emergency medicine has been increasing each year at a faster pace than other specialties. This, combined with the declining interest in emergency medicine by applicants signals that emergency medicine residencies will need to make adjustments in the future to attract more U.S. medical school graduates and U.S. osteopathic school graduates. In addition, emergency medicine residencies need to be more receptive to foreign medical graduate applicants.

The number of filled internal medicine preliminary year positions has also been steadily declining over the past 5 years. However, this decline has been offset by a steady increase in the number of filled transitional year positions, suggesting that applicants are selecting transitional year programs instead of internal medicine preliminary year programs. These two types of 1-year programs are very similar and often both offered by the same departments at teaching hospitals.

These are your future doctors

In 3 1/2 years, the students who matched today will begin completing residency programs and will begin to enter the attending physician workforce. The results suggest a future worsening of the shortage of primary care physicians and emergency medicine physicians. The results also indicate that foreign medical graduates will comprise an increasing percentage of practicing physicians in the United States in the future.

March 17, 2023

Rural hospitals in the United States are closing at an alarming rate. 190 of them have closed since 2005. In 2019 alone, 18 rural hospitals closed. Federal COVID relief funds brought a brief respite with only 3 rural hospitals closing in 2021 and 7 closing in 2022. But now that those relief funds have largely been exhausted, we are back on track to see an increasing number of closures this year. The Center for Healthcare Quality and Payment Reform estimates that there are 600 rural hospitals (one-third of all U.S. rural hospitals) at risk of closing in the near future.

Each hospital has different reasons for closing but in general, it is due to persistent losses on patient care services and insufficient financial reserves. Rural hospitals are generally smaller than metropolitan hospitals. The American Hospital Association reports that half of rural hospitals have fewer than 25 beds. It is generally not cost-effective to maintain 24-hour services such as radiology, lab testing, blood banking, respiratory therapy, and pharmacy for a very small number of inpatients as these services require a critical mass of patients to cover their expense. Rural hospitals account for 35% of the nation’s hospitals but account for 59% of hospital closures. Data from the University of North Carolina’s Shep’s Center shows that Texas has had the largest number of rural hospital closures at 27 followed by Tennessee at 15 and North Carolina at 11.

One of the most important functions of rural hospitals is to provide emergency care. For patients with conditions such as trauma, myocardial infarction, stroke, pulmonary embolism, and gastrointestinal bleeding, timely initial medical care at even a small emergency department can mean the difference between life and death. When a rural hospital closes, not only do rural residents have to travel farther to receive healthcare, but the rural community also loses a major employer. That often results in hospital workers moving to urban areas in order to stay employed.

To address this evolving crisis in rural healthcare, CMS created the Rural Emergency Hospital program that went into effect in January 2023. Under this program, Medicare pays hospitals $3.27 million per year and increases payment for patient care services to 105% of the usual Medicare reimbursement. In exchange, the hospitals have to maintain a staffed emergency department and no longer admit patients for inpatient care.

Requirements to qualify as a rural emergency hospital:

• Have met criteria as a critical access or small rural hospital with no more than 50 beds on December 27, 2020
• Do not provide inpatient care
• Do not exceed an average observation length of stay of greater than 24 hours
• Be located in a state that licenses rural emergency hospitals and be licensed as such
• Be enrolled as a Medicare provider
• Have a transfer agreement with a level I or level II trauma hospital
• Maintain a staffed emergency department 24 hours a day, 7 days a week that meets Critical Access Hospital emergency care criteria
• Have blood bank, radiology, laboratory, and pharmacy services
• Have a physician, nurse practitioner, clinical nurse specialist, or physician assistant available 24 hours a day immediately by phone and within 30 minutes to travel on-site

The downsides of becoming a rural emergency hospital

The biggest sacrifice in becoming a rural emergency hospital is giving up inpatient care. That means no obstetrics, no intensive care unit, and no inpatient surgeries. These are often the best-paying services that hospitals provide. Becoming a rural emergency hospital does not eliminate a lot of the regulatory requirements that burden inpatient hospitals. Rural emergency hospitals are still subject to periodic site visits by Medicare inspectors – the CMS conditions of participation document that describes all of the specific regulations reviewable during site visits is 118 pages long. Fortunately, most of these conditions are similar to or the same as conditions for regular inpatient hospitals so most hospitals will have already met these requirements prior to converting to a rural emergency hospital.

Any patient who requires an inpatient admission must be transferred to a full-service hospital. For residents of the community, that can mean driving an hour or more to deliver a baby or to have a surgery that might require admission to the hospital afterward. It can mean an hour-long ambulance ride to be admitted for a COPD exacerbation or flare of heart failure. This can be isolating for patients requiring hospitalization when family and friends must now travel long distances for hospital visits.

For the physicians who practice in that community, it means no longer providing inpatient care. Although many primary care physicians may be happy to be relieved of the demands of taking care of their handful of inpatients, it can be disruptive to the continuity of care of those patients. Family physicians in the community would no longer be able to deliver babies. For some physicians, this can mean a loss of an important percentage of their professional revenue that in the past came from inpatient services. It will become very difficult for specialists such as cardiologists, OB/GYNs, general surgeons, and pulmonologists to maintain financially viable practices in communities lacking an inpatient hospital.

Should your hospital become a rural emergency hospital?

There are a number of factors to consider when a hospital contemplates conversion to rural emergency hospital status:

Is it legal in your state? One of the key requirements to become a rural emergency hospital is that the hospital must be located in a state that licenses them. Only 7 states have approved licensing as rural emergency hospitals: Arkansas, Illinois, Kansas, Michigan, Nebraska, South Dakota, and Texas. Other states are likely to pass legislation permitting rural emergency hospitals in the near future but this is currently a barrier for hospitals not in one of these 7 states. If your state does not license rural emergency hospitals, then start lobbying your state legislature now so that your hospital have the option of converting to a rural emergency hospital in the future.

Did your state adopt Medicaid expansion? States that did not adopt Medicaid expansion had higher numbers of rural hospital closures than those states that did adopt Medicaid expansion.

Since 2005, the 11 states that did not adopt Medicaid Expansion accounted for 51% of all rural hospital closures in the United States. States that adopted Medicaid had an average of 2.4 rural hospital closures whereas states that did not adopt Medicaid expansion had an average of 8.7 rural hospital closures. Americans living in rural areas have a higher poverty rate (15.4%) than those living in metropolitan areas (11.9%). This poverty disparity is greatest for Black Americans living in rural areas (30.7%) versus Black Americans living in metropolitan areas (20.4%). Overall, since 2007, per capita income in rural areas is 25% lower than in urban areas. As a consequence, states that did not expand Medicaid now have a higher percentage of low-income, uninsured people living in rural areas. People lacking health insurance still get sick and injured, however. When they require hospitalization, the hospital does not get paid. This has led to disproportionate financial failure of rural hospitals in states that did not adopt Medicaid expansion. As an example, Texas has the highest percentage of uninsured population in the country (20%) and also had the highest number of rural hospital closures since 2005 (27 hospitals).

Hospital size matters. The 190 rural hospitals that have closed since 2005 were mostly small with an average of 36 beds. 79% of all closed hospitals had fewer than 50 beds and 55% had 25 or fewer beds. When the hospital inpatient census becomes low, hospitals frequently run a deficit since it is difficult to provide comprehensive 24-hour a day services for a small number of patients. The fewer the number of inpatient beds, the more likely a hospital will financially fail and close.

It’s all about the financial statement spreadsheet. Every rural hospital in the U.S. is different. Some have non-patient care revenue in the form of endowments, county support, state support, or religious organization support. Others are fortunate to have a high percentage of commercially-insured patients. Some have had forward-thinking leaders who have avoided financial losses by careful resource allocation and building up their number of days cash on hand. Each hospital must look at its unique financial situation to determine whether they are better off accepting the $3.27 million and giving up their inpatient beds to become a rural emergency hospital or continuing their inpatient services and passing on the $3.27 million.

What will Medicare Advantage plans cover? Emergency department visits, observation stays, and outpatient services are covered by Medicare Part B for those Medicare recipients who have traditional Medicare. However, 45% of Medicare enrollees are now covered by Medicare Advantage plans (Medicare Part C). These plans dictate which physicians the patients are allowed to see, what outpatient services will be covered based on prior authorization, what co-pays are required by the patient, and what deductibles are required by the patient. Hospitals contemplating conversion to rural emergency hospital status need to do an inventory of Medicare Advantage plans used by the hospital’s patient population and ensure that payment for emergency and outpatient services from these plans will cover the cost of providing those services. A good place to start is to look at the denial rates at your hospital by the various Medicare Advantage plans in your community. A Medicare Advantage plan that has historically denied a high percentage of emergency and outpatient services will continue to do so if the hospital becomes a rural emergency hospital. Hospitals also need to ensure that the physicians, nurse practitioners, and physician assistants who provide emergency services are in-network for those Medicare Advantage plans.

A rural emergency hospital is better than no hospital

American healthcare is increasingly dominated by large multi-hospital health systems. This has been a result of a trend of hospital mergers and acquisitions over the past 25 years. Many small rural hospitals have either outright gone out of business or have been acquired by and then closed by larger health systems. But when a rural hospital closes, the healthcare needs of the people in its community does not go away.

CMS has thrown America’s rural hospitals a lifeline that can help them continue to provide emergency services and outpatient services to their communities. Although this will not be as good as having local inpatient services, it is better than nothing.

March 13, 2023

During the COVID pandemic, most physicians used telemedicine to some extent in their outpatient practices. Many of us even used it for inpatient care. Now that the worst of the pandemic is behind us, many regulatory agencies are adopting restrictions on when telemedicine can and cannot be used. There are as many opinions about telemedicine as there are doctors in the U.S. Some practitioners are strong adopters and prefer telemedicine over in-person encounters. Other practitioners dislike telemedicine and will not use it in any situation. Most of us fall somewhere in-between… telemedicine encounters are sometimes the best option and in-person encounters are sometimes the best option.

What the DEA says

Last week, the Drug Enforcement Agency (DEA) proposed new regulations about the use of telemedicine for prescribing controlled medications. During the COVID pandemic, these rules were relaxed in order to ensure that patients could get needed prescription medications without risking COVID exposure during trips to physician offices. The new rules are for the initial prescription of schedule III-V drugs and for the initial prescription of buprenorphine for opioid-use disorder. The regulation states that for the initial prescription of these drugs, a 30-day supply can be prescribed by telemedicine but the patient must have an in-person visit with the prescribing physician within that initial 30-day period. After that first in-person visit, the medications can then be prescribed by telemedicine without a requirement for additional in-person physician visits. A caveat is that if the patient has previously had an in-person visit with that practitioner at anytime in the past, they are not required to have an additional in-person visit after initial prescription of these drugs by telemedicine. In other words, what the regulation says is that to prescribe more than 30 days of schedule III-V drugs or buprenorphine, a practitioner must have at least one in-person visit with a physical examination before or shortly after the prescription. There has been a lot of misinformation that the regulation requires an in-person visit to the prescribing practitioner every 30 days and this is not true. As long as the practitioner has seen the patient in the office one time, the practitioner can prescribe these drugs by telemedicine for as many months as necessary.

Schedule III drugs include codeine, anabolic steroids, ketamine, and testosterone. Schedule IV drugs include Xanax, Valium, Ativan, Ambien, and Tramadol. Schedule V drugs include Lomotil and Lyrica.

Buprenorphine is used to treat opioid-use disorders. It is often prescribed in combination with naloxone; the combination drug is called Suboxone. Although buprenorphine is itself an opioid, Suboxone has relatively little euphoric effect and is used to help prevent opioid withdrawal. The ability to prescribe buprenorphine by telemedicine allows physicians who treat substance abuse disorders to get patients started on treatment immediately. This can be a great advantage in opioid-dependent patients who have transportation barriers or who seek treatment for their addiction on weekends or evenings. Telemedicine for buprenorphine prescription is likely underutilized. The DEA reported that during the COVID pandemic in 2021, there were a total of 1,929,151 Medicare Part D buprenorphine prescriptions associated with 1,332,353 Medicare beneficiaries. Of these prescriptions, 11,956 were prescribed during telemedicine. In other words, only 0.43% of all buprenorphine prescriptions were made by telemedicine.

Schedule II drugs have different DEA regulations. These drugs include opioids, Ritalin, and Adderall. Schedule II drugs cannot be initially prescribed during a telemedicine encounter and initial prescriptions for these medications must be made during an in-person encounter. The new DEA regulations only address the initial prescription for schedule II drugs. These regulations do not prohibit using telemedicine for schedule II refills, as long as there has been at least one previous in-person visit.

What the state medical boards say

The DEA regulations address what controlled drugs can legally be prescribed by telemedicine. Each state’s medical board issues additional regulations that dictate when telemedicine can and cannot be performed. Because these regulations vary from one state to another, physicians need to be familiar with the specific regulations in the state(s) that they are licensed in.

Telemedicine encounters are legally considered to occur where the patient is located and not where the doctor is located. State medical boards have different rules about the legalities of telemedicine when a patient is located in a different state than the doctor. In most situations, a doctor must have a state medical license in every state that he/she practices in. In other words, the doctor must be licensed in every state that their patients are in during telemedicine encounters. The interstate medical licensure compact makes cross-state licensing easier but does not eliminate the requirement for multiple state medical licenses when patients are in a different state than their doctor.

What CMS say

The DEA and the state medical boards dictate what can be legally prescribed during telemedicine and when telemedicine is allowed. CMS dictates when Medicare will reimburse physicians for telemedicine encounters. During the COVID pandemic, CMS relaxed rules about the use of telemedicine for Medicare patients as part of the public health emergency declaration. The public health emergency is set to expire on May 11, 2023. However, when Congress passed the Consolidated Appropriations Act of 2023, they extended some of the telemedicine flexibilities through the end of calendar year 2023. So, for the rest of this year, physicians can continue to perform telemedicine visits with Medicare patients and get paid. Telephone calls are not considered to be telemedicine encounters by CMS so telemedicine encounters must include both audio and video communication. Each commercial insurance company makes their own rules about reimbursement of physician services but they generally follow Medicare’s rules.

What malpractice insurance companies say

For telemedicine to be viable, it must not only be legally allowed and reimbursable, but it must also be covered by the physician’s medical malpractice insurance. Prior to the COVID pandemic, not every malpractice insurance carrier embraced telemedicine and some did not even offer telemedicine coverage. Most malpractice carriers now either include telemedicine in the regular malpractice insurance policy or offer it as an add-on to the standard policy. With the pandemic winding down, it is important for every physician who uses telemedicine to be sure that their policy covers telemedicine after the public health emergency expires in May 2023.

Because telemedicine encounters legally occur in the state that the patient is physically present in, if the physician does perform inter-state telemedicine, they not only need a license in that second state but they also need malpractice coverage in that state. For example, if a physician has an office in Ohio but wants to perform telemedicine encounters for patients who spend the winter in Florida, that physician needs an Ohio and a Florida medical license and also needs Ohio and Florida malpractice coverage. There are substantial differences in the cost of malpractice premiums in different states with Florida being one of the most expensive. So, in this example, unless the physician has a very large number of patients in Florida, the additional cost of malpractice coverage in Florida to be able to perform telemedicine visits may be too great to justify doing telemedicine for patients in Florida.

The use of telemedicine during COVID

A survey by the American Medical Association published in 2022 found that 85% of U.S. physicians were using telemedicine during the COVID pandemic. 60% of physicians reported that they believed that telemedicine enabled them to provide high quality medical care. 54% of physicians reported that telemedicine improved their job satisfaction. 44% of physicians believed that telemedicine decreased the cost of care.

The National Health Interview Survey during the COVID pandemic in 2021 reported that 37% of American adults used telemedicine the the preceding twelve months. The highest utilization was in Whites (39%) and American Indian/Native Alaskans (41%). The lowest utilization was in Hispanics, Black, and Asians (all 33%). Women (42%) used telemedicine more frequently than men (32%). Telemedicine use was also higher in Americans who were older, had higher incomes, and had higher educational attainment. Geography also makes a difference: 40% of adults living in large metropolitan regions used telemedicine versus 28% in rural areas. A survey of 307,000 patients by the Mayo Clinic in 2022 found that patients were equally satisfied with telemedicine visits as they were with in-person visits.

There is a learning curve to doing telemedicine – both on the part of the physician and on the part of the patient. Many patients struggled doing their first telemedicine encounters. But usually after a couple of encounters, they got the hang of using their computer, tablet, or phone to do telemedicine and their proficiency improved. It became clear that providing patients with instructions about how to do telemedicine before the encounter was essential. During the first months of using telemedicine, I had patients try to do their encounters while shopping at the grocery store and even while driving their car (!!!!).

Where should telemedicine go from here?

From the various surveys of telemedicine during COVID, it is clear that telemedicine is preferred by some patients and not others. It is also preferred by some physicians and not others. Intuitively, many physicians would have predicted that telemedicine would be more enthusiastically adopted by rural patients than urban patients because of the geographic distances that must be surmounted to get to the physician office. Intuitively, many physicians would have also predicted that telemedicine would be more enthusiastically adopted by younger patients than older patients because of familiarity with technology. It turns out that just the opposite was true. In my own practice, I had many patients who lacked internet access (or had too low of bandwidth) in their homes and lived in areas with marginal cell phone service – reception was often good enough to do audio phone calls but not good enough to do effective video. These patients were simply unable to do telemedicine encounters.

Regardless of patient preferences, there are some specialties that lend themselves better than others for telemedicine. For example, a cardiologist who specializes in valvular heart disease needs to be able to do an in-person physical examination of the heart with most patient encounters. On the other hand, a cardiologist who specializes in lipid management does not have the same need to do a regular in-person physical examinations. Each physician needs to decide for himself or herself about how necessary a regular physical exam is for their clinical practice. In addition to physical examinations, some medical conditions require regular in-office testing that is typically done at the same time as their physician office visit. EKGs, chest X-rays, hemoglobin A-1Cs, and urine drug screens are examples. Telemedicine is less useful for patients with these conditions.

So, when will telemedicine be most useful in the post-COVID era?

• When patients prefer telemedicine over in-person encounters
• When physical examination adds relatively little value to the encounter
• When in-office procedures are not a usual part of the physician office visit
• When patients are physically located in the same state as the physician (or in a state in which the physician has a medical license and malpractice coverage)
• When patients have sufficient skill, technology, and internet bandwidth to effectively complete telemedicine encounters
• For follow-up encounters for prescription of controlled substances after an initial in-person visit

In addition, telemedicine requires that the physician be capable and comfortable with telemedicine. This includes having HIPAA-compliant audiovisual communication software that can interface with their electronic medical record. It also includes having office staff that are equally capable and comfortable with telemedicine.

What is the best way to schedule telemedicine encounters?

There are several ways to incorporate telemedicine encounters into the outpatient schedule. The three most common are dedicated telemedicine schedules, interspersed telemedicine schedules, and blended schedules.

• Dedicated telemedicine schedules. This allows a physician to see only telemedicine patients on a given day or half-day. For example, a physician might do in-person office visits 4 days a week and then on the 5th day do telemedicine encounters only.
  • Pros: The advantage of scheduling an entire day or half-day of telemedicine encounters is that the physician can use less office space and less office staff. There is no need for exam rooms, a parking lot, or a waiting room. Patients can often be registered in batch the day of or the day before the telemedicine encounter thus eliminating the need for dedicated registration staff throughout the entire workday. Moreover, the registration staff can often work from home, which facilitates part-time work and can improve job satisfaction for staff who would otherwise have a long commute to the office. Usually, a single medical assistant or nurse can prep the encounter by updating medical history information in the electronic medical record and also perform check-out tasks including scheduling tests or procedures ordered by the physician. This is also a great option when a physician is required to be physically present for supervision purposes; for example, during pulmonary rehabilitation, during hyperbaric oxygen treatments, or during cardiac stress testing. These procedures are often performed in areas that are not equipped for in-person outpatient office visits but that can be used for telemedicine.
  • Cons: There has to be a critical mass of patients to set up a telemedicine-only schedule. Because the nurse does not need to obtain vital signs and the doctor does not need to perform a physical exam, the encounters can be shorter than a regular in-person office visit. This can result in more patients seen in a full-day or half-day schedule. If the physician does not have a sufficient number of patients who are able and willing to do telemedicine, then there may not be enough patients to fill an entire day’s schedule. There also may be limited ability to accommodate patients needing urgent same-day in-person office visits for acute medical conditions.
• Interspersed telemedicine schedules. In this model, the physician has some in-person office visits alternating with telemedicine visits during the same day.
  • Pros: This model gives flexibility. Patients who unexpectedly cannot arrange transportation to the office can be converted to telemedicine visits to avoid cancelations. This model is also preferable when the physician has an insufficient number of telemedicine patients to fill an entire day or half-day schedule. By carefully scheduling telemedicine encounters in-between in-person encounters, a physician who previously needed 4 exam rooms for optimal operational efficiency might be able to get by with only 2 or 3 exam rooms, thus reducing overhead expenses. Patients frequently call the office for medical advice or because of acute illnesses. Many physicians provide a great deal of medical care over the phone and get paid little or nothing for those patient calls. Having the ability of the office staff to screen patient calls and convert those that can appropriately be telemedicine encounters can improve  revenue and also improve patient care by allowing the physician to see as well as hear the patient.
  • Cons: There is less efficiency savings since the physician has to maintain a fully staffed office and a sufficient number of exam rooms, just as they would for a full schedule of in-person office visits.
• Blended schedules. In this model, the physician has some days with dedicated telemedicine-only schedules. On other days, there is an interspersed schedule with some in-person and some telemedicine visits.
  • Pros: This model has the advantages of both types of schedules. The physician does not need the parking, exam rooms, or office staff on days that there is a telemedicine-only schedule thus reducing overhead expenses. On the other hand, in-person visits can be converted to telemedicine encounters at the last minute when patients are unable to arrange transportation or in event of bad weather, thus reducing cancelation rates. Patient sick calls can be converted into billable telemedicine encounters.
  • Cons: There has to be a sufficient number of patients to warrant a full day or half-day dedicated exclusively to telemedicine.

The future of telemedicine is what we make it

The COVID pandemic gave patients and doctors a taste of telemedicine. However, the U.S. healthcare system had to adopt telemedicine quite quickly and with rapid adoption there was inevitably problems. Many medical practices went through several telemedicine software systems trying to find the best system for their particular practice. We are now entering a time when we can more thoughtfully select telemedicine software and we can plan for the efficient use of telemedicine in the future.

Most physicians will likely continue to utilize telemedicine as a component of their outpatient practice. Telemedicine fills a needed practice efficiency gap by reducing last minute cancelation rates and by reducing barriers to healthcare for those patients who are immobile or live great distances from their doctor. When possible, physician practices should adopt blended schedules in order to reduce overhead expenses and convert phone calls into billable telemedicine encounters while still maintaining the capability of doing in-person visits when medically appropriate.

But we also need to know if telemedicine will continue to be reimbursed by Medicare and commercial insurance companies. Since the current telemedicine reimbursement rules expire at the end of 2023, we need to advocate for CMS to make telemedicine reimbursement permanent. Otherwise, it is difficult to justify purchasing expensive telemedicine videoconferencing software and camera systems. It is also risky to schedule telemedicine encounters beyond December 31, 2023 since we do not yet know if these encounters will be reimbursable in 2024.

Telemedicine cannot and should not replace all in-person office visits. But neither should we abandon telemedicine completely as the COVID pandemic (hopefully) fades away.

March 3, 2023

ChatGPT is a free artificial intelligence program that can write letters, reports, and research papers using internet information. Recently, it has generated concern by educators that students can use it to write term papers and do homework assignments. I used ChatGPT to write a personal statement for a pulmonary fellowship application that was indistinguishable from the real thing. Our application process now needs to adapt to this new paradigm.

Residency and fellowship application personal statements

Up to now, applying to residency or fellowship programs involved filling out a standard application form that included information such as board examination scores, medical school grades, research publications, and faculty recommendation letters. A central component of these applications has been the personal statement where the applicant tells why he or she has chosen a particular specialty in which to pursue further training. After reviewing these applications, residency and fellowship program directors then select which applicants to invite for a face-to-face interview. Based on the contents of the application, the personal statement, and the interview, program directors then rank all of the applicants to submit to the National Residency Match Program (NRMP). The NRMP then matches the rank list of applicants with the rank list of the residency or fellowship programs to determine where the applicants will do their residency or fellowship training.

Over the past 35 years, I have read thousands of personal statements when grading applications to our internal medicine residency and our pulmonary/critical care fellowship programs. Occasionally, a personal statement would lower my overall grade if it contained misspellings, contained grammar errors, or was just plain weird. Occasionally, a personal statement would stand out as being particularly emotionally moving or show evidence that an applicant had to overcome particularly difficult personal barriers and this could raise my overall grade of their application. Most of the time, however, I viewed the personal statement fairly neutrally and it had relatively little impact on how high I would grade an application. Honestly, most personal statements all sound about the same.

What is ChatGPT?

ChatGPT is an artificial intelligence chatbot that was launched on the internet on November 30, 2022 as a prototype. By January 2023, it had 100 million users, making it the fastest growing consumer application to date. ChatGPT was developed by the company, OpenAI. This was a home run for OpenAI which is now valued at $29 billion.

This morning, I wanted to find out if ChatGPT can be used to write personal statements for residency and fellowship applications. So, I went to the website of OpenAI and opened a ChatGPT account. It is free and took me less than 30 seconds to start my account. I then asked ChatGPT to write a personal statement. I entered the following information: “I am a resident in internal medicine influenced by my intensive care unit attending, write a personal statement for pulmonary fellowship”. That was all the information I included. ChatGPT did not know anything else about me other than my email address, name, and phone number. It took ChatGPT about 15 seconds to write a personal statement and here is what it came up with:

I was pretty amazed… this personal statement was darn good and was easily as good as 75% of the fellowship application personal statements that I have read in the past that were written by actual human beings. There were no misspellings and no grammar errors. The personal statement expressed passion about a career in pulmonary medicine and showed no sign that the applicant possesses some underlying psychopathology. In short, it checked all of the boxes. If I had read this personal statement a year ago, I would have passed the application on as perfectly acceptable.

I’m a baby boomer and I’m not supposed to be very knowledgable about new technology and artificial intelligence. Just think what millennials can do with this. Most 4th year medical students submit their residency applications in September/October so ChatGPT has probably not been used for this year’s residency applications. However, I can almost guarantee that every 3rd year medical student who will be filling out residency applications this summer will at least think about using ChatGPT. The same goes for fellowship applications.

As an attending physician, I have also written hundreds of reference letters and letters of recommendation for students applying to residency and for residents applying to fellowship. These letters take a lot of time to write and it would probably cross my mind to use ChatGPT if I got a request from 20 students for residency recommendation letters tomorrow.

What does this mean for the future?

In just the past 3 months, the value of the personal statement has diminished to the point that it is essentially irrelevant. A personal statement that would have taken me 10 hours to write and re-write as a medical student in 1984 would take me less than a minute to generate using ChatGPT. And the personal statement written by ChatGPT would be every bit as good as anything that I would have written. So, should we eliminate the personal statement from residency and fellowship applications altogether?

I think we should.

Personal statements have always been a bit contrived. Most applicants make multiple revisions and have their personal statements critiqued and edited by friends, family members, and colleagues to the point that they are usually excessively washed, polished, and filtered versions of an applicant’s true motivations for choosing a particular specialty. I believe that most of the information contained in the personal statement can be more effectively evaluated during a live interview. Even a virtual interview done over the internet will have greater value than a ChatGPT-derived personal statement.

The world of medicine just turned on its head

But ChatGPT and other artificial intelligence systems have many more applications than just writing personal statements for residency and fellowship applications. In academic medicine, reference letters, grant applications, research manuscripts, and promotion & tenure dossiers can all be created faster and better using ChatGPT. In clinical medicine, letters to referring physicians, consultant reports, history & physicals, and progress notes can be generated in seconds, thus reducing tedious keyboard entry by clinicians.

As a medical student, I memorized mnemonics for hospital admission orders so that I would never forget about including a patient’s allergies or how frequently vital signs should be performed. How to write comprehensive admission orders was a key part of our medical education. The interns and senior residents evaluated students on the completeness of our hand-written admission orders. When computer electronic order entry was created, the computer automatically generated admission order sets that included all of the components in my mnemonic. This made life easier and better but created a void in the usual medical student education.

As an attending physician, I evaluated the proficiency of the internal medicine interns by their written history and physical examinations… did they include a smoking history? Was there a complete review of systems? Did they list the patient’s medications? When electronic medical records were introduced, the interns no longer had to know how to write an H&P, all then needed was a history and physical exam template in the computer software. At first, I lamented the loss of the time-honored skill of a masterfully written history and physical but then quickly realized that the electronic medical record H&P template was the new reality.

It does not matter what any of us think about ChatGPT and other artificial intelligence writing systems. They are the new reality, whether you like them or not. The personal statement has now gone the way of admission order mnemonics and hand-written history & physicals – shadows of a bygone era in medical education. So, how are we going to assess the motivations and passions of our trainee applicants? I think it just comes down to that most human of all methods… we talk with them.

As an aside, I’ve wondered if ChatGPT will be the beginning of the end of blogging. I suspect that ChatGPT could probably write a post far better and faster than I can. But I write posts for my own gratification and enjoyment. So, rest assured, the words that appear on these pages will always be my own.

February 26, 2023

Recently, the Federal Trade Commission has proposed a rule that would ban all non-compete clauses in employment contracts. These clauses have been common for physicians, so what would the impact be?

A non-compete clause is a type of restrictive covenant that prevents an employee from working for one of their employer’s competitors. Non-compete clauses typically specify a duration of time that the former employee cannot work for a competitor (typically 1 year) and the geographic range that the former employee is prohibited from working in. A related clause is the “non-solicitation clause” which prohibits employees from taking customers (patients) with them if they leave their job. Non-solicitation clauses can also be written to prohibit a former employee from recruiting other current employees to come work for them.

Although results of different surveys of physicians vary, the best estimate is that approximately 40% of U.S. physicians are bound by a non-compete clause. A frequently raised question is: “but is it enforceable?”. The answer is… maybe. In the United States, each state has its own laws regarding non-compete clauses with several states (such as Oklahoma, North Dakota, and California) banning them altogether. The enforceability of non-compete clauses is also state-specific and usually based on legal precedents from previous judicial decisions in that particular state. In general, physicians do not want to have non-compete clauses in their contracts but employers (hospitals or group practices) do want to have non-compete clauses.

I have been on both sides of the physician non-compete clause controversy – as a physician who had to sign my own employment contract and as an employer who had to help write physician contracts. As a practicing physician, I had two components of my clinical practice: as an inpatient critical care physician working in our hospital intensive care unit and as an outpatient pulmonologist who was one of the very few in Central Ohio specializing in interstitial lung disease. These two components of my practice had very different implications for non-compete clauses. As an employer, I had roles as the treasurer of our clinical department, an elected board member of our health system’s physician practice group, and the medical director of one of the hospitals in our health system. Each of these employer-related roles gave me a different vantage point on physician non-compete clauses. After dealing with the pros and cons of these clauses for more than 30 years, here are some of my thoughts.

When are physician non-compete clauses NOT appropriate?

Fundamentally, non-compete clauses are used to prevent harm to the employer. For some physicians, leaving one hospital to go work for another hospital in the same city poses little to no risk of harm to their employer. This is primarily true for specialties that do not depend on physician referrals, particularly if there is no significant physician shortage in that particular speciality. For these specialties, non-compete clauses should either be non-existent or should be less restrictive. Typically, these physicians are hospital-based and the patients that they care for are not referred specifically to them by some other physician. Instead, they get patients who choose to come to that particular hospital but do not choose to see that specific doctor. Many of these physicians do shift work. Examples include:

• Hospitalists
• Critical care physicians
• Emergency medicine physicians
• Radiologists
• Pathologists
• Anesthesiologists

If one of these physicians leaves to go work for the hospital’s competitor, they do not take patients with them. The hospital may have financial harm from having to recruit another physician in the same specialty to take their place but the hospital is unlikely to lose patients who would chose to go to a different hospital simply because that physician now practices there. The hospital can also be financially harmed if its most experienced and most productive physicians leave since that hospital will likely have to replace those physicians with younger, less experienced and less productive physicians. However, this would be equally the case whether the senior physician leaves to work in a hospital across the street or leaves to work in a hospital in a different part of the country, outside of the hospital’s geographic area of patient referrals.

Much of the criticism of physician non-compete clauses have come from primary care physicians and it is not really clear whether primary care physicians ever need a non-compete clause. There have been emotional stories of family physicians who wanted to leave their hospital-owned practice to work in public health clinics caring for uninsured patients but were contractually prohibited by the hospital. However, the reality is that most primary care physicians leave for another practice because of better working conditions or better pay. As long as a primary care physician does not take their patient panel with them, there is little effect on a hospital because it is relatively easy for that hospital to hire a new primary care physician to assume care for that patient panel. In this case, a non-solicitation clause that prohibits the primary care physician from actively taking their patient panel with them would be more appropriate. These non-solicitation agreements generally do not prohibit a patient from voluntarily seeking out that primary care physician at their new practice location but do prohibit the physician from actively trying to persuade (solicit) that patient to follow the physician to their new practice.

When ARE physician non-compete clauses appropriate?

Two situations when non-compete clauses do make sense for physicians are when the hospital has invested money in a physician’s training or invested money in a physician’s practice ramp-up period. In both of these situations, the hospital can experience direct financial harm if a physician leaves to go work for a competitor.

One example of employers investing money in physician training is military medicine. Medical students agree to work for the military for a specified number of years and in exchange, the military agrees to pay for all or some of the medical student’s educational expenses. Another example is when a hospital pays for a physician to get advanced training in order to fill a clinical or administrative need at that hospital. For example, a hospital that sends one of its physicians to get training in quality assurance to prepare the physician for a hospital quality directorship. Or when the hospital decides to buy a surgical robot and sends one of its surgeons to get trained to use the robot. In these situations, the hospital has a direct financial investment in that physician’s training and the hospital should expect to receive a return on that investment.

In many specialties, physician contracts will include a practice ramp-up, whereby the hospital will subsidize that physician’s income for a specific number of years while that physician builds their practice and develops a referral base. The duration of time for this ramp-up depends on the specific specialty. For example, it may only take a new gastroenterologist 1 year to build up a sustainably-sized patient panel. On the other hand, it may take 5 years for a plastic surgeon specializing in aesthetic surgery to build a sustainable referral base. A typical ramp-up contract would be for a relatively large subsidy for the first year of practice and then smaller amounts for subsequent years. For hospital-employed, salaried physicians, the ramp up is often expressed as annual RVU targets. For example, a hospital-employed gastroenterologist might be contractually expected to generate 6,000 wRVUs the first year and then 8,000 wRVUs in subsequent years. During that first year, the gastroenterologist’s salary is guaranteed and not dependent on RVU production. For non-hospital-employed physicians, the ramp up is often in direct monetary payments. For example, the hospital might pay the plastic surgeon $200,000 year 1, $150,000 year 2, $100,000 year 3, and $50,000 year 4. In either case, the hospital has a direct financial investment in developing the physician’s practice and once again, the hospital should expect a reasonable return on that investment.

If physicians take patients with them to a new hospital, the original hospital will lose money. Those patient now go to a different hospital for their lab tests, their x-rays, and their surgeries. This “down-stream revenue” can be substantial – not only as a loss of income to the hospital but also as a loss of patient care income to the pathologists, radiologists, surgeons, and specialists who practice at that hospital and are dependent on that patient population remaining at their hospital. This can occur with primary care physicians who have a large patient panel. But it can also occur with outpatient specialists who maintain large populations of patients who regularly see them in the office. As with primary care physicians, a non-solicitation clause may be more appropriate for these specialists than a non-competition clause.

Specialists can also create financial harm to a hospital by leaving and taking their referrals with them. Specialists cultivate referral bases over years of practice. So, for example, if a joint replacement surgeon who has established a referral network of rheumatologists and primary care physicians leaves to go work for another hospitals, those rheumatologists and primary care physicians will now be sending their patients needing joint replacement surgeries to a different hospital. As an alternative to non-compete clauses, non-solicitation clauses can be written to prohibit specialists from actively seeking referrals from their previous referral base. When a physician in our practice group resigned, announcement letters to that physician’s patients had to be written by or approved by the practice administrators so that the physician could not advertise to patients about their new practice location.

So, what is the solution?

Physician non-compete clauses should not be a “one size fits all” proposition. Most physicians do not need a non-compete clause as there are more effective ways to ensure their loyalty. For those physicians who do need non-compete clauses, the details of those clauses should be tailored to the degree of financial loss faced by the hospital (or employing group practice) should they leave.

For specialties that do not warrant non-complete clauses, paying end-of-the year bonuses is a good way to ensure that the physicians remain with the hospital for at least one year. It costs money to recruit and hire physicians when considering the cost of job advertising, interviewing, travel, moving expenses, signing bonuses, and on-boarding. But an unhappy physician is not going to be a productive physician and moreover, that unhappy physician can poison the culture of the hospital’s medical staff – in the long run, a poisoned culture can be very expensive. Ensuring that physicians remain employed for at least one year of employment in order to get their bonus gives the hospital enough time to recruit another physician to replace the one who is leaving. If the physician leaves before 1 year is up, the hospital can use the money it would have paid that physician in bonus pay for new physician recruitment, instead.

For specialties that do warrant non-compete clauses, sometimes other restrictive covenants can be equally effective or even more effective. For example, a non-solicitation clause in a primary care physician’s contract can prohibit that physician from taking their panel of patients with them to a new employer. This can mean prohibiting the physician from taking patient medical records with them and contacting patients to offer to see them at the physician’s new office. Non-solicitation clauses can also be used to prohibit the physician from recruiting other physicians or hospital employees to come work at their new place of employment.

When hospitals agree to provide a financial ramp-up as a physician builds their practice, it is reasonable for that hospital to insert a non-compete clause. Before our health system put non-compete clauses in our physician employment contracts, we would regularly have surgeons and specialists who would receive ramp-up subsidies totaling as much as $400,000 over several years. All too often, as soon as the surgeon or specialist completed their ramp-up period, they would be recruited by another hospital in town that would pay them a $50,000 signing bonus. This was a bargain for the other hospital since it only had to pay a small signing bonus and did not have to pay the more expensive ramp-up, thus saving that hospital a net $350,000. However, hospital want to have to keep an unhappy surgeon or specialist on the medical staff. So, a solution is to have a buyout for the non-competition clause to offset the hospital’s initial investment in that surgeon or specialist. This buyout should be equal to the amount that the hospital has subsidized that physician with a diminishing amount after the ramp-up period commiserate with the hospital’s subsequent return on investment from the physician’s contribution to the hospital’s patient care revenue. For example, let’s take a surgeon specializing in surgery of the right little toe who needs 3 years to build his toe surgery referral base and get his OR team efficient with toe surgeries. His buyout might look like this:

Ramp-up periods are used not just to build referrals but also to build expertise. In my experience, it takes about 7 years for a newly trained surgery resident or fellow to reach maximum surgical efficiency as an attending physician. In those 7 years, the surgeon is building their operative team and learning how to hone his or her skill: Which patients to operate on and which to not operate on. How to reduce the operative time it initially takes to perform a particular surgical procedure. How to anticipate and avoid surgical complications. For non-surgical specialists, the time to reach maximum productivity may be a bit shorter. But regardless, in the first several years after completion of formal training, the physician is still learning and the hospital generally is covering part of the cost of that on-the-job training. Even if the heart surgeon is paid based on wRVU productivity and thus gets paid less in their first few years after fellowship, the hospital loses money from paying the OR nurses and anesthesiologist to do 2 open heart surgeries in a day rather than 3 open heart surgeries in the same amount of time while the surgeon is learning how to be efficient.

Hospitals should be willing to waive buyouts and non-competes under certain circumstances. For example, a few years ago, we had a non-productive but somewhat famous specialist at our hospital who we were losing money on and we considered terminating him. A hospital 5 miles away was simultaneously recruiting him, believing that they were making a hiring coup by poaching a famous doctor from us, not realizing that he was a financial disaster. We waived his non-compete and did not ask for a buyout because we were happy to have him gone (and now dragging down the competition’s finances). Similarly, academic physicians who have worked at a university medical center for several years and then get passed up for academic promotion should have any non-competes waived.

Non-compete geographic limits

Most physician non-compete clauses contain geographic restrictions that correspond with the hospital’s patient population geography. For example, a community hospital might have a 10-mile restriction if most of its patients live within that 10-mile radius. On the other hand, a tertiary referral hospital might have a 50-mile radius non-compete restriction if it depends on referrals from a lot of community hospitals within that 50-mile radius.

Geographic limits should also be based on the specialty. For example, a primary care physician probably will not draw patients from further than 10 miles from their current practice whereas a specialist might draw patients from 100 miles away. This can be particularly true for a physician specializing in a very unique condition such as a kidney transplant surgeon or an interstitial lung disease pulmonologist (such as myself), who may be the only physician practicing in that specialty in a several county area.

What is considered a reasonable geographic distance in non-compete clauses is often contentious and the cause of many employment-related lawsuits. A non-compete clause for the kidney transplant surgeon specifying metropolitan Columbus might be reasonable but specifying all of Ohio is probably unreasonable.

Hospitals will not voluntarily eliminate physician non-compete clauses

No hospital wants to be the only hospital in town to eliminate non-compete clauses. Otherwise, there would be unidirectional movement of physicians from that hospital to all of the other hospitals in town that do have non-compete clauses. So, for those hospitals that would be willing to drop their non-compete clauses from physician employment contracts, if the FTC makes non-compete clauses illegal, then they could finally eliminate non-competes without worrying about being at a competitive disadvantage to their hospital competitors. In other words, the FTC ruling would essentially level the playing field.

Academic hospitals and non-academic hospitals will be affected differently. Historically, many physicians have left jobs in academic medicine to go into private practice at non-academic hospitals. But the reverse is very rare: physicians generally do not give up their private practice to go into academic medicine. There are always exceptions – our health system acquired a local private practice electrophysiology cardiology group and a local vascular surgery group, for example. But by and large, physician movement between academics and private practice is a one-way street. If physician non-compete clauses are outlawed, then academic hospitals will be at risk of losing more physicians to local non-academic hospitals but the reverse is unlikely to occur. On the other hand, physician movement between different non-academic hospitals is very common. Individual physicians leave one group practice to join another group practice. Hospitals contract with one hospitalist group one year and a different group the next year. Elimination of non-compete clauses will likely affect physician movement between different non-academic hospitals fairly similarly. As a consequence, no academic hospital ever wants to give up its physician non-compete clauses but non-academic hospitals will be willing to give up non-competes as long as all of the other non-academic hospitals in town have to also give up theirs.

Because of this one-way movement of physicians from academic to non-academic hospitals, these two types of hospitals will have ramp-up costs affected differently by global elimination of non-compete clauses. Academic hospitals who lose physicians to non-academic hospitals immediately after their ramp-up costs are paid will stand to lose those ramp up costs. However, if a non-academic hospital pays ramp-up costs for a physician who is then poached by another non-academic hospital, then the original hospital can poach a different doctor from the second hospital so that the ramp-up costs end up balancing out. Because of this, academic hospitals will likely lose more money in ramp-up expenses than non-academic hospitals if non-compete clauses are outlawed.

The economic risk of eliminating all physician non-compete clauses

No one has a crystal ball to predict all of the effects of a blanket elimination of non-compete clauses and history shows us that with every government policy decision comes unintended consequences. Here are some of the possible effects of eliminating physician non-compete clauses:

Increased healthcare costs. One of the concerns of the FTC’s proposed complete elimination of non-compete clauses is that it will be inflationary at a time when our economy is reeling from the highest inflation rates in 40 years. After all, a primary goal of banning non-compete clauses is to increase worker wages by increasing employer competition for those workers. Employers would then transfer the increased expenses of employee wages to consumers by increasing the price of goods and services. However, American medicine is a weird economy, and consumer prices are not as tightly bound to employer expenses. In the U.S., 45% of healthcare expenditures are paid by federal, state, or local governments with the largest component being Medicare and Medicaid. The price Medicare pays doctors and hospitals for any given medical service or procedure is determined every year by Congress and hospitals get paid the same amount no matter what their costs are to provide that service or procedure. If hospital costs go up because they have to pay doctors more, Medicare does not pay that hospital more money. Instead, hospitals increase the amount that they charge commercial insurance companies and self-pay patients. The danger of eliminating physician non-compete clauses is therefore an increase in commercial health insurance premiums to working Americans and an increase in the cost of healthcare to those who pay for healthcare out of pocket.

Lower pay for new physicians. The second risk of physician non-compete clauses is that it could reduce income for newly trained physicians, particularly surgeons and specialists. Hospitals would no longer be incentivized to pay for ramp-up periods for new surgeons or specialists and thus there could be a wider income separation between physicians straight out of residency and fellowship compared to those who have been out in practice for several years. Although it can be argued that this is the physician’s own cost of going from inexperienced/inefficient to experienced/efficient, those same physicians who are newly trained are those who are making student loan payments and thus have less disposable income to begin with. In academic medicine, these income gradations already exist with Assistant Professors earning less than Associate Professors who in turn make less than full Professors. If non-compete clauses go away, these seniority-based salaries may become more prevalent in non-academic medicine.

Higher pay for sub-specialists. Losing a hospitalist or an ER physician to a local competitor does not affect a hospital’s financial margin much but losing a reconstructive plastic surgeon or a joint replacement orthopedic surgeon can have a huge financial impact. Hospitals will be incentivized to pay more to those physicians who bring in the most money for the hospital. Because surgical procedures usually have the greatest financial margin for hospitals, subspecialty surgeons could see an increase in their salaries.

Better coffee in the physician lounge. If non-compete clauses are eliminated then physicians will be not only drawn to work for those hospitals that provide the highest salaries but also those hospitals that have the best physician amenities. This could mean providing free parking, bigger offices, free food, and more vacation time. It is often said that trying to run a hospital full of a bunch of doctors is like trying to run a business full of a bunch of CEOs. Without non-competes, those doctors will increasingly expect to be treated like CEOs.

More hospital mergers. One way to prevent a local competing hospital from hiring your physicians is to buy that competing hospital. If you have a monopoly on the local healthcare market, then you don’t have to worry about losing your physician employees since they would have to sell their house, uproot their kids, and move to a different community to get a job with a different hospital. For larger hospitals and hospital systems, the amount that they pay to physicians is a relatively small part of the annual budget. But for smaller hospitals that are just scraping by financially, the additional costs required to retain their doctors could be enough to force them to merge with larger health systems or even close.

Non-compete clauses should not impede reasonable competition

In a free market economy, employees will go to work for the employer who offers them the best job for the best salary. The strength of a free market economy is that this competition for the best employees is the invisible hand that encourages employers to provide optimal working conditions and pay more for the best workers. Excessive use of non-compete clauses creates employment monopolies and in the long-run, monopolies end up hurting the average consumer and hurting the overall economy.

Free market employment encourages innovation and efficiency. It is why the United States has been the envy of the world for the past 150 years when it comes to revolutionary inventions, technologic breakthroughs, and economic success. Injudicious use of non-compete employment clauses risk turning “workplace of choice” initiatives into “workplace of force” realities which can stifle innovation and efficiency.

But employers should reasonably expect to recover their financial investments. No one would expect a factory to spend $250,000 to buy a new machine and then be required to give that machine away 3 years later to a competitor for free. And we should not expect one hospital to spend $250,000 to train a physician only to have that physician go work for a competitor once completing their training. So, there has to be a compromise. Non-compete clauses should not be applied to all physicians but neither should they be eliminated completely.

Non-compete clauses (with options to buyout those clauses) should be reserved for those situations when hospitals invest a significant amount of money in a physician’s career development. For other physicians, non-solicitation clauses can protect the hospitals without negatively impacting a free-market competition for physician employment. Eliminating all physician non-compete clauses is unwise… but so is the indiscriminate use of non-compete clauses across the board to all physicians in all specialties. I hope that the FTC finds a way of protecting the right of physicians to chose their workplace while protecting the right of hospitals to recover their financial investments in physician career development. The answer to the physician non-compete controversy is not that they should always be used nor should they never be used but rather that they should sometimes be used.

February 15, 2023

The Public Service Loan Forgiveness (PSLF) is a federal program that forgives student loans for people who work for government or non-profit organizations. There are several eligibility requirements but many physicians qualify and can have hundreds of thousands of dollars of educational debt eliminated. How can a physician maximize the amount of money forgiven? Should PSLF eligibility be a factor in job selection? Should hospitals and other healthcare organizations promote PSLF eligibility as an employment incentive? As usual, the answers are all in the details.

 

What is the PSLF program?

Public Service Loan Forgiveness is a program sponsored by the U.S. Department of Education. It was created by the College Cost Reduction and Access Act of 2007. This is a different program than the one-time student loan forgiveness program proposed by President Biden that would forgive up to $20,000 to anyone with student loan debt. In order to be eligible for the PSLF, an applicant must be employed by a qualifying employer for 10 years. Therefore, the first applicants became eligible in 2017, ten years after the law was passed. There were problems initially and 99% of the first 28,000 applicants were denied. Congress attempted to fix these problems with new legislation in 2018 but confusion and misinformation about eligibility requirements persisted. In, 2019, President Trump’s proposed budget included elimination of the PSLF program; however, the democrat-majority House of Representatives did not cut the program. By April 2020, only 2,215 borrowers had student loans forgiven under the PSLF, a denial rate of 98.5% since program inception. To address many of the problems with the PSLF, the federal government granted a temporary waiver for PSLF applications between October 6, 2021 and October 31, 2022. This waiver allowed application approval for people who were previously denied PSLF because of issues such as past late payments on loan installments. There are new, permanent changes to the PSLF program that will go into effect in July 2023 that will further address some of these issues. The current eligibility requirements are:

1. Have a William D. Ford Federal Direct Loan. Other federal student loans are not eligible but may be able to be consolidated into a Direct Loan to become eligible.
2. Be employed by a qualifying employer. These include federal, state, local, or tribal governments and not-for-profit organizations. This also includes the U.S. military and the Peace Corps.
3. Work full-time for that employer.
4. Repay loans under a qualifying income-based loan repayment plan. To qualify:
   1. Each payment must be for the full amount owed for that payment period
   2. Payments must be made no later than 15 days after the payment due date
   3. Payments must all have been made while employed by a qualifying employer
5. Previously make 120 loan installment payments (i.e., 10 years of repayments). All of these must have all been made after 2007 (inception date of the PSLF).
6. Have used a qualifying income-driven loan repayment plan. The type of repayment plan is critical and many common repayment plans are not eligible for PSLF including the Standard Repayment Plan for Direct Consolidation Loans, the Graduated Repayment Plan, the Extended Repayment Plan, and the Alternative Repayment Plan. Repayment plans that are eligible for PSLF include:
   1. Pay As You Earn Repayment Plan (PAYE Plan)
   2. Revised Pay As You Earn Repayment Plan (REPAYE Plan)
   3. Income-Based Repayment Plan (IBR Plan)
   4. Income-Contingent Repayment Plan (ICR Plan)
7. Submit a PSLF certification and application form every year to the Department of Education. This form requires entries by the borrower and also requires a signature from an authorized official of the employer who has the authority to certify the borrower’s employment. It is important that the borrower knows who to go to in the organization to get this signature:

Once the PSLF is approved, the federal government then forgives whatever amount remains on the Federal Direct Loan. Therefore, an important strategy is to make the lowest allowable amount in monthly payments so that there is the greatest amount left on the loan after 120 payments. The forgiven amount is not subject to federal income tax.

Many physicians are eligible

One of the results of the COVID pandemic was an acceleration of the trend for physicians to be employed by hospitals rather than private physician practices. A study reported in 2022 by the Physician Advocacy Group found that 75% of U.S. physicians are employed by a hospital or other corporate entity (such as a health insurer). Currently, 341,200 physicians (52% of U.S. physicians) are employed by a hospital.

The American Hospital Association reports that there are 6,093 hospitals in the United States. Of these, 1,228 are for-profit hospitals, 2,960 non-governmental not-for-profit hospitals, 951 state/local governmental hospitals, and 207 federal governmental hospitals. In addition, there are 635 non-federal psychiatric hospitals and 112 other hospitals (such as prison hospitals); many of these are also either not-for-profit or operated by a state or federal government. In other words, more than 70% of American hospitals are qualifying employers for PSLF purposes.

Medical school is expensive. Currently, 73% of medical school graduates have educational debt at the time of graduation. The average debt is $250,990 ($202,450 for medical school and $48,540 for undergraduate school). Many physicians funded their education at least in part through Federal Direct Loans. These loans are for $5,500 – $12,500 per year for undergraduates and up to $20,500 per year for graduate or professional students. The total maximum is $138,500. They are particularly attractive because they have lower interest rates than private educational loans and do not have as strict credit history requirements as private educational loans. Most students use a strategy of maximizing their Federal Direct Loan amounts before taking out more expensive and more restrictive private loans, for example, from a bank or credit union. There are other federal student loans that allow the student to borrow larger amounts of money. For example, a grad plus loan from the U.S. Department of Education can be for the entire amount of the cost of professional school. Other federal student loans (such as FFEL Program loans or Perkins Loan Program loans) are not themselves eligible for PSLF but can be consolidated into a Federal Direct Loan, thus increasing the amount of money that can be eventually forgiven using PSLF.

There are other loan forgiveness programs that physicians may be eligible for such as the National Health Service Corps Loan Repayment Program (underserved communities), the National Health Service Corps Students to Service Loan Repayment Program (primary care physicians in physician shortage areas), the National Health Service Corps Substance Use Disorder Workforce Loan Repayment Program (substance use disorder treatment facilities), the National Health Service Corps Rural Community Loan Repayment Program (substance use disorder treatment facilities in rural areas), the Indian Health Service Loan Repayment Program (Native American communities), the Armed Forces Loan Repayment Program (military physicians), and State Student Loan Forgiveness Programs (states with physician shortages). The PSLF program has the broadest inclusion criteria and is available to more physicians than the other loan forgiveness programs since the PSLF does not require moving to an underserved area, working in substance use disorder treatment, or joining the military.

I’m a medical student. How does the PSLF affect me?

The PSLF is designed to forgive student debt. Medical education is expensive and most of the educational debt generated by physicians is from medical school (rather than undergraduate college). It is important to be strategic when incurring educational debt. Here are some specific tactics that medical students can use:

• Maximize PSLF-eligible loans. This means starting with the William D. Ford Federal Direct Loans. Only use other student loans after you have taken as much as permitted from the Federal Direct Loans. Try to avoid private loans if at all possible.
• Consolidate other federal student loans into a Federal Direct Loan as soon as possible. Many loans can be consolidated into a Federal Direct Loan and this can greatly increase the amount of money that will eventually be eligible for PSLF. However, consolidation resets your PSLF eligible payments to zero so if you have already made payments on your Federal Direct Loan and then consolidate, you will lose credit for all of those payments you have previously made. Ideally, you should consolidate all loans immediately after graduation from medical school, before you make your first loan repayment installment in residency.
• Keep your total debt as low as possible. Private medical schools are more expensive than public medical schools and do not necessarily result in a better education. Do a careful analysis of the total cost of each medical school when selecting which schools you apply to. Keep your living expenses low by living with roommates, cooking your own meals, and making purchases judiciously.
• Don’t forget scholarships. Unlike loans, scholarships do not need to be repaid. A $50,000 scholarship beats a $50,000 loan every day. Check with your medical school’s office of financial aid and apply for any scholarships that you are eligible for.
• Know whether your residency employment will be eligible for PSLF qualification. Most residencies are at not-for-profit hospitals but if your residency is at a for-profit hospital and your employer during residency is that hospital, then your loan payments made during residency will not count toward the 120 necessary to be eligible for PSLF. Moreover, you lose the advantage of making your lower monthly loan payments when your income is lower during residency and as a result, when you do eventually apply for PSLF, you will not be able to have as much money forgiven. When applying to residencies, ask if the organization that you get your paycheck from either is a government employer or is a tax-exempt employer under Section 501(c)(3) of the Internal Revenue Code.

I’m a resident. How does the PSLF affect me?

As soon as you start residency, you are employed and thus must start making payments on your student loans. However, with income-driven repayment plans, the amount you pay each month depends on your annual income. Here are some tactics to pay the least over your 10-year repayment period in order to have the greatest amount forgiven under PSLF:

• Start making loan payments early. Do not opt for using grace periods or deferment to delay starting payments. The amount of monthly payments depends on how high your income is. Your strategy should be to make as many payments as possible when your income is low during residency and make as few as possible when your income is higher as an attending. By using this tactic, you will have a larger amount still owed on your loan when you become eligible for PSLF and therefore will have a larger amount that can be forgiven.
• Don’t pay Federal Direct Loans off early. It feels really, really good to be debt-free and it can be tempting to try to make extra, early payments on student loans during residency and as a new attending physician. However, if you work for an employer that qualifies you for PSLF, then every early loan payment that you make is less money that can be forgiven once you are 10 years out of medical school. With PSLF, it is far better to be debt-smart than to be debt-free.
• Keep your annual income low. As a resident, it can be tempting to do a few moonlighting shifts each month to buy a new car or to go on a Caribbean vacation. But the money earned from those moonlighting shifts increases your annual taxable income and therefore increases your monthly payments on an income-driven repayment plan. This will result in a lower amount of loan forgiveness after you have made 120 monthly payments and are eligible for PSLF. On the other hand, contributing to a 403b, 457, or traditional IRA can reduce your annual taxable income, resulting in a lower monthly repayment amount which then increases the total amount of your loan that can be forgiven by PSLF. Each physician weighs the benefits of extra disposable income against the cost of higher loan payments differently.
• If your spouse makes a lot of money, consider filing separately for federal income taxes. This keeps your own taxable income low and thus keeps the amount of your monthly payments as a resident low. The result is that a larger amount of your loan can be forgiven by PSLF. By filing separately rather than jointly, you may pay slightly more in income taxes as a resident but the amount of money eventually forgiven could be much greater.

I’m a physician. Should I base a career choice on the PSLF?

The PSLF program is attractive to doctors since it has the potential to wipe out hundreds of thousands of dollars of educational debt. But for a physician completing residency or fellowship, basing a job choice on whether or not that job will result in PSLF eligibility can be hazardous. There are several reasons why a new physician should not base a career decision mainly on PSLF eligibility.

• It might go away. A PSLF applicant must first work for a qualifying employer for 10 years. Ten years is an eternity when it comes to federal funding. It is 3 different presidential terms and 5 different congressional terms. Inevitably, there will be swings in which political party controls the presidency and the U.S. House of Representatives. The PSLF has been on the chopping block before and it may be again before new physicians entering the workforce this year become eligible.
• Don’t sell your dreams. Maybe you have always aspired to take over a solo practice in your home town. Maybe your ideal job is to work for a for-profit healthcare company such as HCA. Maybe you would like to work part-time for a few years when your children are young. In these situations, you won’t be eligible for the PSLF. But if PSLF eligibility means taking a job that you won’t be passionate about or compromises your desired work-life balance, then the cost of PSLF may be too high.
• You might change your mind. I am a unicorn – a doctor who stayed at the same health system as a medical student, resident, fellow, and attending physician for 41 years. Few physicians stay with the same employer for their entire career. Historically, between 40% and 70% of physicians change jobs in their first 5 years of practice. During the first 2 years of the COVID pandemic alone, 43% of physicians changed jobs. Maybe your spouse has to relocate to a different city. Maybe you don’t get along with your colleagues. Maybe your hospital closes. If you change jobs in the first 10 years of practice and your new employer is not a qualified employer for PSLF purposes, then you won’t be eligible for PSLF. On the other hand, once your loans are forgiven by PSLF, you are free to go work for whoever you want, wherever you want.
• You might be financially better off without PSLF. Government jobs usually pay less than private practice jobs for physicians. Not-for-profit hospitals often pay physicians less than for–profit hospitals. With PSLF, you will still need to make required repayments every month for 10 years and the amount that you will be forgiven is only the amount remaining on your Federal Direct Loans at the end of those 10 years. In the long run, you may come out ahead financially by taking a job that does not qualify for PSLF but pays a few thousand dollars a year more than a job that qualifies for PSLF. This is particularly true if the amount of money you take out for Federal Direct Loans is relatively modest, for example, less than $50,000. On the other hand, if you estimate that your student loan balance after your first 120 monthly payments will be $500,000, then taking a private practice job in order to earn an extra $20,000 per year compared to an academic job does not make financial sense.
• You aren’t compulsive with paying off bills. To be eligible for PSLF, you have to make your repayments in full, every month. If you miss monthly payments or run out of money at the end of the month and can’t make a full payment, then you lose eligibility.
• You’re prone to getting caught up in moral dilemmas. When the federal government forgives educational loans, it means that the American taxpayers are paying for your education. For some people, this is perceived as a handout and physicians earn enough that they may feel they don’t deserve a handout. Elected officials from 11 states declined to participate in Medicaid expansion because they were ideologically opposed to taking federal tax money to care for the poor in their state. If you are a person who won’t be able to sleep at night if the federal government helps pay for your medical school debt, then the PSLF may not be for you.
• Shorter rather than longer residency. The 120 payment clock starts ticking once you graduate from medical school. As a resident and fellow, you earn less than an attending physician but with an income-driven repayment plan (such as PAYE or REPAYE), you also have smaller monthly loan payments while still in training. If you enter a specialty that requires 3 years of residency, then you will have 7 years of high monthly payments as an attending physician before you are eligible for PSLF. However, if you enter a specialty that requires 7 years of residency and fellowship, then you will only have 3 years of high monthly payments as an attending physician before PSLF eligibility. Physicians with the longest residencies/fellowships have the most to gain financially from PSLF.

The bottom line is that hoping to qualify for PSLF should never be the main factor in career decision making. However, when it comes down to two equally attractive jobs, qualifying for PSLF can be a tie-breaker.

I employ physicians. How can I leverage PSLF?

If you are the medical director of a not-for-profit hospital, use your hospital’s PSLF qualification as a physician recruitment incentive. Here are some tactics you can use to your advantage:

• Tell physician recruits that the hospital meets PSLF employer qualification. Many residents and fellows do not fully understand the differences between for-profit and not-for-profit hospitals and often accept jobs without even knowing which type their new hospital is. There is also a difference between working for a not-for-profit hospital and working at a not-for-profit hospital. A physician employed by a private practice medical group that works at a not-for-profit hospital will not qualify for PSLF.
• Advertise that the hospital signs the employment certification each year. This is a required element of the PSLF application. By telling physician recruits up front that you are aware of the need for these annual certifications and are willing to sign them in a timely fashion, you indicate to the recruits that you are knowledgeable about the PSLF process and will be there to assist them without creating any barriers. Medical directors and hospital administrators have hundreds of forms that need to be signed every month and they often get behind in completing them in a timely fashion – make sure that physician recruits know that you place a priority on the PSLF certification signatures.
• Have a designated physician loan navigator. Hospitals often agonize over whether or not to pay a physician a one-time $20,000 signing bonus. But PSLF can amount to as much as a $650,000 savings to a physician with no cost to the hospital. Therefore, ensuring that physicians meet eligibility and apply correctly can translate to millions of dollars of financial benefit to the medical staff. Designating a staff member from the hospital’s finance department or medical staff office to devote a percentage of their FTE to helping physicians manage their loans can be a terrific hospital investment. Responsibilities could include helping physicians consolidate federal loans into Direct Loans, helping fill out PSLF applications, ensuring employer certification signatures get done, helping physicians develop strategies to ensure full and timely monthly payments, etc.
• Provide regular PSLF updates. There is no class on financial health in medical school. Most newly trained physicians do not fully understand investing, taxes, retirement planning, or personal budgeting. Because the first borrowers only became eligible for PSLF in 2017, many physicians are not even aware that the program exists, particularly if they graduated from medical school before 2017. By incorporating news about developments in the PSLF program into your medical staff meetings, you send a signal to the physicians that the hospital cares about them. Doctors talk to each other and when your medical staff tell their friends that the hospital cares about physician financial health, it helps you to attract top physicians. PSLF then becomes a line item for the medical director’s annual “Workplace of Choice” goals.

Never turn down free money

If you are a physician with Federal Direct Loans and have been employed by a government or not-for-profit healthcare organization for the past 10 years, then you may be eligible for free money with no strings attached. You have won the lottery without having to buy a lottery ticket. This kind of thing rarely happens in life so don’t let the opportunity pass by. If you are a medical director or administrator at a not-for-profit hospital then many of your doctors are eligible for free money. If you help them get it, it will foster their loyalty for years to come.

February 12, 2023