Most physician employees receive W-2’s from their employer and have NO PROTECTION OF THEIR PAYCHECK under the congressional CARES Act. These funds were created for small businesses, with some controversy on size requirements, to keep their employees working and paid.
The majority of employed physicians have either seen their pay reduced, or have been asked to voluntarily reduce it as a good corporate citizen. In my physician network it was a simple email request to employed physicians:
However, I am a W-2 employee, and the SBA Paycheck Protection Program has been helpful. You might ask, how can that be???
Let’s start with the understanding that I own my healthcare company under the pseudonym of “Country Doc MD, PC”.
Employment Lite
“Country Doc MD, PC” is contracted with our local physician network to provide family practice with obstetrics medical care to our community and receives an annual 1099 for the Professional Services Agreement (PSA) otherwise known as an “employment lite” agreement.
This “employment lite” agreement allows the physician network to maintain control and alignment of my professional services, and in exchange, I gain control of my income flow, tax strategies, and benefit plans just to name a few.
Like most PSA’s, “Country Doc MD, PC” is paid based upon the fair market value RVUs that are generated by my workload on a monthly basis. It’s that simple in my PSA, I have no other responsibilities for the practice, employees, billings, collections, etc.
I am paid a fair market W-2 annual salary by “Country Doc MD, PC” for the medical work provided.
This is a diagram of “Employment Lite” or a PSA
My wife and I are the only two employees of the PC, as she provides the book-keeping for “Country Doc MD, PC.” The PC structure allows for income flow control that adds levels of tax strategies and retirement benefits for our household that are not available in the typical employed physician W-2 arrangement, nor in the typical contracted physician 1099 arrangement.
The Secret Sauce
There is a secret sauce involved in organizing this business structure that leads to significant retained income and significant increases in retirement savings. Of course, it’s all within the boundaries of the tax code.
The PC-PSA structure has provided a level of insulation for me from the economic undulations associated with COVID-19
Unlike my private practice friends, who have several employees (including themself) depending on the business to stay afloat, I have no pressures like this to manage.
Unlike my physician network employer, who is managing the tension of reduced revenue in connection with complex staffing decisions associated with running a primary care clinic, I don’t have to worry about coming up with the solutions.
While my employer looks to voluntarily, or involuntarily cut physician pay, I am out of this loop.
Protection From Productivity Losses
For better or worse, my PC is paid for the work I do, and it’s just that simple. The translation is that my company will likely see a 25% dip in the “Country Doc MD, PC” income over the next few months as the RVU’s go down. But my employee salary has been set at a much lower number than the corporation earns, thus most reductions in corporate income will not negatively impact my monthly pay.
Note here, although it is counterintuitive, the lower W-2 salary in this secret sauce actually leads to greater retained income than standard employment contracts.
Let me say that again, due to my business structure, my productivity losses due to COVID-19 will not negatively affect my employment salary.
No Hand Wringing
This is why am I not wringing my hands over the healthcare economic downturn from COVID-19?
- I have chosen “employment lite” for the very reason that I don’t want to worry about all elements of practice management associated with running a primary care clinic, including the profits and losses associated. √
- The only employees to manage are myself and my wife, and we have organized our professional and personal financial structure to weather this storm. √
Here Are Some Other Reasons Not To Wring My Hands
I Am Financially Independent
I have no pressure to earn a certain amount of money per month in order to pay my bills. The biggest element that propelled me to Financial Independence, was switching from standard physician employment to a PC-PSA model. This transition was worth a million dollars, or more, to my net worth. Modest living, some financial literacy, and having a great financial advisor-planner have also helped my family get to this wonderful place of freedom.
Passive Income
My wife and I knew that we would want to have passive income to supplement our retirement income that was limited to ERISA caps as an employed physician. Many physicians falsely believe maxing out their employer-sponsored retirement programs will lead to enough to retire on. Since most physicians are used to living on a higher monthly income than ERISA accounts for, employer-sponsored programs will typically leave the physician well short of their goal.
We began to build passive income channels through real estate and construction business ownership as a strategy to augment my employer-sponsored programs. I made my share of mistakes in this realm, especially with angel investments, but I have managed to organize it into an integrated portfolio that has led to building our long-term net worth. Net worth is the most important number to keep in mind.
The two most valuable decisions that I made to help increase net worth and retirement funds were both linked to my transition to a PC-PSA
- I purchased a medical office building, negotiated to move my practice to that location, and began leasing to my employer. Currently the building is paid off, and this provides nearly $10,000 per month in income. With multiple providers in the building and a thriving practice, it is likely to continue as a leased medical office building even after I retire. The monthly revenue from the building and the value of the asset makes it a double win.
- By forming a professional corporation with my wife and me as the sole employees, we are able to significantly broaden and deepen the benefit plans that are individualized to our needs, and this is especially the case with retirement funding. We are now putting away 4x more in retirement the amount than we could with a traditional physician employment contract.
No Debt
Literally right as COVID-19 hit the US, we made our last banknote payment of any type, it was on the medical office building. We owe no-one any amount of money. That feels really good, as all of our real estate and business ventures are fully paid for. This component especially creates a sense of peace and stability in regards to any physician income changes that could occur associated with COVID-19, or any other economic crisis. Regardless of how little or big my monthly paycheck is, it literally is the icing on our financial cake.
Personal Finances and A Support Team
We have always created and followed an annual budget, sought to live frugally, enjoyed the good life associated with a physician income, gave to charity with an increasing percentage every year, and worked with a fee-only financial planner-advisor who supported us every step of our professional and personal journey.
We really turned the corner though when we put together a financial-business team that included a financial planner-retirement-wealth manager along with an accountant and an attorney. When we all sat in a room together and worked as a team, the outcome was magical. It led to the formation of my PC, the PC-PSA agreement, and separate business development and marketing company that supports the PC.
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In fact, I became so convinced that my personal and professional journey is within the wheelhouse of thousands of physicians around the country, that I helped create a company to make it simple, yet individualized for each physician. You too, can have a physician-led team that provides a full accounting, legal, business, and benefit plan team that works together on your behalf, all at a fixed fee that has over a 300% ROI. Check out SimpliMD if you want to know more.
I Qualify For The SBA Paycheck Protection Program
So, even though I am a W-2 employee, my company “Country Doc MD, PC” does qualify for the SBA PPP. And under the direction of my support team, I applied for an SBA PPP loan.
Check-in with me later this week with my next blog post to walk through that experience together.
Dr Inc.
