The Business of Urology - Your First Job

Special Feature

RIU0267_04-20.qxd 26/4/06 3:58 Page 71 SPECIAL FEATURE The Business of Urology—Your First Job Paul Brower, MD, FACS Orange County Urology Associates, Inc., Laguna Woods, CA Young doctors nearing the end of their residency must begin to consider how to chart the course of their careers. Most residents will go into private practice. This requires a huge leap, from academia into the business world of medicine. Young doctors, long preoccupied with the clinical and academic aspects of medicine, are frequently ill-prepared for this process, having no insight as to what they can do to match themselves to the right practice or multi-specialty group. This article discusses the stages of this process, from initial geographic decisions to securing interviews, to assessing the health of a given practice, to the details of contract negotiation. [Rev Urol. 2006;8(2):71-75] © 2006 MedReviews, LLC Key words: Residents • Employment • Private practice • Medicare • PPO • HMO • Compensation • Contract negotiation oung doctors nearing the end of their residency must begin to consider how to chart the course of their careers. Some will apply for fellowships, thereby putting off permanent choices. Some whose interests are academic will look for teaching and research positions. Most will go into private practice. Those choosing academic careers or fellowships will find things not much different from what they have already come to know in the university environment. On the other hand, going into private practice requires a huge leap, from academia into the business world of medicine. Young doctors, long preoccupied with Y VOL. 8 NO. 2 2006 REVIEWS IN UROLOGY 71 RIU0267_04-20.qxd 26/4/06 3:58 Page 72 The Business of Urology continued the clinical and academic aspects of medicine, will often have no insight as to what they can do to match themselves to the right practice or multi-specialty group. In the end, the most satisfactory placements will be made by those young doctors who know themselves in terms of how their personalities will fit into a practice and who diligently and dynamically work to execute a process of good planning and flexibility. Location Most will begin with some idea of where they want to live and practice— whether it is a big city or rural area and in what part of the country. Like the general population, young doctors, if given the chance, will choose to live in close proximity to family. If a spouse or partner is involved, the move will often be to within 50 miles of his or her relatives. That being “ground zero,” the job search will go from there. The obvious next step will be to locate the area’s private practices in urology or multi-specialty clinics and then to start talking with the individuals in those practices. Networking is critical. Going back to faculty members and having them identify their contacts, particularly their former Association. And of course there is the “cold call”—getting on the phone without an introduction, which works because physicians are always willing to talk when they need a new recruit. Making Contact However the first telephone call is arranged, residents will be well advised not to overlook its importance. It is the means by which the invitation to visit the practice is extended. The consequences of a phone call badly handled can be enormous. Without the curriculum vitae, the resident is not prepared to make calls. It is required and will provide the first impression of the resident. Its appearance is important; it should include contact information, such as phone numbers, e-mail, and street addresses; personal information, such as education and marital status; and it should have attached to it letters of recommendation from people who have agreed to take a reference call. These first contacts are for one purpose only: to get invited for interviews. The importance of visiting as many private practices as possible cannot be overstated. Something will be learned from each situation. No medical practice is identical to any other. There are different personali- Young doctors might find their ideals and expectations quickly compromised as they begin to imagine themselves in the real circumstances that are actually available. students, is an excellent way to make the right introductions. Physicians know that they can get candid appraisals of candidates from the faculty that trained them, so when they are recruiting they tend to use their alma maters for referrals. Family and friends can be useful as well. Another good place to find job placement information is the American Urologic 72 VOL. 8 NO. 2 2006 ties, different business models, and different ways of running practices. Accumulating information from different offices or clinics is invaluable for bringing the reality of the private practice into focus and for making comparisons. Young doctors might find their ideals and expectations quickly compromised as they begin to imagine REVIEWS IN UROLOGY themselves in the real circumstances that are actually available. No one gets it all: location and lifestyle, income, the perfect partners, and the dream practice. The resident who gets two of these four is doing well. As one example, these days the best income usually is offered in those places that are not the most optimum for living. The young doctor for whom money is the priority will practice somewhere in the Midwest or Southeast—or wherever the lifestyle might not be as attractive—where salary is used as the motivating factor. In addition, residents thinking that the dream practice is in a small office might be disappointed to see the inclination toward consolidation. Increasingly, the small office of 1 to 4 physicians is merging with others to form groups of 6 to 12. There are even “mega-groups” of more than 25. This trend is particularly evident in the field of urology, which historically has been made up of many small groups. Residents will have to decide the optimal size, best suited to their personalities. Because the trend toward larger groups will reduce the scattering of small offices throughout neighborhoods and communities, residents with location as their priority are also likely to be disappointed. Compromises will have to be made. Once the invitation to visit the practice has been extended, the details of getting there, the date of the visit, and the travel arrangements are usually handled by the office manager. This is an important call. If they are traveling, residents should confirm that the practice will pay their expenses and that they will be scheduled to arrive in town the night before the visit. They should know what to expect from the visit: the names of the physicians they are seeing and the time they are scheduled with each. They should make sure that they get to spend time with all of the physicians RIU0267_04-20.qxd 26/4/06 3:58 Page 73 The Business of Urology in the practice. Finally, they should take this opportunity to schedule time with the office manager, because this person, particularly in the smaller offices, can be the one with the power. In fact, in many cases the physicians will defer to the office manager for virtually all the practice decisions. Residents will be asked and must be willing to sign a confidentiality or nondisclosure agreement. No one should be intimidated by this. It is a usual and reasonable requirement. Residents will find that there are many definitions for practice expense ratios and physician income. The Residents should schedule time with the office manager, because this person, particularly in the smaller offices, can be the one with the power. Visiting the Practice Once in the office, the residents will want to show professionalism, comity, and an easy, outgoing attitude. The staff will be eager to see a resident who is friendly and respectful of them and will look more kindly on those residents who do not stand on formality and wait to be introduced. Interviews; interactions with physicians, staff, and patients; and all aspects of the building, equipment, and grounds are critical factors in the decision-making process. Nothing is unimportant. Residents must be keenly aware of how they see themselves in relation to what is going on within the patient care environment— the orderliness and efficiency of the practice and its culture as a people working together. If it feels good, it probably is. Ideally, before it is over, the visit will include dinner with the principals. This is a chance to meet casually outside the office for a different perspective. Despite its informality, it is a crucial time for making a favorable impression with the principal partners. Practice Economics If a second visit is arranged and it looks as though the resident will get a job offer, discussions will turn to practice economics and the specific practice demographics. This is proprietary and confidential information. most meaningful definitions for determining actual physician income are those that are narrowed to include only three things: what is actually reported on the W2, the pension fund contribution, and personal expenses for a car, travel, and entertainment. Malpractice insurance, worker’s compensation insurance, society dues, and all hospital expenses should be counted as practice expenses rather than as physician benefits. Thus, anything that is not a direct benefit to the physician for his lifestyle is counted as a practice expense. nancial trouble. No one wants to go into a practice that has to be revived. Residents will also want to know whether the practice has hired recently and whether there have been physicians who have left the practice. A high turnover rate is not good. Residents should understand whether they are replacing a retiring physician or whether the office is hiring for a new position because they anticipate a need for more people. These questions are not only important to assess the health of the practice; they are necessary for the young doctors to understand how long it will take to get their own practice going. If they are replacing someone who has left or is leaving, they can expect to be busy right away. If they are entering into a new position it could take 2, 3, or even 4 years to build up their own practice, and the economics of those two scenarios is considerably different. Residents who will have to build up their own practice will need to ask what the plans are for doing that, and they should have some kind of salary guarantee for those first years during Critical information about the health of the practice is available to those who know what questions to ask. Critical information about the health of the practice is available to those who know what questions to ask. Residents will need to know how the practice is positioned for the future. They should learn whether it is continuing to grow, with new patients and new physicians, and whether the income is growing or contracting. In the last year alone there have been far too many urology practices that have seen their income drop by as much as 40% because of loss of income from luteinizing hormone-releasing hormones. Information like this is critical so as to avoid a practice that is in fi- which they are waiting for the practice to grow. The Payor Mix Residents will need to know what questions to ask to understand the payor mix for the practice. What percentage of the practice is Medicare or preferred provider organization (PPO) based? If the practice has business with a health maintenance organization (HMO), how much of the practice is HMO based? Are the contracts with the HMOs fee-for-service or paid by capitation? If they are paid by capitation, how long has the practice operated VOL. 8 NO. 2 2006 REVIEWS IN UROLOGY 73 RIU0267_04-20.qxd 26/4/06 3:58 Page 74 The Business of Urology continued under the capitation scheme, and is it financially successful? (Under capitation, for a practice to be successful, there must be a large patient base to spread out the risk. Residents will have to understand the ratio of commercial [non-Medicare] versus senior patients. The senior patients in almost all capitation schemes are the ones from whom money is made. With commercial patients, the odds are, at best, that the practice will “break even.”) Finally, what are the risks assumed under a capitation model? (These will determine the profitability.) On the PPO side, who are the payors, and what percentage of the practice do they represent? What are the expense and collection ratios, and what is this relative to the Medicare business? By way of understanding the benefits or risks of the various payor mixes, residents should know that Medicare annually publishes a fee schedule. The advantages are that the rules are very clearly defined, and Medicare will pay 100% of what is allowed and will pay within a specified period. In fact, PPOs are increasingly using Medicare as the benchmark for their schedules, so it is easy to determine whether PPOs are paying at Medicare rates or at Medicare rates plus or minus a given percentage, which is, more and more, how they are contracting. It used to be that PPOs were the benchmark; before the mid-1990s in California and more recently elsewhere, they were paying as much as 150% of the Medicare schedule. This gained PPOs a reputation for providing the most desirable business, and this belief is still widely held today, whereas quite the opposite is true: PPOs have so considerably reduced their rates that in many markets they are actually paying well below Medicare levels. Yet the real trouble with the PPOs is their unfair payment practices. Their fee schedules are arbitrary, and their payments are almost 74 VOL. 8 NO. 2 2006 always delayed and difficult to collect. Urology has a large population of Medicare patients. The numbers can vary from 20% of the practice to as much as 75%. There is no right or wrong mix, but it makes good business sense to follow the classic strategy of “not putting all your eggs in one basket”; learning the truth of that can be painful. Young doctors need to have information like this, but as job seekers they should keep in mind that, though they are expected to diplomatically approach conversations regarding practice economics and demographics—and they will certainly be respected for knowing what to ask in that regard—what they are actually looking for are symptoms of a healthy or ailing practice, rather than an indepth financial analysis. The Negotiation Process Once the residents have determined that they are interviewing with an organization doing battle with disease in ethical, high-quality, and finan- that will be the basis for the final contract. Such things as salary, bonus, vacation, benefits, and partnership opportunities will be highlighted. Residents should consider this LOI as a useful tool for moving toward closure. Although it is not binding, the likelihood of the practice changing much of what is written will depend on certain factors relating to the challenges of filling the position, as well as on the mindset of the practice. If they have recently filled another position, they cannot be expected to vary much from what was offered the other doctor. On the other hand, if the practice has not recruited in a long while, residents are in a better position to negotiate. This is why the right questions must be asked and answered in earlier discussions. The path to partnership is a critical issue for young doctors, and they should see to it that the period of being an employee as opposed to a partner is clearly defined. This does not mean that residents can expect a commitment to partnership at the time of employment. But practices with If the practice has not recruited in a long while, residents are in a better position to negotiate. cially sound ways and can see that they are headed toward a job offer, they should, for obvious reasons, inject their spouse or partner, if they have one, into the process. They should have their families meet the practice and have a chance to explore the community and assess the housing opportunities. After verbal discussions, but well before the employment contract is finally pushed across the desk for their signature, residents can expect to be presented with a letter of intent (LOI). This is a proposal for employment. It is a nonbinding outline of the key terms of the employment relationship REVIEWS IN UROLOGY multiple partners know what the partnership arrangements will look like, the partners will want to treat each new owner in the same way previous owners were received, and usually they will define what happens should things go well: what sort of “buy-in” formula will be used, how the terms of the buy-in will be written, how the net income will be divided, and what will be the voting rights. Along with the initial employment agreement, a detailed LOI with the terms for partnership can be given. Some of the terms will be surprising to not a few young doctors who expect a partnership to provide RIU0267_04-20.qxd 26/4/06 3:58 Page 75 The Business of Urology “instant money”: there can actually be less spendable income after factoring in the buy-in and practice overhead. Residents will have to determine whether the buy-in will be paid with pre- or post-tax dollars or a combination thereof and what that will mean to income flow. Structuring the buy-in is the most complicated and important part of the partnership agreement, and residents will be happier in the long run if they take the time to learn how to understand the formulae used to establish value. This is a taxable event with potentially serious burdens that can be minimized if properly structured. Another serious economic consideration is how the partnership divides the income. The most straightforward methodology is an equal division of income, regardless of who does what in the practice, so that no one gets penalized for taking time with administrative matters or less lucrative procedures. Some practices will divide income according to productivity, and others will do so according to a combination of equality and productivity. The formulae used for these equations need to be understood. Another key issue of the buy-in is whether new partners become liable as guarantors of existing debt or are indemnified against what occurred before partnership. Nowadays residents can expect to be salaried for as long as 3 to 4 years, with the average being approximately 2 years before a partnership is actually offered. Salaries are usually guaranteed, with a bonus based on a percentage tied to collections and/or a percentage of profits. Some practices will not provide bonuses until the senior partners have reached their baseline compensation. The policy for outside income— honorariums and consulting, speaking, and legal review fees—should be outlined. So long as the money is earned outside of obligated work time, most practices will allow their physicians to keep the money. Other major benefits should include health insurance, preferably for the entire family, and malpractice insurance with “tail” coverage against future claims, although this will usually be paid only if the practice terminates without cause. The residents can always expect to pay if it is their choice to leave. If there is a retirement plan, residents should know when they are eligible and what the vesting schedule is. Provisions up to a certain dollar amount are also generally made for expenses related to professional meetings. A good employment contract will specify that the practice pays for professional society dues, hospital fees, and cell phones. Under certain circumstances there can be a signing bonus, and it is common for the practice to provide moving expenses, usually up to a certain dollar amount. In areas where high housing costs make recruitment difficult, provisions for the practice to finance a housing down payment are not unheard of. If they occur, it will be after the probationary period and will usually be callable if the doctor leaves for any reason. At a later time they can also be included in the buy-in and paid back over a period of years. Vacation and sick leave benefits must be outlined, and residents should know what the rules are for time spent in academic meetings because some practices will charge these against vacation time. Although vacation credits accrue over time, residents should ask whether they can use these credits in advance to prepare for and take board examinations. The last item on most employment contracts will be the provision for dispute resolution through arbitration. Main Points • For residents planning to go into private practice, the most satisfactory placements will be made by those young doctors who know themselves and who diligently and dynamically work to execute a process of good planning and flexibility. • An excellent way to make the right introductions is to ask faculty members to identify their contacts, particularly their former students. These first contacts are for one purpose only: to get invited for interviews. • The importance of visiting as many private practices as possible cannot be overstated. Something will be learned from each situation. No medical practice is identical to any other. • Interviews; interactions with physicians, staff, and patients; and all aspects of the building, equipment, and grounds are critical factors in the decision-making process. Nothing is unimportant. • Critical information about the health of the practice is available to those who know what questions to ask. Residents should learn whether the practice is continuing to grow, with new patients and new physicians, and whether income is growing or contracting. • Young doctors should see to it that the period of being an employee as opposed to a partner is clearly defined, as well as the terms of “buying in” to the practice; another serious economic consideration is how the partnership divides the income. VOL. 8 NO. 2 2006 REVIEWS IN UROLOGY 75