Call Pay Re-purposing: Enhancing Physician Retirement and Improving Retention
In the unique world of healthcare fraught with rules and regulations surrounding compensation arrangements between hospitals and private practicing physicians, there exists a unique opportunity to transform various forms of payment for services into a retirement benefit while at the same time adding significantly to the retention of key surgical specialties.
Traditional retirement plans are effective for creating substantial retirement income for the rank-and-file, but even if a physician maximizes their qualified plan contributions during their “working lifetime” they will come woefully short of accumulating enough wealth to maintain their pre-retirement lifestyle at a standard retirement age. This reality is forcing physicians to remain in practice longer than they would if they had adequately planned for retirement and/or aggressively looked for what might appear to be more lucrative opportunities “across town”.
Generally, physicians earn above average incomes and are considered “highly compensated”. With Federal regulations limiting the amount of money that may be contributed to a “qualified” retirement plan, such as a 401(k) or profit sharing arrangement, it is mathematically impossible for the “highly compensated” to adequately save for retirement.
With the help of qualified experts, Call Pay programs can be designed as a retirement benefit for physicians. This allows the physician who is being paid cash for taking call, medical directorship stipends, or other traditional compensation arrangements to convert the current incremental hospital income into a tax-advantaged accumulation strategy. This will allow non-practice revenue to grow tax-deferred and become a significant supplemental retirement income benefit.
A byproduct of this approach is that a physician will be much less likely to leave a hospital that is providing this type of benefit. Especially if leaving triggers an untimely taxable event, forcing the physician into an unfavorable income tax situation.
The hospital has much to gain by implementing this strategy. Physician turnover is very expensive and disruptive to the hospital. Reports indicate that after all things considered, a hospital will incur expenses close to $250,000 in order to recruit a physician. Lost revenue to a hospital associated with losing a key specialist can exceed $1 million. Taking the initiative to implement this type of arrangement is very cost effective for the hospital.
In today’s challenging economic environment, it is rare that a financial tool exists that is not risky or prohibitively expensive. As such, “Re-purposing” traditional forms of compensation to enhance physician retirement benefits and improve key specialist retention is something that every hospital and physician should know more about and strongly consider.