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    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. David E. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics trade journals and publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

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Your Biggest – Dual Asset

Why a Medical Practice is Both a Financial and Non-Financial Asset

By Dr. Gary L. Bode; MSA, CPAgary-bode5

A medical practice is a valuable asset in two respects.  First, it provides the work environment that generates your personal income.  It is a current financial asset.

Second, it has inherent sales value that can be part of an exit (retirement) or transfer strategy. It is a potential future financial asset. Some of this inherent value lies in the current market value of medical equipment, minus any money owed. 

The other aspect of inherent value is goodwill, or the worth of the practice as on going concern that allows you to sell it to another practitioner.  But, there are other non-financial rewards, as well.

Non-Economic Rewards of an Efficient Medical Practice

Some of the rewards of a well-run practice that transcend purely financial considerations include: 

1) A better, more consistent clinical result

2) Improved patient perception which increases referrals and decreases liability

3) Less employee turnover

4) Less stress

5) More free time for the practitioner.

Now, can you think of any other non-financial rewards? But, in the era of healthcare reform, are they increasing or decreasing?

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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MD Salary versus Net-Worth Conundrum [.ppt slide-show presentation]

“The Tale of Two High School Graduates”

[By Private Banker Jorge Russe; MBA CMP candidate]

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“Of the 125 medical schools in the USA, only one of them to my knowledge offers a class related to saving or investing money.”

– William C. Roberts, MD 

For more insight into the physician salary and wealth accumulation disparity [inverse relationship], feel free to review this .ppt presentation by Jorge Russe MBA who is a private banker for physicians in Chicago.

Rich Doctor’s?- Maybe Not!

Money and Medicine

It’s not strictly-speaking P4P, but it does demonstrate that the need for doctor focused financial planning is more acute than ever. So, what is your own tale?

Ann Miller; RN

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Physician Compensation with .ppt Presentation

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Doctor’s Salaries [Trends – Models – Approaches]

By Dr. David E. Marcinko; MBA, CMP™ [Publisher-in-Chief]

By Prof. Hope Rachel Hetico; RN, MHA, CMP™ [Managing Editor]dave-and-hope

Anyone who’s paid a doctor’s bill lately knows that healthcare costs are out of control.

So, it may come as a surprise that the golden era of medicine for physician compensation is over, and that healthcare is the latest industry to tighten its payment belt.  Physician compensation is also a contentious issue in medical group practice, and fodder for public scrutiny.

In fact, few situations produce the same level of emotion as doctors fighting over how a seemingly collegial employment contract should be interpreted. This situation often springs from a failure of both sides to understand mutual compensation terms-of-art when the deal was negotiated.

It is our hope that the attached .ppt file will help you to avoid this contentiously polarizing human and economic polemic.

It begins with the basic principles of student-debt avoidance, the intangible concept of goodwill, and the compensation-versus-value paradoxof medical practice worth. Employer-employee deferred compensation arrangements are also visited as important fringe benefits. Compensation benchmarks for medical and allied healthcare specialties are then presented.

Finally, newer health delivery models such as consumer-directed health plans, cash-based-compensation extenders and concierge medicine, are mentioned. 

***

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

***

Assessment

This physician salary and compensation information is offered to serve as a reference point for further individual investigation.

Please enjoy and comment. 

Editors and Staff

Slide Link: marcinko-hetico-compensaton-chapter.ppt

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Medical Economic Value-Added Accounting

Understanding MEVA?

www.HealthcareFinancials.comHOFMS

It is not unusual for a medial practice to incur extra-ordinary expenses by investing in technology or equipment. But, did you know that there are two methods of evaluating these capital expenses?  

·   The older Generally Accepted Accounting Principles (GAAP) removes them from the income statement that is used to evaluate enterprise profitability.

 ·  The newer Economic Value Added (EVA) approach treats them differently by considering both capital expenses and operational expenses when calculating profit.  

Introduction 

The concept of EVA was developed by New York City-based consultancy Stern Stewart. MEAV is a riff off this distinction applied to medical practice capital investments by distinguishing between illusory profits and real economic gain.  

The concept is useful to keep physician executives from disrupting the balance sheet by chasing profits. It may also better reflect enterprise value since to have a positive MEVA – practice revenues must exceed operating costs, taxes and a charge for the cost of capital (debt interest rate charges, or the risk of saving/conserving capital rather than spending/investing it).

In other words, the benefits of major equipment must be weighed against the financial drain of purchase. Additionally, taxes are also left out of a GAAP analysis of operating profit, but MEVA expensing includes them to keep operations as lean as possible.

Nevertheless, the MEVA formula may be expressed, as follows: MEVA = NOPAT – (Cost of Capital X Capital)orMEVA = (Operating Profit) – (A Capital Charge) where: NOPAT = (Taxable Income – Income Tax)where: Cost of Capital X Capital) = Depreciation X (Beginning Book Value).

As seen in the MEVA equations, there are two key components.  The net operating profit after tax (NOPAT) and the capital charge, which is the amount of capital times the cost of capital. 

NOPAT is the profit derived from operations after taxes, but before financing costs and non-cash bookkeeping entries. 

In other words, it is the total pool of profits available to provide cash return to the physician executives who provided capital to the practice.  The cost of capital is the minimum rate of return on capital required to compensate physician debt and equity owners for bearing risk – a cut-off rate to create value. 

On the other hand, capital is the amount of cash invested in the practice, net of depreciation.   

Criticism of MEVA Calculations 

It is important to note that the above only represents one of the many ways to define MEVA.  In reality, the definition of MEVA should be tailored to the specifics of the practice that uses it.

Also, in reality, there are adjustments that may change the way a practice defines MEVA. These equity equivalent (EE) adjustments are used to both NOPAT, and the capital employed, to reduce non-economic accounting and financing conventions on the income statement and balance sheet.  Equity equivalents (EEs) are adjustments that turn a practice’s accounting book value into an economic book value, which is more accurate measure of the cash that physician owners have put at risk and upon which they expect to accrue some returns.  

Equity equivalents turn capital-related items into more accurate measures of capital and include revenue-and expense-related items in NOPAT, thus better reflecting the practice’s base upon which owners expect to accrue their returns.

Furthermore, equity equivalents are designed to address the distortions suffered by traditional financial ratio measures, that change depending upon the generally accepted accounting principles adopted or the mix of financing employed. 

Moreover, the basic formula for MEVA tends to produces a more conservative picture of ROI, and medical practice profits or losses. 

Summary 

Therefore, MEVA should not be used too rigorously for fear of excessive risk aversion and the paralysis of analysis. Your experience with this concept is appreciated. 

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Medical Practice Worth

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Introduction to Healthcare Business Valuation

By Bruce G. Krider; MHA56371606

This post provides an insight into the issues involved in buying or selling a healthcare organization or business.  Its purpose is to provide the reader with greater understanding of the process and the concepts conveyed within do not represent valuation “advice”.  

Whether acquiring or divesting, we strongly recommend that you consult with valuation professionals with demonstrated experience in healthcare transactions of the type of you are considering. 

Business valuation measures two things (primarily): tangible assets and intangible assets.  Let’s discuss some examples of intangible assets first. 

Intangible Assets: 

Owners of clinics or hospitals often tell me, “Well, this is what we generate in terms of income but we really don’t know what that business activity is worth.” Healthcare services are obviously a “personal services” business. The value of the business which has been built is a patient base which may be reflected by patient records or databases, but it also includes that which has been put in place to make the business function and generate a revenue stream. An assembled and producing business takes trained professionals fused together and ready to provide services. These services are provided according to policies and procedures, which have been developed and in place. 

Further, all of these things are wrapped within a business context.  That is, the business itself has been legally established. Any necessary licensees have been obtained.  Facilities have been secured or leased. Contracts have been set. 

In summary, it takes time and money to build a business. When a going business steadily generating a relatively predictable income has been established, we recognize the value of that expended effort and those results.  It is, after all, why business people decide to forego that effort and buy a business rather than build one from scratch.  All of these things represent the intangible asset called “goodwill” or “going-concern value”. 

Tangible Assets

Tangible assets are sometimes referred to as “hard assets” and include furnishings, fixtures, medical equipment, medical supplies and any leasehold improvements applicable. 

In the valuation of hospitals (versus physician clinics) for the purpose of acquisition or divestiture, tangible assets are not necessarily itemized and/or valued.   They are assumed covered in the acquisition figure.

One might ask, “How or why is this different from valuing good-will and equipment, furnishing, fixtures and leaseholds in clinics?” The answer is simply that this is how the market has traditionally approached the value of hospitals and major clinics versus physician practices or smaller clinics from a market value standpoint.

Appraisals for others purposes, such as ad valorem related appraisals would indeed, value the real estate and the personal property. 

Value Importance of Tangible vs. Intangibles

For clinics and physician practices the majority of the value usually lies in the intangible assets (goodwill). Further, that goodwill is, more than anything, based on income production.  In turn, the income is a function of those resources and efforts expended on the part of the developer of the business. 

In some specialties, there obviously may be a greater percentage of value going to equipment. It would be the unusual case, however, where the equipment value would approach the goodwill unless the business was performing less than it should. 

The Important Role of Risk Determination

An extremely important element in the valuation process is the determination of risk for the investor.  The process is complicated and time consuming.  The reason for the importance and pivotal nature of risk determination is that, it must be quantified and factored into the valuation calculations.

The business valuation expert must accurately quantify the risk associated with the practice, clinic, hospital or healthcare center as of the date of the appraisal.  The impact on the resulting value is significant. 

Valuation Process

In valuing healthcare organizations, there are several basic tasks.  The first is the development of a model for projecting income and expense. (The value of a business relates directly to the determination of a reasonable anticipated revenue stream). This is usually projected for a period of six years, (five years for standard projection and a sixth year to be used as a surrogate for reversion or “in perpetuity”).

Present Value or Discounted Cash Flows 

The second task in the valuation process is the determination of risk associated with the subject organization.  One of the best starting points for these risk factors is from the market itself. When reviewing sales of similar organizations, we can derive capitalization rates by dividing the revenue by the sales price.  That can serve as a starting point. 

One often hears of “multiples” as a method of valuation.  A multiple is nothing more than the inverse of a cap rate.  In other words, if the cap rate is .20, the multiple is 1/.20 or “5”. Beyond that, one should refine the industry cap rate to reflect the specific nature of the subject organization.   

For example, we employ a subject sensitive grid and a set of criteria with associated weights that assists us in being as subjective as possible in developing our risk modifiers.

For illustrative purposes, if the clinic generates $10,000,000 per year and the adjusted cap rate we have developed is 20%, the value of the subject organization would be $50,000,000, ($10M/.20 = $50M) by this method.  Demonstrating the multiple the calculation would look like this: $10M revenue x “5” (1/.20) = $50M. 

Used in a “present value, discounted cash flow model”, we would use a similar discount factor with our six year pro forma to determine the organizations value.  The demonstration of this process by the business appraiser is one of the most important considerations an appraisal client should be aware of and understand.  It is also one to cover, thoroughly with the appraiser.     

Volatility of Cap Rates and Multipliers

It is important to note that the healthcare marketplace is a highly dynamic and volatile market.  Correspondingly, the amounts, which are paid by investors for healthcare investments, are also quite volatile. Cap rates vary substantially from year to year and from business type to business type.  

Noteworthy then is the recognition of the concept of a Range of Values in multiples and cap rates.  Examples of a range of values for multiples for hospitals might be 3 to 5x.  The variations in those multiples should be tied to the specific nature of the subject being valued.

In other words, if the industry norm is “4”, one needs to adjust that figure based on the strengths and weaknesses of the specific subject.  This is the purpose of the risk factor adjustment grid we mentioned earlier.  If the risk assessment is off in the valuation process, the value will be correspondingly off. 

Projecting Earnings

To develop a schedule of projected earnings, we review historical data, incorporate what we know about the trends in the field, in reimbursement, in expense increases, in any changes in contracts held by the subject organization (i.e. Preferred provider organization or managed care contracts), changes in the scope of service of the organization, changes in collection ratios, the changing marketplace and the expectation for future business volume, a changing referral base network, expansions of clinic or hospital locations, the addition or loss of specific key staff, etc.  The list goes on and on.

In Summary

In buying or selling service businesses such as healthcare businesses, there are numerous factors to consider.  Further, there is no marketplace more competitive or complex than the healthcare marketplace.   When considering what you are willing to pay for a healthcare business or what you want for a selling price, you must consider a great deal with an objective eye.

Often sellers view their practices from the standpoint of all the “blood, sweat and tears” they have invested and this may not be realistic. If a practice, clinic, hospital or other healthcare organization is overpriced, it will linger in the marketplace.

If there is one point to take from this post, it is that the selling price must be justified by the realistic anticipated revenue stream. 

In your case, how does the subject organization compare with the average of its type?What are the unique circumstances or considerations of the subject? Can your appraiser quantify them accurately?   

The Healthcare Appraisers

The healthcare marketplace is a marketplace unlike all others because of: 

  • How healthcare organizations are structured literally, politically and for reimbursement and tax reasons
  • How healthcare organizations are reimbursed 
  • How different areas are paid differently for the same procedures.
  • How medical research and development directly impacts the way healthcare is delivered and how that impacts the cost of operation.
  • How technology impacts the obsolescence of hospital equipment and the ability to maintain the “standard of care” and how that impacts the value and future of an organization.
  • How growing, numerous and regulatory requirements impact staffing, services, physical plant and equipment costs.
  • How accreditation requirements alter how healthcare is delivered and impact costs.
  • How the Medicare or Medicaid budget will change over the foreseeable future.
  • How nurse shortages may limit an organizations ability to keep certain services available.
  • How changes in decentralization of healthcare delivery impact others in the new healthcare marketplace.  
  • Or, a myriad of other new and changing factors in the healthcare field; etc.

Therefore, when contemplating an acquisition or divestiture, make sure there is an appraiser on your side of the table who knows the industry. 

The author has 30 years of management and consulting experience in the healthcare field. As an adjunct professor for two university graduate programs in healthcare administration, he has authored numerous articles and books.  This complimentary article is from American Health Care Appraisal www.ahca.com

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What is a Market-Neutral Fund?

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Market Neutral Funds Demystified

[A Special Report]

[By Dimitri Sogoloff; MD, MBA]

Introduction

It’s hard to believe that just 20 years ago, physician investors had only two primary asset classes from which to choose: U.S. equities and U.S. bonds.

Today, the marketplace offers a daunting array of investment choices. Rapid market globalization, technology advancements and investor sophistication have spawned a host of new asset classes, from the mundane to the mysterious.

Even neophyte medical investors can now buy and sell international equities, emerging market debt, mortgage securities, commodities, derivatives, indexes and currencies, offering infinitely more opportunities to make, or lose, money.

Amidst this ongoing proliferation, a unique asset class has emerged, one that is complex, non-traditional and not easily understood like stocks or bonds. It does, however, offer one invaluable advantage; its returns are virtually uncorrelated with any other asset class. When this asset class is introduced into a traditional investment portfolio, a wonderful thing occurs; the risk-return profile of the overall portfolio improves dramatically.

This asset class is known as a Market-Neutral strategy. The reason few medical professionals have heard of market neutral strategies is that most of them are offered by private investment partnerships otherwise known as hedge funds.

To the uninitiated, “hedge fund” means risky, volatile or speculative. With a market-neutral strategy however, just the opposite is true. Funds utilizing market-neutral strategies typically emphasize the disciplined use of investment and risk control processes. As a result, they have consistently generated returns that display both low volatility and a low correlation with traditional equity or fixed income markets. 

Definition of Market-Neutral

All market-neutral funds share a common objective: to achieve positive returns regardless of market direction. Of course, they are not without risk; these funds can and do lose money. But a key to their performance is that it is independent of the behavior of the markets at large, and this feature can add tremendous value to the rest of a portfolio.

A typical market-neutral strategy focuses on the spread relationship between related securities, which is what makes them virtually independent of underlying debt or equity markets. When two related securities are mispriced in relation to one another, the disparity will eventually disappear as the result of some external event. This event is called convergence and may take the form of a bond maturity, completion of a merger, option exercise, or simply a market recognizing the inefficiency and eliminating it through supply and demand.

Here’s how it might work

When two companies announce a merger, there is an intended future convergence, when the shares of both companies will converge and become one. At the time of the announcement, there is typically a trading spread between two shares. A shrewd trader, seeing the probability of the successful merger, will simultaneously buy the relatively cheaper share and sell short the relatively more expensive share, thus locking in the future gain.

Another example of convergence would be the relationship between a convertible bond and its underlying stock. At the time of convergence, such as bond maturity, the two securities will be at parity. However, the market forces of supply and demand make the bond underpriced relative to the underlying stock. This mispricing will disappear upon convergence, so simultaneously buying the convertible bond and selling short an equivalent amount of underlying stock, locks in the relative spread between the two.  

Yet another example would be two bonds of the same company – one junior and one senior. For various reasons, the senior bond may become cheaper relative to the junior bond and thus display a temporary inefficiency that would disappear once arbitrageurs bought the cheaper bond and sold the more expensive bond.

While these examples involve different types of securities, scenarios and market factors, they are all examples of a market-neutral strategy. Locking a spread between two related securities and waiting for the convergence to take place is a great way to make money without ever taking a view on the direction of the market.

How large are these spreads, you may ask? Typically, they are tiny. The markets are not quite fully efficient, but they are efficient enough to not allow large price discrepancies to occur.

In order to make a meaningful profit, a market-neutral fund manager needs sophisticated technology to help identify opportunities, the agility to rapidly seize those opportunities, and have adequate financing resources to conduct hundreds of transactions annually.  

Brief Description of Strategies

The universe of market-neutral strategies is vast, spanning virtually every asset class, country and market sector. The spectrum varies in risk from highly volatile to ultra conservative. Some market-neutral strategies are more volatile than risky low-cap equity strategies, while others offer better stability than U.S Treasuries.

One unifying factor across this vast ocean of seemingly disparate strategies is that they all attempt to take advantage of a relative mispricing between various securities, and all offer a high degree of “market neutrality,” that is, a low correlation with underlying markets.

[A] Convertible Arbitrage

Convertible arbitrage is the oldest market-neutral strategy. Designed to capitalize on the relative mispricing between a convertible security (e.g. convertible bond or preferred stock) and the underlying equity, convertible arbitrage was employed as early as the 1950s.

Since then, convertible arbitrage has evolved into a sophisticated, model-intensive strategy, designed to capture the difference between the income earned by a convertible security (which is held long) and the dividend of the underlying stock (which is sold short). The resulting net positive income of the hedged position is independent of any market fluctuations. The trick is to assemble a portfolio wherein the long and short positions, responding to equity fluctuations, interest rate shifts, credit spreads and other market events offset each other.  

A convertible arbitrage strategy involves taking long positions in convertible securities and hedging those positions by selling short the underlying common stock. A manager will, in an effort to capitalize on relative pricing inefficiencies, purchase long positions in convertible securities, generally convertible bonds, convertible preferred stock or warrants, and hedge a portion of the equity risk by selling short the underlying common stock. Timing may be linked to a specific event relative to the underlying company, or a belief that a relative mispricing exists between the corresponding securities.

Convertible securities and warrants are priced as a function of the price of the underlying stock, expected future volatility of returns, risk free interest rates, call provisions, supply and demand for specific issues and, in the case of convertible bonds, the issue-specific corporate/Treasury yield spread.

Thus, there is ample room for relative misvaluations. Because a large part of this strategy’s gain is generated by cash flow, it is a relatively low-risk strategy. 

[B] Fixed-Income Arbitrage

Fixed-income arbitrage managers seek to exploit pricing inefficiencies across global markets.

Examples of these anomalies would be arbitrage between similar bonds of the same company, pricing inefficiencies of asset-backed securities and yield curve arbitrage (price differentials between government bonds of different maturities). Because the prices of fixed-income instruments are based on interest rates, expected cash flows, credit spreads, and related factors, fixed-income arbitrageurs use sophisticated quantitative models to identify pricing discrepancies.

Similarly to convertible arbitrageurs, fixed-income arbitrageurs rely on investors less sophisticated than themselves to misprice a complex security.

[C] Equity Market-Neutral Arbitrage

This strategy attempts to offset equity risk by holding long and short equity positions. Ideally, these positions are related to each other, as in holding a basket of S&P500 stocks and selling S&P500 futures against the basket. If the manager, presumably through stock-picking skill, is able to assemble a basket cheaper than the index, a market-neutral gain will be realized.

A related strategy is identifying a closed-end mutual fund trading at a significant discount to its net asset value. Purchasing shares of the fund gains access to a portfolio of securities valued significantly higher. In order to capture this mispricing, one needs only to sell short every holding in the fund’s portfolio and then force (by means of a proxy fight, perhaps) conversion of the fund from a closed-end to an open-end (creating convergence).

Sounds easy, right?

In considering equity market-neutral, you must be careful to differentiate between true market-neutral strategies (where long and short positions are related) and the recently popular long/short equity strategies.

In a long/short strategy, the manager is essentially a stock-picker, hopefully purchasing stocks expected to go up, and selling short stocks expected to depreciate. While the dollar value of long and short positions may be equivalent, there is often little relationship between the two, and the risk of both bets going the wrong way is always present.

[D] Merger Arbitrage (a.k.a. Risk Arbitrage)

Merger arbitrage, while a subset of a larger strategy called event-driven arbitrage, represents a sufficient portion of the market-neutral universe to warrant separate discussion.

Merger arbitrage earned a bad reputation in the 1980s when Ivan Boesky and others like him came to regard insider trading as a valid investment strategy. That notwithstanding, merger arbitrage is a respected stratagey, and when executed properly, can be highly profitable. It bets on the outcomes of mergers, takeovers and other corporate events involving two stocks which may become one.

A textbook example was the acquisition of SDL Inc (SDLI), by JDS Uniphase Corp (JDSU). On July 10, 2000 JDSU announced its intent to acquire SDLI by offering to exchange 3.8 shares of its own shares for one share of SDLI.

At that time, the JDSU shares traded at $101 and SDLI at $320.5. It was apparent that there was almost 20 percent profit to be realized if the deal went through (3.8 JDSU shares at $101 are worth $383 while SDLI was worth just $320.5). This apparent mispricing reflected the market’s expectation about the deal’s outcome. Since the deal was subject to the approval of the U.S. Justice Department and shareholders, there was some doubt about its successful completion. Risk arbitrageurs who did their homework and properly estimated the probability of success bought shares of SDLI and simultaneously sold short shares of JDSU on a 3.8 to 1 ratio, thus locking in the future profit.

Convergence took place about eight months later, in February 2001, when the deal was finally approved and the two stocks began trading at exact parity, eliminating the mispricing and allowing arbitrageurs to realize a profit. 

Merger Arbitrage, also known as risk arbitrage, involves investing in securities of companies that are the subject of some form of extraordinary corporate transaction, including acquisition or merger proposals, exchange offers, cash tender offers and leveraged buy-outs. These transactions will generally involve the exchange of securities for cash, other securities or a combination of cash and other securities.

Typically, a manager purchases the stock of a company being acquired or merging with another company, and sells short the stock of the acquiring company. A manager engaged in merger arbitrage transactions will derive profit (or loss) by realizing the price differential between the price of the securities purchased and the value ultimately realized when the deal is consummated. The success of this strategy usually is dependent upon the proposed merger, tender offer or exchange offer being consummated.  

When a tender or exchange offer or a proposal for a merger is publicly announced, the offer price or the value of the securities of the acquiring company to be received is typically greater than the current market price of the securities of the target company.

Normally, the stock of an acquisition target appreciates while the acquiring company’s stock decreases in value. If a manager determines that it is probable that the transaction will be consummated, it may purchase shares of the target company and in most instances, sell short the stock of the acquiring company. Managers may employ the use of equity options as a low-risk alternative to the outright purchase or sale of common stock. Many managers will hedge against market risk by purchasing S&P put options or put option spreads. 

[E] Event-Driven Arbitrage

Funds often use event-driven arbitrage to augment their primary market-neutral strategy. Generally, any convergence which is produced by a future corporate event would fall into this category.

Accordingly, Event-Driven investment strategies or “corporate life cycle investing” involves investments in opportunities created by significant transactional events, such as spin-offs, mergers and acquisitions, liquidations, reorganizations, bankruptcies, recapitalizations and share buybacks and other extraordinary corporate transactions.

Event-Driven strategies involve attempting to predict the outcome of a particular transaction as well as the optimal time at which to commit capital to it. The uncertainty about the outcome of these events creates investment opportunities for managers who can correctly anticipate their outcomes.

As such, Event-Driven trading embraces merger arbitrage, distressed securities and special situations investing. Event-Driven managers do not generally rely on market direction for results; however, major market declines, which would cause transactions to be repriced or break, may have a negative impact on the strategy. 

Event-driven strategies are research-intensive, requiring a manager to do extensive fundamental research to assess the probability of a certain corporate event, and in some cases, to take an active role in determining the event’s outcome. 

Risk and Reward Characteristics

To help understand market-neutral performance and risk, let’s take a look at the distribution of returns of individual strategies and compare it to that of traditional asset classes.

 Table 1:  Average Return / Volatility of Market Neutral Strategies And Selected Traditional Asset Classes 

 

Strategy Average Return Annualized Volatility
Convertible Arbitrage 11.95% 3.57%
Fixed Income Arbitrage 8.33% 4.90%
Equity Market-Neutral 11.62% 4.95%
Merger Arbitrage 13.29% 3.51%
Relative Value Arbitrage 15.69% 4.31%
   Traditional Asset Classes:    
S&P 500 12.62% 13.72%
MSCI World 8.57% 13.05%
High Grade U.S. Corp. Bonds 7.26% 3.73%
World Government Bonds 5.91% 5.96%

The most important observation about this chart is that the Market Neutral funds exhibits considerably lower risk than most traditional asset classes.

While market-neutral strategies vary greatly and involve all types of securities, the risk-adjusted returns are amazingly stable across all strategies. The annualized volatility – a standard measure of performance risk – varies between 3.5 and 5 percent, comparable to a conservative fixed-income strategy.     

Another interesting statistics is the correlation between Market Neutral strategies and traditional asset classes and traditional asset classes

Table 2: Correlation between Market Neutral Strategies and Traditional Asset Classes

 

Asset Class/Strategy S&P500 MSCI World GovBonds CorpBonds

The correlation of all market neutral strategies to traditional assets is quite low, or negative in some cases. This suggests that these strategies would indeed play a useful role in the ultimate goal of efficient portfolio diversification.

To test the “market neutrality” of these strategies, we asked, “How well, on average, did these strategies perform during bad, as well as good, market months?”

It turns out, in good times and bad, these strategies displayed consistent solid performance. From 12/31/91, in months when S&P 500 was down, the average down month was 3.03 percent. Market Neutral strategies performed as follows:

  

Strategy Average Monthly Return
Convertible Arbitrage + 0.65%
Fixed Income Arbitrage + 0.50%
Equity Market-Neutral + 1.19%
Merger Arbitrage + 0.88%
Relative Value Arbitrage + 0.81%

In months when S&P 500 was up, the average up month was +3.24 percent.  Market Neutral strategies performed as follows:

  

Strategy Average Monthly Return
Convertible Arbitrage +1.17%
Fixed Income Arbitrage +1.20%
Equity Market-Neutral +1.37%
Merger Arbitrage +0.60%
Relative Value Arbitrage +1.25%

Clearly, a compelling picture emerges. While these strategies, on average, underperform during good times, they show a positive average return during both good and bad markets.

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Inclusion of Market-Neutral in a Long-term Investment Portfolio

A critical concern for any medical investor considering a foray into a new asset class is how it will alter the long-term risk/reward profile of the overall portfolio. To better understand this, we constructed several hypothetical portfolios consisting of traditional asset classes:

·  US Treasuries (Salomon Treasury Index 10yrs+)

·  High Grade Corporate Bonds  (Salomon Investment Grade Index)

·  Speculative Grade Corporate Bonds  (High Yield Index)

·  US Blue chip equities  (Dow Jones Industrial Average)

·  US mid-cap equities  (S&P 400 Midcap Index)

·  US small-cap equities (S&P 600 Smallcap Index)

Portfolios varied in the level of risk from 100 percent U.S Treasuries (least risky) to 100 percent small-cap equities (most risky), and are ranked from 1 to 10, 1 representing the least risky portfolio.Each portfolio was analyzed on a Risk/Return basis using monthly return data since December 1991. The results are shown in Chart 1.Predictably, the least risky portfolio produced the smallest return, while the riskiest produced the highest return. This is perfectly understandable – you would expect to be compensated for taking a higher level of risk.

Chart 1: Risk/Return characteristics of traditional portfolios vs. Market Neutral strategies 

Clearly, the risk-return picture offered by Market Neutral strategies is much more compelling (lower risk, higher return) than that offered by portfolios of traditional assets. What happens if we introduce these market-neutral strategies into traditional portfolios? Let’s take 20 percent of the traditional investments in our portfolio and reinvest them in market-neutral strategies.

The change is dramatic: the new portfolios (denoted 1a through 10a) offer significantly less risk for the same return. The riskiest portfolio, for instance (number 10) offered 20 percent less risk for a similar return of a new portfolio containing market-neutral strategies (number 10a).   
 
Chart 2:  Result of inclusion of 20% of Market Neutral strategies in traditional portfolios 

This is quite a difference.  Everything else being equal, anyone would choose the new, “improved” portfolios over the traditional ones.

How to invest

The mutual fund world does not offer a great choice of market neutral strategies. 

Currently, there are only a handful of good mutual funds that label themselves market-neutral (AXA Rosenberg Market Netural fund and Calamos Market Neutral fund are two examples).

Mutual fund offerings are slim due to excessive regulations imposed by the SEC with respect to short selling and leverage, and consequently these funds lack flexibility in constructing truly hedged portfolios. The dearth of market-neutral offerings among mutual funds is offset by a vast array of choices in the hedge fund universe. Approximately 400 market-neutral funds, managing $60 billion, represent roughly 25% of all hedge funds.

Therefore, further focus will relate to the hedge fund universe, rather than the limited number of market-neutral mutual funds.

Direct investing in a market-neutral hedge fund is restricted to qualifying individuals who must meet high net worth and/or income requirements, and institutional investors, such as corporations, qualifying pension plans, endowments, foundations, banks, insurance companies, etc.

This does not mean that retail investors cannot get access to hedge fund exposure. Various private banking institutions offer funds of funds with exposure to hedge funds. Maaket-neutral funds are nontraditional investments. They are part of a larger subset of strategies known as alternative investments, and there is nothing traditional in the way doctors invest in them.

Hedge funds are private partnerships, which gives them maximum flexibility in constructing and managing portfolios, but also requires medical investors to do a little extra work.

[A] Lockup Periods

One of the main differences between mutual funds and hedge funds is liquidity. Market-neutral strategies have less liquidity than traditional portfolios. Quarterly redemption policies with 45- or 60-days notice are common. Many funds allow redemptions only once a year and some also have lock-up periods. In addition, few of these funds pay dividends or make distributions. These investments should be regarded strictly as long-term strategies.

[B] Managerial Risks

Success of a market-neutral strategy depends much less on the market direction than on the manager’s skill in identifying arbitrage opportunities and capitalizing on them.

Thus, there is significantly more risk with the manager than with the market. It’s vital for investors to understand a manager’s style and to monitor any deviations from it due to growth, personnel changes, bad decisions, or other factors.

[C] Fees

If you are accustomed to mutual fund fees, brace yourself; market-neutral investing does not come cheap.

Typical management fees range from 1 to 2 percent per year, plus a performance fee averaging 20 percent of net profits. Most managers have a “high watermark” provision; they cannot collect the performance fees until investors recoup any previous losses. Look for this provision in the funds’ prospectus and avoid any fund that lacks it. Even with higher fees, market-neutral investing is superior to most traditional mutual fund investing on a risk-adjusted return basis.

[D] Transparency

Mutual funds report their positions to the public regularly. This is not the case with market-neutral hedge funds. Full transparency could jeopardize accumulation of a specific position. It also generates front running: buying or selling securities before the fund is able to do so. While you should not expect to see individual portfolio positions, many hedge fund managers do provide a certain level of transparency by indicating their geographical or sector exposures, level of leverage and extent of hedging.

It does take a bit of education to understand these numbers, but the effort is definitely worthwhile. 

[E] Taxation

The issue of hedge fund taxation is quite complex and is often dependent on the fund and the personal situation of the investor. Advice from a competent accountant, specialized financial advisor, tax attorney with relevant experience is worthwhile. The bottom line is that investing in market-neutral funds is not a tax-planning exercise and it will not minimize your taxes.

On the other hand, it should not generate any more or fewer taxes than if you invested in more traditional funds.

From the medical investor’s perspective, the principal advantages of market-neutral investing are attractive risk-adjusted returns and enhanced diversification.

Ten years of data indicate that market-neutral portfolios have produced risk-adjusted returns superior to traditional investments. In addition, the correlation between the returns of market-neutral funds and traditional asset classes has been historically negligible.

Adding exposure of market-neutral return strategies to the asset mix within a consistent, long-term investment program offers a medical investor the opportunity to improve overall returns, as well as achieving some protection against negative market movements.

Now, after all of the above, has your impression of hedge funds in general or MN funds in particular, changed?

APPENDIX:  

Asset class weighting in traditional portfolios:
Portfolio US Treasuries US High Grade Corp Bonds US Low Grade Corp Bonds Large Cap Stocks Mid Cap Stocks Small Cap Stocks
1 50% 50%        
2   50% 50%      
3 10% 30% 50% 40%    
4   50%   50%    
5   10% 10% 50% 30%  
6     10% 50% 20% 20%
7     10% 30% 20% 40%
8       20% 20% 60%
9         20% 80%
10           100%

 

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Financial Services Sales Professionals   

By: Dr. David E. Marcinko; MBA, CMP™ 

[Publisher-in-Chief]

DEM 2013It has been said that there are more than 95 financial services designations in the business; and most are suspect credentials. A college degree may not even be required for most of them. 

And, the quest to find true guidance is clothed in mystery and subterfuge in the business. 

Why? It’s because the industry promotes a low standard of care, known as “suitability”; when a much higher fiduciary standard – to work on behalf of the client like a physician – should be required. 

If you don’t believe me, just look in the classified ad section of your local newspaper under “sales positions”, for job listings for these folks.  

So, when you select any type adviser, get this fiduciary standard-of-care statement in writing.  Just think of the “golden rule”, as you ponder these traditional credentials. 

What is an Insurance Agent? 

No one, especially doctors, likes to pay life and disability insurance premiums. Inadequate coverage, however, can completely devastate your family or medical practice, by quickly wiping out a lifetime of asset accumulation and business equity.

Buying and maintaining the right amount and type of coverage from solid insurance companies at a reasonable price eliminates these risks in a very efficient manner.  Unfortunately, an essential and relatively simple concept like risk transfer has evolved into an area that makes many doctors downright queasy.

The easiest way to handle this issue is to get consensus agreement from a core team of financial advisors as to the amount and types of coverage.

Once that is accomplished, appropriate insurance agents can be contacted.  The agents should be captive agents with insurance companies with policies known to be good for the coverage in question. Otherwise, independent agents with access to a large number of companies and products can be contacted.

Regardless, in addition to the usual questioning regarding competence and a background check, the agent should be aware that the core team will review all proposals.  Proposals should include what is known as a ledger statement.

A Chartered Life Underwriter (CLU) as granted by the American College, or Chartered Financial Consultant (ChFC), are two valid insurance designations demonstrating a focused expertise in the insurance business.  But, these still are typically commission sales agents who work for their respective firms, or themselves, but not necessarily you. The saying goes “insurance is sold not bought.”

As a reformed insurance agent myself, I sold all sorts of personal and other business insurance, too.  

Some years ago, the American Society of CLU and ChFC, in Bryn Mawr, Pa., reconsidered its own strategy of insurance as the organization changed its name to the Society of Financial Services Professionals to appeal to a broader base of financial practitioners beyond the insurance products it traditionally provided. 

What is a Stock Broker [Registered Representative]? 

A full service retail or discount stock broker, regardless of compensation schedule, is also known as a registered representative. Other names include financial advisor, financial consultant, financial planner, Vice President, etc. Nevertheless, they are still stock-brokers and not fiduciaries. 

Typically, the national test known as a Series #7 (General Securities License) examination and state specific Series #63 license is needed, along with Securities Exchange Commission (SEC) registration through the National Association of Securities Dealers (NASD) to become a stockbroker.  The industry touts them as rigorous; they are not as I passed mine after studying for a weekend. Since a commission may be involved – and performance based incentives are allowed – always be aware of costs.  

Again, regardless, of nomenclature derivative, the goal of these folks is to sell financial products; and earn a commission or fee. You also typically sign away your right to litigate when you enter into a brokerage contract. 

What is a Registered Investment Advisor?

This securities license, obtained after passing the easy Series # 65 examination, allows the designee to charge for giving unbiased securities advice on retirement plans and portfolio management, although not necessarily sell securities or insurance products. 

An RIA, or RIA representative, is usually a fiduciary, and should work for the interest of the client. A registered-representative, financial consultant, Certified Financial Planner™, or stockbroker does not necessarily have to be. 

What is a Certified Financial Planner™? 

Some believe that the premier personal financial planning designation of choice for the Financial Planning Association (FPA) – originally located in Atlanta, then Denver and now Washington, DC and founded in 1969 – is board Certification in Financial Planning.  This independent, designation represents a person who has completed a 24 month course of study at an accredited institution and passed the two day, comprehensive Certified Financial Planner Board of Standards Examination. This test encompasses all aspects of the financial planning process, including insurance, economic principles, taxation, investments and retirement benefits planning. 

An ethics, continuing education and confidentiality requirement is also mandated for this designation [www.FPANet.org].  But, be warned however, a CFP is not necessarily a fiduciary and does not have to act on your behalf, or with your best interests in mind.  

And, conflicts of interest do not necessarily have to be disclosed. There is much dissention in the industry regarding this situation, as I remain a former-reformed Certified Financial Planner™.

Still, the association’s marketing clout is powerful.

What is a Chartered Financial Analyst™? 

A Chartered Financial Analysis™ will usually work for a brokerage house and follow one or a few publicly traded companies. CFA analysts may manage institutional money or run a mutual fund and have ethics requirements.  This is a tough standard. I experienced it first-hand in business school. 

Unfortunately, the previously unbiased nature of some Wall Street experts has been questioned lately with the collapse of such stocks as HealthSouth and others.  Some authorities now feel that analysts have become merely promoters of the followed company, since sell recommendations are rarely made and CFAs or non-CFAs may cozy up to insiders and corporate executives as they curry their favor.

Contact the Association for Investment Management and Research (www.AIMR.org); now [www.CFAInstitute.org]. 

Q: Why is knowledge of the above important to physician-investors?

A: To avoid being ripped off!

Don’t believe me? Recall the tale of Dr. Debasis Kanjilal, a pediatrician from New York who put more than $500,000 into the dot.com company, InfoSpace, a few years ago, upon the advice of Merrill Lynch’s star analyst Henry Bloget. Is it any wonder that when the company crashed, the analyst was sued, and Merrill settled out of court? Other analysts, such as Mary Meeker of Morgan Stanley, Dean Witter and Jack Grubman from Salomon Smith Barney, are involved in similar fiascos.  Remember; forewarned is forearmed

8 Things your Financial Planner Won’t Tell You: http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/8ThingsYourFinancialPlannerWontTellYou

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Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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By Dr. David Edward Marcinko; MBA, CMP™

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Market Driven Health Insurance Alternatives

 

According to Michael K. Evans, former chief economist for the American Economics Group, Washington, DC, a real market driven insurance model may be a solution to the current health insurance coverage crisis.

It would work like a Medical Savings Account [MSA], or Health Savings Account [HSA] or any other insurance plan; by self-payment for routine visits and medications and using the insurance only for catastrophic illness.

Ironically, this was the plan in the original Medicare legislation and the reason prescription drug costs were not covered until the adoption of Medicare Part D, a few years ago.  

However, many older or sickly patients claim that the cost of doctors, hospitals and medications has risen so much that they are often forced to choose between food and medical care, since the CPI grossly understates the cost of living for the elderly. And, some experts therefore believe a one-time adjustment is needed to put those payments back where they actually cover the average market basket of goods and services they buy. 

But, with adjustments must come an ironclad agreement that government aid for medical care should be used only for major costs associated with catastrophic illness, not routine care.

Furthermore, we believe that when drug companies, hospitals and physicians find that consumers are spending their own money, they will then work out more reasonable price schedules — or they won’t get paid.  

Just, as not everyone can live in the most expensive neighborhood, not everyone can afford to see the most expensive doctor.  As lower prices work their way through the system, employers who offer health-care benefits will find their financial situation also will benefit because costs incurred by employees will rise less rapidly.  

In the long run, even though the initial effect will be to boost government spending, the net result will be lower medical-care costs, more covered recipients, less bureaucracy, more competent physicians, smaller government outlays and a greater chance that some medical manufacturing firms, or big pharma companies, will remain in the U.S. instead of outsourcing to countries where labor costs are much lower. 

Your thoughts are appreciated – but it sure sounds like a HDHCP to me?  

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Back to Medical School – Not

Certified Medical Planner

Physician Education and Re-engineering 

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]dem2

The Times … are a Changing 

Absent significant health reforms, it is important for healthcare providers to stay informed and current as to the volatile direction that health care is taking in this country. And, it is vital for every physician to learn as much about medically related business and financial topics as possible.  

In fact, several medical schools have even initiated business certification and degree programs, and other medical colleges along with the private sector will do the same going forward. This will allow the Profession to make the transition from a supply based medical system, to a demand driven one. It will also ensure that practices are operated as a Strategic Business Unit (SBU), and not like the “home office” medical practices of the past.

The Trend

Surprisingly, the trend in managed care now appears to be moving toward giving control back to informed physician-executives, who “stay the course” and continue to practice medicine.  

However, many physicians, nurses and healthcare workers don’t see it this way and become depressed. Pragmatically, the future healthcare industrial complex will offer great opportunities to change medicine for the better.

One way to accomplish this goal is to run your practice like a business and integrate management concepts with tem of trusted team of advisors, or formally re-educate yourself.  

Online master’s degree programs, for medical professionals, like those offered at Regis University (303) 964-5447, the University of Tennessee (423) 974-1768, Washington University (Olin) in St. Louis (888-273-6820), and the University of Wisconsin (608) 263-4889, may also help.

Example:

To illustrate this education premium, total compensation for a full time and experienced Chief Medical Officer (CMO) increased 8% annually the last few years, and more than half were working toward an advanced management degree.

But, CMO turnover is becoming alarmingly high of late; and may not be the great career move it once was. 

Still, since an MBA is a huge time, and money investment ($30-90,000), it is not for everyone. And, do not expect increased earnings or an automatic managerial position without experience.  

telehealth

Assessment

So instead, consider earning the professional fiduciary designation Certified Medical Planner [CMP™], which integrates personal financial planning principles with medical practice management acumen http://www.CertifiedMedicalPlanner.org

For more information: Professor Hope R. Hetico; RN, MHA, CMP™ MarcinkoAdvisors@msn.com or [770.448.0769 ph]

Conclusion

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Physicians “Stay the Course”

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“Don’t give up Medical Practice, Yet!”

By Dr. David Edward Marcinko; MBA, CMP™dr-david-marcinko 

Practicing Medicine … is Hard to Do 

Is practicing medicine today, really that tough? Increasingly, the answer is “Yes”, according to our doctor clients and the docs we interviewed for this post.  

And, it’s no wonder that Dr. Regina E. Herzlinger – the Nancy R. McPherson professor of business administration and chair at Harvard Business School and author of the books Creating New Healthcare Ventures and Market Term in Healthcare – says that many medical professionals have become depressed and want to give up their careers, entirely. 

For example, Gigi Hirsch, MD, a former ER physician and instructor at Harvard Medical School grew so disenchanted with clinical medicine, that she ditched her career and started her own business, MD IntelliNet, in Brookline, Mass. The company places doctors in non-traditional jobs by pairing them with venture capitalists and other businesses seeking physicians [personal communication].  

In the same light, Michael Burry, MD, a promising young neurologist from Stanford and Vanderbilt, rejected his medical career to become a private portfolio manager for Scion Capital Management, as did Harvard trained radiologist, Faraz Naqvi, MD, the former fund manager for Dresdner RCM Biotechnology Fund [personal communication]. 

Other notables include Dr. Dimitri Sogoloff, MBA of Alexandra Investment Management, LLC, and Dr. Ken Shuben-Stein, CFA©, formerly of Promethean Investing, a hedge fund in New York City [personal communication].   

In a final example, Dr. Laura Eackloff, 45 was a podiatrist for 10 years and thoroughly enjoyed treating patients, but she hated spending more time on the phone negotiating with health insurance companies than examining her patients. “Honestly, health care is a business, and I didn’t like the business of medicine,” said Eackloff, who shut down her practice and opened Gotta Knit, a yarn store in New York City’s Greenwich Village. Her friends and family were extremely supportive of her decision to help people with their hands instead of their feet.

Source: Geoff Williams, Entrepreneur.com [11/27/07]

Assessment

But, Herzlinger implores in her book, Market Driven Healthcare, “don’t give up practice, yet.”  

So, will you stay the course – or abandon ship – and what are your alternatives?

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Managed Care Backlash?

A True “Sea-Change”

By Dr. David Edward Marcinko; MBA, CMP

Publisher-in-Chief 

Does anyone recall a study several years ago by The MEDSTAT Group and JD Power and Associates, which surveyed nearly 30,000 physicians – participating in 150 healthcare plans and located in 22 different markets – nearly seven of ten physicians considered themselves “anti-managed care” with capitation accounts declining in nearly every HMO category. 

Of course, dis-satisfaction with financial reimbursement was the leading factor back then; but 4 other major factors drive physician’s rating of health plans now, as listed below: 

  • Satisfaction with financial reimbursement
  • Administration
  • Policies impacting on care quality
  • Support of clinical practice
  • Limits on medical care

Nevertheless, HMOs had not been initially unresponsive to this managed care backlash. 

For example, since 1998, managed care companies and their allies fought against restrictive new proposed regulations and spent more than $112,000 per lawmaker to lobby Congress.

This 60 million dollar outlay was four times the $14 million plus spent by medical organizations, trial lawyers ($1 million), unions ($1.4 million) and consumer groups ($8 million) to press for passage of the failed Patients Bill of Rights.

The $60 million dollar lobbying tab is also 50 percent higher than the $40 million dollars that tobacco interests spent to kill legislature to raise cigarette taxes to curb teenage smoking! 

But, there have been some recent physician victories.  

For example, the Independence Blue Cross (IBC) and the Pennsylvania Orthopedic Society agreed to settle a class action lawsuit about its payment policies, in July 2003, with payouts in 2004. Members of the class were to receive benefits worth an estimated $40 million, but more importantly, IBC was to disclose its standard fee schedules, changes applicable to provider’s specialty, and policies that may have effected reimbursement.  IBC also replaced its independent procedure designation with Current Procedure Terminology’s (CPT’s) separate procedure designation, and was to process claims in accordance with established standards.

Finally, the insurance company will establish a formal resolution process for provider payments appeals.  

Current and newly defunct IBC subsidiaries include QCC Insurance Company, Keystone Health Plan East, Amerihealth HMO, Amerihealth, Amerihealth HMO New Jersey, or Amerihealth New Jersey. 

Can you report a victory to our readers, in your own case?

Is this a sea-change, or merely an isolated event?

Reporting Healthcare Fraud and Abuse

Patient Bounty Hunters 

By Dr. David Edward Marcinko; MBA, CMP™

Publisher-in-Chief 

Fraud and Abuse Reporting Incentives 

Under the Health Insurance Portability Accountability Act, the Department of Health and Human Service (HHS) has operated an “Incentive Program for Fraud and Abuse Information”, since January 1999. 

In this program, HHS pays $100-$1,000 to Medicare recipients who report abuse in the program. To assist patients in spotting fraud, CMS has published examples of potential fraud, which include: 

  • Medical services not provided
  • Duplicate services or procedures
  • More expenses services or procedures than provided (upcoding/billing).
  • Misused Medicare cards and numbers
  • Medical telemarketing scams
  • Non-medical necessity.

And, there is no question that real fraud exists.

For example, the Office of Inspector General of the Department of Health and Human Services (HHS) saved American taxpayers a record $21 billion in Fiscal-Year 2003-04, according to former Inspector General Janet Rehnquist. 

Savings were achieved through an intensive and continuing crackdown on waste, fraud and abuse in Medicare and over 300 other programs for which the Office of Inspector General. (OIG) had oversight responsibility.

At last report, the agency performed or oversaw 2,372 audits, conducted 70 evaluations of department programs, and opened 1,654 new civil and criminal cases, bringing to more than 2,700 the number of active OIG investigations. 

Additionally, the OIG excluded 3,448 individuals and entities from participation in Medicare, Medicaid and other federally sponsored health care programs, and its enforcement efforts resulted in 517 criminal convictions and 236 successful civil actions. 

To discourage flagrant allegations, regulations require that reported information must directly contribute to monetary recovery for activities not already under investigation.

Nevertheless, expect a further erosion of patient confidence, as they begin to view healthcare providers in the same light as “bounty hunters”. 

Doctors – has a patient “turned-you-in” needlessly – yet?

More on risk management: http://www.jbpub.com/catalog/9780763733421

Concierge Medicine – New Wave or Drought?

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Boutique Medical Practices – Wave of the Future or Mirage?

[By Dr. David Edward Marcinko; MBA, CMP™]dr-david-marcinko1

Briefly, a new-wave boutique, or concierge medical practice business model requires an annual retainer fee for personalized treatment that includes amenities far beyond those offered in the typical practice. And, as doctors may not accept Medicare patients for two years thereafter, there is no going back to the economic oasis if the model doesn’t pan out.

Rather, patients pay annual out-of-pocket fees for top tier service, but also use traditional health insurance to cover allowable expenses, such as inpatient hospital stays, outpatient diagnostics and care, and basic tests and physician exams.   

Typical annual fees can range from $1,000 to $ 5,000 per patient, to family fees that top $20,000 a year, or more.  The concept, initially developed for busy corporate executives, has now made its way to those desiring such service; but the masses have been slow to accept the new business model. 

Conclusion

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Medical Malpractice – Hope Springs?

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The Medical Malpractice Insurance Crisis 

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief, FA and Health Insurance Agent]

DEM @ WhartonHas the Corner Been Turned?

In the fall of 2003, the American Medical Association announced that six more states had reached a medical malpractice crisis, with patients losing access to care due to physician attrition. The AMA’s list of crisis states then totaled 18.

The new states were: Arkansas, Connecticut, Illinois, Kentucky, Missouri and North Carolina. The 12 states previously identified are: Florida, Georgia, Mississippi, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Texas, Washington and West Virginia.

More recently, the Medical Group Management Association (MGMA) reported that medical malpractice premiums for its members increased by more than 53% between 2003 and 2004. Today, about 25% of those physicians planned to retire, relocate or restrict their services over the next few years. Massachusetts was especially hard hit in 2003-06, as the practice environment worsened for the twelfth consecutive year, driven primarily by rising premiums for medical malpractice coverage. 

Yet, in 2007, the rate of medical malpractice claims fell for the fourth straight year in Pennsylvania, with half the payout of 2003. That suggests that claims are getting smaller, as observer’s credit a 2002 law which banned attorneys from moving cases to counties they felt would have more favorable juries. Now, the state’s physicians would like to see the state enact caps on non-economic damages. 

So, how is this crisis affecting you; if at all?

Spring 2011 - NIH

PPMC Redux

Physician Practice Management Corporations

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]dem21

Here Come the PPMCs … again, Maybe!

The Physician Practice Management Corporation (PPMC), left for dead by the year 1999, may make a comeback going forward in 2008.

PPMC are evolving from first generation multi-specialty national concerns, to second generation regional single specialty groups, to third generation regional concerns, and now to fourth and fifth generation Internet enabled service companies, providing both business to business solutions to affiliated medical practices, as well as business to consumer health solutions to plan members. 

Even survivors like Pediatrix Medical Group saw its stock drop was floundering following disclosure that federal officials were investigating its Medicaid billing practices a few years ago. 

On the other hand, many private medical practices were bought back by the same physicians that sold out to the PPMCs originally.

But, if an entity is being bought back and accounts receivable is being purchased, be careful not to pick this item up as income twice.  The costs can be immense to your medical practice 

Example: 

A family practice purchased itself back from a PPMC.  Part of the mandatory purchase price, approximately $200,000 (the approximate net realizable value of the accounts receivable), was paid to the PPMC to buy back accounts receivable generated by the physicians buying back their practice.   

Unfortunately, the physician-executive unknowingly began recording the cash receipts specifically attributable to the purchased accounts receivable as patient fee income.  If left uncorrected, this error could have incorrectly added $200,000 in income to this practice and cost it (a C Corporation) approximately $70,000 in additional income tax ($200,000 in fees x 35% tax rate).

The error in the above example is that the PPMC must record the portion of the purchase price it received for the accounts receivable as patient fee income.  The buyer practice has merely traded one asset, cash, for another asset, the accounts receivable.  When the practice collects these particular receivables, the credit is applied against the purchased accounts receivable (an asset), rather than to patient fees.

So, be careful out there! www.MedicalBusinessAdvisors.com

Assessment: Anyone burned in a similar manner?

PPMC Update 2019

***

The Hospitalists [Evolved]

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Whither the Hospitalists? 

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief] 

New Role also includes Hospital Based Medical Groups 

The usual role of inpatient care in this country, for many decades, saw hospitalized patients cared for by their primary care doctor or admitting physician. 

Although this model had the advantage of continuity, and perhaps personalization, it often suffered because of the limited knowledge base of the physician, as well as familiarity with the available internal and external resources of the hospital.  Furthermore, the limited time spent with each individual patient prevented the physician from becoming the quality leader in this setting.

These shortcomings have led hundreds of hospitals around the country to turn to the hospitalists as dedicated inpatient specialists. The National Association of Inpatient Physicians (NAIP) estimates the model could result in up to 50,000 hospitalists by the Year 2008. The term hospitalist was coined by Dr. Robert M. Wachter of the University of California at San Francisco. It denotes a specialist in inpatient medicine (personal communication). 

At its center is the concept of low cost and comprehensive broad based care in the hospital, hospice or even extended care setting. If, well designed, hospitalist programs can offer benefits beyond the often cited inpatient efficiencies they bring.

For example, the average length of stay for patients on the medical service of UCSF’s Moffitt-Long Hospital initially fell by 15%, compared to historical controls adjusted for case mix. There was no reported decrease in patient satisfaction or clinical outcomes. 

Similarly, another integration model is “on-site” employee affiliations that represent an adjustment of the hospitalist concept. This redeployment of existing MDs into the workplace (factory, police station, office building) or retail setting (Walmart, Intel Corp, Microsoft, IBM etc) is another exciting challenge in heath care today.

The keys to success are thoughtful implementation and a commitment to measure the results of change and use the data to produce further innovations. 

***

Hospital

***

Conclusion

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Beware “Faux” Health Insurance Models

 

Certified Medical Planner

The Proliferation of Fraudulent Silent (“Mirror”) Healthcare Models – Should I Join?

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chiefdem2]

Beware the Silence 

A silent, faux, or “mirror” PPO, HMO or other provider model is not a formal managed care organization.  Rather, it usually is simply an intermediary attempt to negotiate practitioner fees downward by promising a higher volume of patients in exchange for the discounted fee structure.

Of course, the intermediary then resells the packaged contract product to any willing insurance company or other payer, thereby pocketing the difference as a nice profit. And, sometimes these virtual organizations are just indemnity companies in disguise.

Physicians should not fall for this ploy, since pricing pressure will be forced even lower in your next round of “real” PPO negotiations! 

Occasionally, an insurer or bold insurance agent will enter a market and tell its practitioners that they have signed up all the local, or many major, employers. Then, they’ll go to the employers and give them the same story about signing up all the major providers. The true story is that they haven’t signed up either and a Ponzi like situation is created!  

As an active fiduciary Certified Medical Planner™, insurance agent and licensed medical provider, I urge you to be on guard for silent HMOs, MCOs and any other silent insurance variation, since these virtual organizations may not exist except as exploitable arbitrage situations for the middleman. 

So, has anyone been duped out there?

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Online Certified Medical Planner Program

Interested in becoming a Certified Medical Planner ™ or to learn about how your broker-dealer, advisory firm or company can build an educational partnership with us? Call me at 770.448.0769 (9am – 5pm EST) www.CertifiedMedicalPlanner.org

Channel Surfing

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Assessment

Thanks so much for your interest in the ME-P. We hope it, and all our books, texts, dictionaries, products and educational formats serve you well.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Social HMOs

What is a Social HMO – Should My Patients Join? 

Staff Writers

 

 

A New Model Evolves 

 

A social HMO offers extended coverage for some of the unconventional expenses associated with senior healthcare, such as transportation and in-home day care not covered by traditional MCOs.  

According to the American Association of Health Plans (AAHP), social HMOs provide coordinated services by uniting federal and state funds and services, to benefit the elderly. 

The Four Medicare Plans 

There are currently four S/HMO’s participating in Medicare and each has eligibility criteria http://endoflifecare.tripod.com/imbeddedlinks/id1.html 

These S/HMO plans are located in: Portland, Oregon; Long Beach, California; Brooklyn, New York; and Las Vegas, Nevada.  Listed below are the four plans and the criteria for joining each plan.  

1. Kaiser Permanente, Portland Oregon

The enrollee must be 65 years of age or older, must have Medicare Part A and Part B, must continue to pay the Part B premium and must live in Kaiser Permanente’s S/HMO service area. The enrollee cannot have end-stage renal disease, or reside in an institutional setting. In order to receive the long-term care benefit, an expanded care resource coordinator will visit you at home to determine if you qualify for nursing home certification based on criteria established by the State of Oregon Senior and Disabled Services. These criteria may include needing daily ongoing assistance from another person with one of the following activities of daily living: walking or transferring indoors, eating, managing medications, controlling difficult or dangerous behavior, controlling your bowels or bladder, or the need for protection and supervision because of confusion or frailty.  

2. SCAN, Long Beach California

The enrollee must be 65 years of age or older, must have Medicare Part A and Part B, must continue to pay the Part B premium and must live in SCAN’s service area. The enrollee cannot have end-stage renal disease. In addition, in order to receive extended home care services, members must have a Nursing Home Certificate which indicates that the member’s informal support system, such as a family member or care giver, is not sufficient to keep the member out of a nursing home. 

3. Elderplan, Brooklyn, New York

The enrollee must be 65 years of age or older, must have Medicare Part A and Part B, must continue to pay the Part B premium and must live in Elderplan’s service area. The enrollee cannot have end-stage renal disease. In order to receive chronic care benefits, the enrollee must meet state nursing home certifiable criteria. 

4. Health Plan of Nevada, Las Vegas, Nevada

The enrollee must be at least 65 years of age, or may be under 65 if they are disabled. The enrollee must have Medicare Part A and Part B, must continue to pay the Part B premium and must live in Health Plan of Nevada’s service area. The enrollee cannot have end-stage renal disease. For the long-term care benefit, the beneficiary must meet certain criteria based on established medical, psychological, functional, and social criteria as well as needing to be medically necessary.

Assessment

As always however, it’s “buyer-beware” as these new-wave organizations continue to evolve and morph; but your experiences are invited so that others may benefit.

Conclusion

Your comments are appreciated.

For related info: The Business of Medical Practice [Advanced Profit Maximization Techniques for Savvy Doctors]
http://www.springerpub.com/prod.aspx?prod_id=23759

Institutional: www.HealthcareFinancials.com

Terminolog: www.HealthDictionarySeries.com

Tiered Future Healthcare Delivery Models

Futuristic Healthcare Economic Models

 By Dr. David Edward Marcinko; MBA, CMP™dem21

A Three Tiered Insurance System? 

Uwe Reinhardt PhD, James Madison Professor of Political Economics of Princeton University in New Jersey, and an opponent of MCO liability, opined several years ago that in the near future there will be a three tiered system of medical care in the US. The bottom tier will consist of the uninsured and uninsurable (46 million, January, 2007), the middle tier will be served by managed care organizations, and the top tier will continue to demand traditional (indemnity) fee-for-service medicine.

Probable Characteristics

Regardless of future model(s) of care, we believe the goals of any optimal healthcare economic policy should include the following characteristics: (1) low demand barriers of price, travel, wait time, referral ease and paperwork, (2) adequacy of supply regarding medical personnel, clinics, drugs and equipment, (3) technical efficiencies such as service mix, (4)   public expenditure control with tax reductions, and (5) quality medical care for the common social good. 

For related info: The Business of Medical Practice [Advanced Profit Maximization Techniques for Savvy Doctors]
http://www.springerpub.com/prod.aspx?prod_id=23759

Conclusion

As always, your thoughts and comments on this Executive-Post are appreciated.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759 

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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Point-Counter Point Debates

Voices of the “Executive-Post” Community

Coming Soon!

Now in Beta Launch Development

The Executive-Post is always seeking new and innovative features for our online community of medical professionals, financial advisors and practice management consultants. And so, as we consider all novel ideas sent in for consideration, we will begin incorporating the “best-of-breed” into our network.

The first concept is our emerging “Point-Counter Point” thread. It will be a debate forum for all medical professionals and financial advisors to lock-horns-on. As stated on our MASTHEAD, we have “an attitude that’s fiercely independent, outspoken, intelligent and so Next-Gen; often edgy, usually controversial.”  And so, let us begin the controversy with this query.

Question

Should a medically focused financial advisor, or management consultant, act as a fiduciary to physicians or other healthcare entity clients?

In other words, doctors and nurses serve in a fiduciary relationship with their patients; and can not opt-out of this bond of trust. Should we – or should we not – hold our financial advisors and management consultants to the same standard of care; part-time, or full-time? Or, does some lower standard suffice?

Fiduciary or not a fiduciary – that is the question?

Voices of the Executive-Post Community

We will moderate, edit and post opposing thoughts and ideas on this subject, in the order they are received. Duplications will be purged. Eloquence counts. Be cogent, on-point and present evidence supporting your views. The more scholarly, legal, ethical, experienced, and/or pragmatic, the better! Less opinion, more facts and detail is appreciated

So, start the dialog and Socratic discussion, now!

You may also vote in real time here: http://certifiedmedicalplanner.com/vote.aspx

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Financial Planning: http://www.jbpub.com/catalog/0763745790

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Healthcare Organizations: www.HealthcareFinancials.com

Administrative Terms: www.HealthDictionarySeries.com

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The CSO Life Insurance Table

Do You Know About the “New-Old” 2001-2009 CSO Life Insurance Table?

By Dr. David Edward Marcinko; MBA, CMP™

Publisher-in-Chiefinsurance-book  

As physicians and medical professionals, we know that all life insurance and annuity product pricing is based on mortality – the expectation of when, not if, death will occur.  

But, did you know that at its December 2002 meeting, the National Association of Insurance Commissioners (NAIC, http://www.naic.org) approved a new mortality table for individual life insurance products sold in the United States.  

The 2001 Commissioners Standard Ordinary (CSO) Table is the new valuation mortality table – insurers will use it to determine mortality risk when they calculate their own company reserves.  So, all physicians should be aware that this may lead to structural changes to term policies including a reduction in term rates and higher issues ages for level term products.   

The good news is that several large insurers have already lowered term rates 20-30%. 

The trouble is that the “new CSO table” is not required to be used by all insurance companies until 2009! 

Your comments are appreciated? 

More on: “New Risks for Physicians to Manage”

www.physiciansmoneydigest.com/article.cfm?ID=3146

 

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Annuity Taxation Basics

The Annuity Taxation Primer for Physicians

By: Gary A. Cook, MSFS, CFP®, CLU, ChFC, RHU, LUTCF, CMP™ (Hon); with Kathy D. Belteau, CFP®, CLU, ChFC, FLMI, and Philip E. Taylor, CLU, ChFC, FLMI insurance-book

Introduction  

The tax treatment of annuities is dependent on whether it is a qualified or non-qualified annuity.  Although both permit the tax-deferred growth of the investment and both have penalties for early distributions, they are governed under different sections of the IRC. 

Qualified Annuity Taxation

Qualified annuities are treated no different than any other tax-qualified retirement investment.  Growth of the investment, whether fixed interest or variable-based, escapes current taxation under one of the 400-series IRC sections. 

Additionally, if the funds are withdrawn prior to age 59½, there is a 10 percent penalty.  As the money is withdrawn, every dollar is taxed as ordinary income.  

Finally, fund distributions must begin no later than April 1 of the calendar year following the year when the owner turns age 70½.

Non-Qualified Annuity Taxation 

The taxation of non-qualified annuities is generally contained within IRC § 72.  Again, the annuity is provided tax-deferred growth and the 10 percent penalty for early withdrawal.  The manner that distributions are taken, however, will determine the nature of their taxation.

Withdrawals

Withdrawals from non-qualified annuities are taxed in one of two ways depending upon when the annuity was issued.  Annuities issued prior to 8/14/82 had FIFO accounting (first in, first out). Since principal was first in, it came out first, tax-free.  With annuities issued on 8/14/82 and thereafter, taxation changed to LIFO (last in, first out). Simply put, withdrawals are now taxable since interest is withdrawn first.  

However, if annuitization is chosen, the insurance company using governmental tables develops an exclusion ratio.  This permits a portion of each received payment to be considered a return of principle and thus only a portion of each payment is taxable.  This exclusion ratio remains in effect until the insurance company has returned all of the original principle to the owner.  After that, every payment received will be considered 100 percent earnings and totally subject to ordinary income taxation. 

The 10% Excise Penalty Tax      

Just like an IRA, there is a 10% excise tax penalty on premature withdrawals for deferred annuities.  The government extends tax advantages to the annuity for retirement purposes. The government also extends tax disadvantages to taxpayers who do not use the annuity for retirement. All interest withdrawn prior to the owner being age 59½ will be subject to a 10% excise tax penalty.  

Exceptions to this penalty tax are disability of taxpayer, distribution from a pre 8/14/82 annuity, death of the owner, payout from an immediate annuity or substantially equal payments over the taxpayer’s life expectancy.

Wealth Transfer Issues

Regardless of whether the medical professional or healthcare practitioner has a qualified or non-qualified annuity, extreme care must be given when specifying beneficiaries.  Although these investments have great potential for appreciating sizable amounts of wealth during a lifetime, they are, unfortunately, very poor vehicles for the transfer of this wealth to successor generations after death.

Upon the death of an annuity owner, an annuity can be subject to both federal estate and federal income taxes.  This double taxation often results in a 40 to 70 percent loss of annuity value before the heirs can receive it.   The retired medical professional should seek wealth transfer advice if he/she holds a large portion of their wealth in annuities or other qualified plans such as IRAs. One good strategy to consider may be the Stretch IRA. 

Conclusion

As always, your thoughts and comments on this Executive-Post are appreciated.

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759 

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790 

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com 

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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Annuity Insurance Products

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A Brief Overview of Annuities for Physicians

[By Gary A. Cook, MSFS, CFP®, CLU, ChFC, RHU, LUTCF, CMP™ (Hon)]

[By Kathy D. Belteau, CFP®, CLU, ChFC, FLMI]

[By Philip E. Taylor, CLU, ChFC, FLMI]fp-book1

 Introduction

Annuities were reportedly first used by Babylonian landowners to set aside income from a specific piece of farmland to reward soldiers or loyal assistants for the rest of their lives.

Today’s annuities substitute cash for farmland; however the concept is the same. In 1770, the first annuities were sold in the United States and were issued by church corporations for the benefit of ministers and their families. Annuities have grown on a tax-deferred basis since enactment of the Federal Income Tax Code in 1913.  They began to gain widespread acceptance in the early 1980s when interest rates credited exceeded 10%.  During the last two decades, annuities have been the fastest growing sector of premiums for life insurance companies.

Nevertheless, are they actually “needed” by contemporary physicians – – or merely “sold” to them? 

An annuity is a legal contract between an insurance company and the owner of the contract. The insurance company makes specific guarantees in consideration of money being deposited with the company.

Annuities are generally classified as fixed or variable – deferred or immediate.  As their names indicate, deferred annuities are designed as saving funds to accumulate for future use.They are growth-oriented products where the tax on the interest earned is deferred until the money is withdrawn.  An immediate annuity is used for systematically withdrawing money without concern for the money lasting until the end.  The insurance company assumes this risk.

Deferred Annuities

The deferred annuity contract, like a permanent life insurance policy, has been found by some to be a convenient method of accumulating wealth.  Funds can be placed in deferred annuities in a lump sum, called Single Premium Deferred Annuities, or periodically over time, called Flexible Premium Deferred Annuities.  Either way, the funds placed in a deferred annuity grow without current taxation (tax-deferred).  .

Fixed Deferred Annuity

Fixed deferred annuities provide a guaranteed minimum return of return (usually around 3 percent per year) and typically credit a higher, competitive rate based on the current economic conditions.

Fixed annuities are usually considered conservative investments as the principal (premium) is guaranteed not to vary in value. Insurance companies are required by state insurance laws to maintain a reserve fund equal to the total value of fixed annuities.  Fixed annuities are also protected by State Guaranty Fund Laws. 

Example: 

Dr. Park, a retired physician, desires a safe financial vehicle for $100,000 of her excess savings.  She doesn’t need the earnings of this investment for current income and also wants to reduce her income tax liability.  She decides to purchase a fixed deferred annuity with her $100,000.  The annuity guarantees a 3 percent annual return and the current rate is 6 percent. 

After the first year, $6,000 of interest is credited to the annuity and Dr. Park has no current income taxes as a result.  If the 6 percent interest rate does not change, after 3 years, the annuity will have $119,102 of value.

Variable Deferred Annuity

Recently, variable deferred annuities have become very popular.  Like fixed annuities, variable deferred annuities offer tax-deferred growth, but this is where the similarities end.  Variable annuities are not guaranteed.  The appreciation or depreciation in value is totally dependent on market conditions.

Variable deferred annuities assets are maintained in separate accounts (similar to mutual funds) that provide different investment opportunities.  Most of the separate accounts have stock market exposure, and therefore, variable annuities do not offer a guaranteed rate of return.

But, the upside potential is typically much greater than that of a fixed annuity. The value of a variable deferred annuity will fluctuate with the values of the investments within the chosen separate accounts.  Although similar to mutual funds, there are some key differences.  These include:

·  A variable annuity provides tax deferral whereas a regular mutual fund does not

·  If a variable annuity loses money because of poor separate account performance, and the owner dies, most annuities guarantee at least a return of principal to the heirs.  This guarantee of principal only applies if the annuity owner dies.  If the annuity value decreases below the amount paid in, and the annuity is surrendered while the owner is alive, the actual cash value is all that is available.

·  When money is eventually withdrawn from a deferred annuity, it is taxable at ordinary income tax rates.  With taxable mutual funds, they can be liquidated and taxed at lower, capital gains rates.

·  There is also a 10 percent penalty if the annuity owner is under 59½ when money is withdrawn.  There is no such charge for withdrawals from a mutual fund.

· The fees charged inside of a variable annuity (called mortality and expense charges) are typically more than the fees charged by a regular mutual fund. 

Assessment

Variable deferred annuities are sensible for physicians who want stock market exposure while minimizing taxes.  Most financial advisors and Certified Medical Planners™ [CMP™] recommend regular mutual funds when the investment time horizon is under 10 years.  But if the time horizon is more than 10 years, variable annuities may occasionally become more attractive because of the additional earnings from tax-deferral. 

Both types of deferred annuities are subject to surrender charges.  Surrender charges are applied if the annuity owner surrenders the policy during the surrender period, which typically run for 5 to 10 years from the purchase date.  The charge usually decreases each year until it reaches zero.  The purpose of the charge is to discourage early surrender of the annuity. 

Equity Index Annuity 

The equity index annuity combines the basic elements of both the variable and the fixed annuity. The credited interest earnings are generally linked to a percent of increase in an index, such as the Standard & Poor’s 500 Composite Stock Price Index (S&P 500). This percentage is called the Participation Rate and may be guaranteed for a specified period of up to 10 years or adjusted annually. Thus, the physician annuity owner is able to participate in a portion of market gains while limiting the risk of loss. 

Typically, the indexed annuity has a fixed principal, with the insurance company and contract owner sharing the investment risk.  If the S&P 500 Index goes up, so do interest earnings.  If it declines, the insurance company guarantees the principal.   

So, the physician contract owner accepts the risk of an unknown interest yield based on the growth or decline of the S&P 500.  Medical professionals and healthcare practitioners should pay particular attention to surrender penalties, asset management fees and any monthly caps on appreciation. 

Immediate Annuities

Immediate annuities provide a guaranteed income stream.  An immediate annuity can be purchased with a single deposit of funds, possibly from savings or a pension distribution, or it can be the end result of the deferred annuity, commonly referred to as annuitization.  Just like deferred annuities, immediate annuities can also be fixed or variable.  

Immediate annuities can be set up to provide periodic payments to the policy owner annually, semiannually, quarterly or monthly.  The annuity payments can be paid over life or for a finite number of years.  They can also be paid over the life of a single individual or over two lives. 

Insurance Agent Commissions

Immediate Fixed Annuity

Immediate fixed annuities typically pay a specified amount of money for as long as the annuitant lives.They may also be arranged to only pay for a specified period of time, i.e., 20 years.  They often contain a guaranteed payout period, such that, if the annuitant lives less than the guaranteed number of years, the heirs will receive the remainder of the guaranteed payments. 

A note of caution here, as the selection of an immediate annuity is an irrevocable decision! 

Example: 

Dr. Jones is 70 years old and retired.  He is only of average wealth, but is concerned that if he lives too long, he could deplete his savings.  He decides to use $100,000 and purchase a lifetime immediate annuity with 20 years certain.  The insurance company promises to pay him $7,000 per year as long as he lives. If Dr. Jones dies four years after purchase, he would only have received $28,000 out of a $100,000 investment.  However, his heirs will receive $7,000 for the next 16 years.  If Dr. Jones survives to the age of 98, he would have received $196,000 (or 28 years of $7,000).

Immediate Variable Annuity

Immediate variable annuities provide income payments to the annuitant that fluctuates with the returns of the separate accounts chosen.  The theory is that since the stock market has historically risen over time, the annuity payments will rise over time and keep pace with inflation.   If this is indeed what happens, it is a good purchase, but it cannot be guaranteed. 

Some companies will, at a minimum, provide a guarantee of a low minimum monthly payment no matter how poorly the separate accounts perform.

Split annuities

A popular method of adding income and yet still accumulating savings is through the use of two separate annuity policies.  Part of the funds is placed in an immediate annuity to provide monthly income.  The balance is placed in a deferred annuity grows to the total value of the premium paid for both annuities.  

The income that is received from the Immediate Annuity includes a portion of the initial premium, as well as the taxable interest earned.   Only the portion of income that is interest is taxable. The ratio between the annuity principal and interest being paid out is called an Exclusion Ratio. 

Example:

Dr. Jeanne Jones has put $100,000 into a 5-year non-tax deferred vehicle at 5%. The earnings to supplement Jeanne’s retirement is $25,000.  With a combined federal and state tax of 33%, the net after tax income would be $16,750. Jeanne takes the same $100,000 using the split annuity concept she would receive $24,444 over the 5 years.  Based on an exclusion ration of 89%, her total taxable amount is $2,797.  This would yield $923 in taxes at the same 33% tax rate.  Jeanne would have $23,521 of spendable income with the split annuity compared to the $16,750.

Qualified Annuities

The term qualified refers to those annuities which permit tax-deductible contributions under one of the Internal Revenue Code (IRC) sections, i.e., § 408 Individual Retirement Accounts (IRA), § 403(b) Tax Sheltered Annuities, § 401(k) Voluntary Profit Savings Plans.  Qualified annuities can also result from a rollover from such a plan.  

Assessment

Currently, there is much lively debate in the industry as to whether an annuity, which is tax-deferred by nature, should be used as a funding vehicle within a tax-qualified plan, i.e., a tax-shelter within a tax-shelter.  Since the investment options within the annuity are also generally available to the plan participant without the additional management expenses of the annuity policy, it is felt this could be a breach of fiduciary responsibility. And, most insurance agents are not fiduciaries. 

Both the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) have gone on record as criticizing these sales.  

However, there are numerous examples of deferred annuities that have outperformed similar investment-category mutual funds, even after taking the annuity expenses into account. 

Conclusion

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Pro Bono Medical Care

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The Demise of Pro Bono Medical Care?

[By Staff Writers]

biz-book3A survey some years back suggested that more than 40% of the country’s doctors are doing less pro-bono work due to managed care, and the resulting decrease in personal income.  

To combat this unintended economic phenomenon today, the organization Volunteers in Healthcare – now with the American Academy of Family Physicians – offers a free information patient record system to track the medical care given to the uninsured.

The system allows you to track and store information on patients, visits, providers, clinics, referrals and more.  It is guide-driven with sample reports that can be reconstituted to provide summary statistics on patients and providers. 

Conclusion

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The Patient Scheduling Conundrum

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Efficient New Patient-Scheduling Models

[By Staff Writers]biz-book15

Most doctors follow a linear (series-singular) time allocation strategy for scheduling patients (i.e., every 15 or 20 minutes).  This can create bottlenecks because of emergencies, late patients, traffic jams, absent office personal, paperwork delays, etc.  

Therefore, as first proposed by Dr. Neal Baum, a practicing urologist in New Orleans, one of these three newer scheduling approaches might prove more useful. 

Customized Scheduling 

The bottleneck problem may be reduced by trying to customize, estimate or project the time needed for the patient’s next office visit.  

For example:  CPT #99211 (15 minutes), #99212 (25 minutes), #99213 (35 minutes), or #99214 (45 minutes). Occasionally, extra time is need, and can be accommodated, if the allocated times are not too tightly scheduled.   

Wave Scheduling

Most patients do not mind a brief 20-30 minute wait prior to seeing the doctor.  Wave scheduling assumes that no patient will wait longer than this time period, and that for every three patients; two will be on time and one will be late.

This model begins by scheduling the three patients on the hour; and works like this. The first patient is seen on schedule, while the second and third wait for a few minutes.  The later two patients are booked at 20 minutes past the hour and one or both may wait a brief time. One patient is scheduled for 40 minutes past the hour. The doctor then has 20 minutes to finish with the last three patients and may then get back on schedule before the end of the hour. 

Bundle Scheduling  

Bundling involves scheduling like-patient activities in blocks of time to increase efficiency.  

For example, schedule minor surgical checkups on Monday morning, immunizations on Tuesday afternoon, and routine physical examinations on Wednesday evening, or make Thursday kid’s day and Friday senior citizens day. Do not be too rigid, but by scheduling similar activities together, assembly-line efficiency is achieved without assembly line mentality, and allows you to develop the most economically profitable operational flow process possible for the office. 

Patient Self Scheduling (Internet Based Access Management) 

New software programs allow patients to schedule their own appointments over the internet. The software allows solo or individual group physicians with a practice to set their own parameters of time, availability and even insurance plans.  Through a series of interrogatories, the program confirms each appointment. When the patient arrives, a software tracker communicates with office staff and follows the patients from check-in, to procedures, to checkout. 

Today, many hospitals have even abandoned the check-in or admissions, department. It has been replaced by Access Management.

Assessment

The traditional inear patient scheduling system is slowly being abandoned by modern medical practitioners; an all venues (medical practices, clinics, hospitals and various other healthcare entireties).

Conclusion

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Competitive Practice Strategies for Physicians

How Physicians Must Develop a Strategic Competitive Practice Philosophy!

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It is currently believed that a general medical, or even broad specialty, practice will have limited appeal to patients and buyers of healthcare services in the future. 

In its place, a doctor must philosophically decide if she or he is to become a (1) discount, (2) service or (3) value-added provider, and then aggressively pursue this business cultural and competitive strategy. 

Here is the lowdown on three strategic competitive philosophical types: 

The Service Provider:  

A provider committed to a service philosophy must be willing to do whatever it takes to satisfy the patient. 

For example, this may mean providing weekend, weeknight, or holiday office hours, instead of a routine 9-5 schedule. House calls, hospital visits, prison calls and nursing home rounds would be included in this operational model.  

In 2001, the number of physician house calls billed to Medicare in the aggregate was about 1.5 million annually, according to the American Association of Home Care Physicians. Since then it has doubled, and the national organization is getting more requests from doctors about house calls. Current membership stands at about 1,500 doctors.  The Medicare premium for home visits is about 1.5 times what it pays for office visits. 

In a real life example, Dr. Keri Miller DO, now an assistant professor of family and community medicine at the University of Georgia, School of Osteopathic Medicine, first began making house calls shortly after beginning practice, in 2003.  

In another example, high-tech companies, located in Silicon Valley and Southern California are even importing medical specialists, and mobile treatment facilities, onto their corporate campuses to care for workers. Children, elderly patients or those with mental, physical or chemically induced challenges are all fertile niches of a core service philosophy.  

Up to about 30% of all medical providers today; and slowly growing  

Think: Nordstrums, Cartier and Sak’s, etc. 

The Discount Provider:  

A discount medical provider is one who has made a conscious effort to practice low cost, but high volume medicine.   

For example, discount providers must depend on economics of scale to purchase bulk supplies, since this model is ideal for multi-doctor practices. 

Otherwise, several practitioners must establish a network, or synergy to create a virtual organization to do so.  In this manner, malpractice insurance, major equipment and other recurring purchases can be negotiated for the best price.  Para-professional, and non-professional, medical care extenders and substitutes must also be used in place of more costly medical providers.

Another major commitment must be made to computerized office automation devices, HIT, EMRs, CPOE systems, etc.  By necessity, such as offices are small, neatly but sparsely furnished, with functional and utilitarian assets.  Most all managed care contracts just be aggressively sought since patient flow and volume is the key to success in this competitive philosophical type. 

About 60% of all providers today; but the denouement has begun.  

Think: WalMart, K-Mart, Office-Deport, or Home Depot, etc. 

The Value-Added Medical Provider: 

A value-added medical provider is committed to practicing at the highest and riskiest levels of medical and surgical care and has the credentials and personality to do so.   

Value differentiation is based on such factors as: board-certification extended training, hospital privileges, subspecialty identification or other unique attributes such as fluency in a second language or acceptance into an ethnocentric locale. This brand identification must be inculcated in all you do, as you continually answer the question: What can I offer that no one else can?   

Approaching about 5-10% of all providers today; but much less for pure concierge or boutique medical practices.

Think: Nieman-Marcus, etc.  

Conclusion: 

Remember, it is better for a physician to consciously decide which competitive strategy to purse; than merely fall into one model, by unthinking default.

Practice Pro-Forma Accounting Statements

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What are Medical Practice Pro-Forma Financial Statements?

[By Staff Writers]

biz-book1Since a start-up medical practice has no historical financial information, simplified Pro Forma’s are estimated statements that are typically projected for 3 years.  They demonstrate the best care, worst case and most likely financial scenarios of a new practice, clinic, healthcare entity, etc. Computerized spreadsheets are ideal for this task.  Other relevant financial information may be included, as needed. 

 Net Income (Profit and Loss) Statement 

By allocating a practice’s profit or loss into operating groups, banks or investors can isolate profitable revenue centers and isolate unprofitable costs drivers. In certain managed care contracts, an analysis to identify unit or per dollar revenues, gross profits and/or gross margins, is vital.  Other non-cash expenses (i.e., depreciation, amortization and deferred taxes) are then deducted from revenues to determine overall net income. All is included in the income statement.  

Cash Flow Statement 

The Statement of Cash Flow (SCF) projects estimated cash flows by month, quarter and year, along with the anticipated timing of cash receipts and disbursements.  The office’s bills and obligations are paid out of cash flow, not net income.  It is very important for accrual based accounting practices; especially in terms of Medicare, Medicaid, MCOs, PPOs and HMOs producing insurance payment time delays and other aged accounting methodologies.  Cash flow reflects the internal generation of fund available to supply operating capital.  

 Balance Sheet 

The Balance Sheet (BS) forecasts the financial condition, assets and liabilities, of an office at a singular point in time.  It projects the ability to meet financial obligation and the capacity to absorb financial setbacks without becoming insolvent. 

Statement of Retained Earnings 

This is a fourth new financial statement, but it is not usually a pro-forma statement since little cash is generated from a new medical practice

Conclusion

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Domestic and Healthcare Economic Indicators

What are Domestic and Medical Economic Indicators?

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There are 12 leading, 6 lagging and 4 co-incidental indicators for the United States economy. And, there are 3 macro-economic medical indicators for physicians and the healthcare industrial complex. Their purpose is to help evaluate which period of the business cycle is in play. 

 

Leading Economic Indicators:  

1. Average workweek for manufacturing production workers

2. Layoff rate in manufacturing

3. New orders for consumer goods

4. Vendor performance and slow/on-time deliveries

5. New business formation

6. New building permits for private housing *

7. Contracts and orders for plants and equipment

8. Net changes in inventories

9. Change in sensitive prices

10. Change in total liquid assets

11. Stock prices

12. Money supply 

  

Co-incidental Economic Indicators: 

1. Employees on non-agricultural payrolls

2. Personal income

3. Industrial production

4. Manufacturing and trade sales 

 

Lagging Economic Indicators:

1. Average duration of unemployment

2. Manufacturing and trade inventories

3. Labor costs per unit of output

4.  Average bank prime interest rates

5. Commercial and industrial loans outstanding

6. Ration of consumer installment dent to personal income [* Often considered the leading, leading economic indicator]. 

Specific Medical Economic Indicators for Physicians 

  1. Medical Labor Production is a measure of medical professional output per hour, or per each unit (patient) of labor. Managed care has decreased labor production cost in medicine.
  2. Unit Medical Labor Costs represent the cost of physician labor (treatment), per unit (CPT code) of output.
  3. Capacity of Medical Utilization is a percentage of the maximum rate at which a medical office, clinical hospital or surgical center can operate under normal conditions. At the rate nears 100 percent, efficiency declines due to mechanical breakdowns, burnout of doctors and employees, and less experienced medical care extenders and para-professionals, etc.

Like domestic economic indicators, these evaluate the macro-economic healthcare business cycle which may be entering the depressed state. And so, what do you think; doctor colleagues and laymen, alike?

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What is the Business Cycle?

The Business [Economic] Cycle Explained

By Staff Writers

The business cycle is also known as the economic cycle and reflects the expansion or contraction in economic activity. Understanding the business cycle and the indicators used to determine its phases may influence investment or economic business decisions and financial or medical planning expectations. 

Although often depicted as the regular rising and falling of an episodic curve, the business cycle is very irregular in terms of amplitude and duration. Moreover, many elements move together during the cycle and individual elements seldom carry enough momentum to cause the cycle to move.  

However, elements may have a domino effect on one another, and this is ultimately drives the cycle, too.  We can also have a large positive cycle, coincident with a smaller but still negative cycle, as may be seen in the current healthcare climate of today. 

  1. First Phase: Trough to Recovery (service and production driven)

Scenario: A depressed GNP leads to declining industrial production and capacity utilization. Decreased workloads result in improved labor productivity and reduced labor (unit) costs until actual producer (wholesale) prices decline. 

  1. Second Phase: Recovery to Expansion (patient and consumer driven)

Scenario: CPI declines (due to reduced wholesale prices) and consumer real income rises, improving consumer sentiment and actual demand for consumer goods. 

  1. Third Phase: Expansion to Peak (service and production driven)

Scenario: GNP raises leading to increased industrial production and capacity utilization. But, labor productivity declines and unit labor costs and producer (wholesale) prices rise. 

  1. Fourth Phase: Peak to Contraction (patient and consumer driven)

Scenario: CPI rises making consumer real income and sentiment erode until consumer demand, and ultimately purchases, shrink dramatically.  Recessions may occur and economists have an alphabet used to describe them.  

For example, with a “V” graph shape, the drop and recovery is quick. For a “U” shaped graph, the economy moves up more sluggishly from the bottom. A “W” is what you would expect: repeated recoveries and declines. An “L” shaper recession describes a prolonged dry economic spell or even depression.

Some pundants believe we may be entering the generalized “U” economic phase, along with the “L” medical economic business cycle. 

What do you think?

Physician Assets, Liabilities and Personal Net Worth

How are Assets and Liabilities Related to Doctor Net Worth?

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Dr. David E. Marcinko MBA 

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Before the relationship among financial assets, liabilities and net worth can be examined, some based definitions must be understood. 

[A] Short-Term Assets

Short-term goals (less than 12 months) require liquidity or short-term assets. These assets include cash, checking and saving accounts, certificates of deposit, and money market accounts. These accounts have two things in common. The principal is guaranteed from risk of loss, and pay a very low interest rate.  As an investment, they are considered substandard and one would only keep what is actually needed for liquidity purposes in these accounts.           

[B] Long-Term Assets

Longer-term assets (more than 12 months) include real estate, mutual funds, retirement plans, stocks, and life insurance cash value policies. Bonds may also be an appropriate long-term investment asset for a number of reasons, for example, if you are seeking a regular and reliable stream of income or if you have no immediate need for the amount of the principal invested. Bonds also can be used to diversify your portfolio and reducing the overall risk that is inherent in stock investments. 

[C] Short-Term Liabilities

Short-term liabilities (less than 12 months) include credit card debt, utility bills, and auto loans or leasing. When a young doctor leaves residency and starts practice, the foremost concern is student debt. This is an unsecured debt that is not backed by any collateral, except a promise to pay. There are recourses that an unsecured creditor can take to recoup the bad debt. Usually, if the unsecured creditor is successful obtaining a judgment, it can force wages to be garnished, and the Department of Education can withhold up to ten percent of a wages without first initiating a lawsuit, if in default.  It is also probable that young medical professionals have been holding at least one credit card since their sophomore year in college.  Credit card companies consider college student the most lucrative target market and medical students hold their first card for an average of fifteen years. There are several other types of other unsecured debt, including department store cards, professional fees, medical and dental bills, alimony, child support, rent; utility bills, personal loans from relatives, and health club dues, to name a few.  

[D] Long-Term Liabilities

A secured debt, on the other hand, is debt that is pledged by a specific property. This is a collateralized loan. Generally, the purchased item is pledged with the proceeds of the loan. This would include long-term liabilities (more than 12 months) such as a mortgage, home equity loan, or a car loan. Although the creditor has the ability to take possession of your property in order to recover a bad debt, it is done very rarely. A creditor is more interested in recovering money. Sometimes, when borrowing money, there may be a requirement to pledge assets that are owned prior to the loan.  

For example, a personal loan from a finance company requires that you pledge all personal property such as your car, furniture, and equipment.  The same property may become subject to a judicial lien if you are sued and a judgment is made against you. In this case, you would not be able to sell or pledge these assets until the judgment is satisfied.

A common example of a lien would be from unpaid federal, state or local taxes. Doctors can be found personally liable for unpaid payroll taxes of employees in their professional corporations.  Be aware that some assets and liabilities defy short or long-term definition. When this happens, simply be consistent in your comparison of financial statements, over time. 

[E] Personal Physician Net Worth

Once the value of all personal assets and liabilities is known, net worth can be determined with the following formula: Net worth = assets minus liabilities. Obviously, higher is better.  In The Millionaire Next Door, Thomas H. Stanley, PhD, and William H. Danko give the following benchmark for net worth accumulation. Although conservative for physicians of a past generation, it may be more applicable in the future because of current managed care environment.

Here is the guide: Multiple your age by your annual pre-tax income from all sources – except inheritances – and divide by ten. 

Real-Life Medical Example: As an HMO pediatrician, Dr. Curtis earned $ 60,000 last year. So, if she is 35, her net worth should be at least $ 210,000.

How do you get to that point? In a word, consume less, save more and watch the student loans. Stanley and Danko found that the typical millionaire set aside 15 percent of earned income annually and has enough invested to survive 10 years, at current income levels if he stopped working.  Now, if Dr. Curtis lost her job tomorrow, how long could she pay herself the same salary? 

[F] Common Liability Management Mistakes

 A common liability management mistake is not recognizing when you are heading for trouble. If doctors are paying only the minimum payments on credit card debt, while continuing to charge purchases at a rate faster than the pay-down, trouble is brewing. If you don’t categorize your debt, you could find yourself paying down non-priority debt while ignoring priority debt.

A priority debt is one that is essential or subject to serious consequences, if not paid. Examples include rent, mortgage payments, utility bills, child support, car payments, unpaid taxes, and other secured debt. If in one month, a doctor had to choose between paying his accounting bill or his rent, it would be essential to pay the rent.

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Conclusion

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About the Federal Reserve [FOMC]

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Always in the News … but, What Does the Federal Reserve Do?

[By Staff Writers]Great Seal

Money lending, or extending credit, is probably one of the oldest professions. It precedes the creation of currency. It wasn’t long ago that the term “usury” was used to describe the charging of interest on borrowed money. Today it is associated with an unlawful rate of interest.  The usury rate is the maximum rate that may be charged for loans made by non-regulated lenders. The rate is calculated and disclosed on the last day of each month by the Treasury commissioner.   

Federal Reserve Activities

The price of the commodity “money” is its interest rate. There are two types of short term interest rates: the discount rate is what the Federal Reserve charges member banks, and the Federal Funds rate is what the member banks charge each other.  A third rate, known as the prime rate, is what banks charge to their most creditworthy clients. Be aware however, that the law of supply and demand determines long-term interest rates, not the Federal Reserve banking stem. 

Perhaps the most vital functions of the Federal Reserve itself includes keeping member banks afloat; providing a system of check collecting and clearance; supplying member banks with paper currency reserve balances; supervising and regulating member banks; and regulating the supply of money and credit.  The Federal Open Market Committee (FOMC) achieves these short-term goals in the following two ways: 

  1. By decreasing the overall money supply, the Federal Reserve sells government securities, forcing member banks to pay for them with dollars. This shrinks free reserves and the capability of banks to supply funds to personal and business owns, such as medical professionals. The borrowed money ultimately leaves the money supply. This is called a tight or contractionary monetary policy.
  2. By increasing the overall money supply, the Federal Reserve buys government securities paying banks with dollars. This expands free reserves and the capability of banks to supply funds to personal and business borrowers, such as medical professionals. The money ultimately enters the money supply. This is called an easy or expansionary money policy.

Of course, the ability to make new loans and increase the money supply is controlled by FOMC reserve requirements. For example, an increase in the reserve requirement lowers free reserves, reduces the ability to borrow, and is contractionary. On the other hand, a decrease in the reserve requirements, raises free reserves, and is expantionary. If the FOMC removes additional reserves, this extraction could begin a painful contraction process as interest rates rise, potentially causing stock market prices to fall.

Assessment

Physicians should be aware that many experts today expect the Fed to ease and lower rates in the coming future because of a slowing economy.

Conclusion

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Of Bull and Bear Markets

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What is a Bull or Bear Market? 

[By Staff Writers]

A bull market is generally one of rising stock prices, while a bear market is the opposite. Metaphorically, a wild bull tends to throw prey up; while a bear claws prey down. There are usually two bulls for every one bear market over the long term.

More specifically, a bear market is defined as a drop of twenty percent or more in a market index from its high, and can vary in duration and severity.   In the bear market of Y-2001, for example, the PE ratio of Standards & Poor’s fell from a high of 36, to a low of about 22. The PE for the Dow DJIA fell to about 19, from its high of 28. Recall, that PE is a measure of share price value relative to earnings per share. Historically, it has been about 15-16, according to most analysts.

However, as a physician investing for the long-term, do not worry since the average bear market has lasted only about a year. Sans the 2001 implosion, the bear markets of the prior past fifty years are listed below, using the Dow Jones Industrial average as a benchmark:

  • Dec. 1961 to June, 1962: Days lasted: 195 Decline: 27% 

  • Feb. to Oct. 1966: Days lasted: 240 Decline: 25% 
  • Dec. 1968 to May, 1970: Days lasted: 539 Decline: 35% 
  • Jan. 1973 to Dec. 1984: Days lasted: 694 Decline: 45% 
  • Sept.1976 to Feb. 1978: Days lasted: 525 Decline: 27% 
  • April 1981 to Aug. 1982: Days lasted: 472 Decline: 24 
  • Aug. to Oct. 1987: Days lasted: 55 Decline: 36 
  • July-Oct. 1990: Days lasted: 86 Decline: 21%

Assessment

What about now?

Today, it’s possible that the United States is already slipping into recession; downturns are recognized only in retrospect, and the Dow is down 10.3 % this last quarter of 2007.

Ironically, The Economist noted recently, 95% of American economists polled in March 2001 said a recession was not likely, but it was already under way. So, go figure!

Still, the Fed’s Beige Book report showed a slowing economy in October 2007. The anecdotal snapshot of the economy said retail sales were relatively soft, and retailers are bracing for a weak holiday shopping season; while demand for residential real estate remained depressed.

So, what do you think? Are we heading for a bull, or bear market?

Bear + A Falling Stock Chart

Conclusion

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Economic Crisis Management

Personal Financial Stress Management for Physicians

Dr. David E. Marcinko; MBA, CMP™

[Publisher in Chief]

Dr. David E. Marcinko MBAThe physician who remains in practice long enough is sure to undergo some adverse situation that may negatively affect his financial life. When it occurs, you must have a crisis management plan in place to deal successfully with the matter. In fact, the following three scenarios typically occur somewhere along life’s journey for the average doctor:                       

· Office Crisis Management

· Employment Crisis Management

· Financial Windfall Crisis Management.

1. Office Crisis Management

Crisis management is a matter of perception versus reality. For example, a high profile patient may die under your watch inducing a PR fiasco. But, then again, such a celebrity had confidence in you in the first place, so all is not lost. Therefore, honest spin control is needed when tragedy strikes: 

· Stay calm and relaxed; but act immediately

· Release detrimental but accurate information and stay neutral

· Educate your staff and local community

· Fix the problem, or minimize recurrence

· Continually release information

· Monitor and report your strategy to all affected parties. 

2. Employment Crisis Management

Sooner or later the employed doctor will be terminated or reduced. Or, a partnership will dissolve; a major local employer will relocate or your hospital will close. If you become aware of impending job loss, the following may help: 

· Decrease retirement contributions to the minimum company match

· Place retirement contribution differences in an after-tax emergency fund

· Eliminate unnecessary payroll deductions and deposit the difference to cash

· Replace group term life insurance with personal term or universal life

·Take your old group term life insurance policy with you, if possible

· Establish a home equity line of credit to verify employment

· Borrow against your pension plan as a last resort.

After you loose your job, negotiate your departure and execute the following: 

· Prioritize fixed monthly bills: rent or mortgage; car payments, utility bills; minimum credit card payments; and restructured long-term debt.

· Consider liquidating assets: emergency fund, checking accounts, investments, or assets held in a child’s name

· Review coverage and increase deductibles on homeowner’s and automobile insurance

· Sell stocks or mutual funds; personal valuables like furnishings, jewelry or real estate; and assets not in pensions or annuities

· Keep or rollover any lump-sum pension or savings plan distribution to your new practice. Pay taxes and penalties as a last resort

· Apply for unemployment insurance and review COBRA coverage

· Consider a high-deductible health plan using tax-deferred dollars. 

3. Financial Windfalls

Although ironic, a financial windfall may be more problematic than short-term financial disadvantage. Consider these suggestions:

· Be discrete; don’t quit practice or disrupt your life materially

· Deposit cash into a money market account and limit access

· Title securities correctly

· Redefine your financial plans, and continue to save and invest

· Pay down non-deductible debt

· Review insurance policies, will, estate plan or trusts

· As an executor, be aware of estate tax freeze benefits using the alternate valuation method

· Consider charitable gifting carefully. 

Hire an Expert 

If any of the above occurs, get tax advice immediately, retain an attorney and hire a financial professional. And, unlike stock-brokers and most financial designees, the Certified Medical Planner© is an emerging new financial-advisor subspecialist and fiduciary with focused medical specificity. 

Conclusion

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[PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

                              Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™  

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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A Real American Healthcare Hero

Call to Action: VAMCS Employee Inspired to Serve 

By Staff Writers

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Captain Cecilia “Terry” Perez, Baltimore VA Medical Center emergency and operating room nurse, answered an internal call to duty after the attacks of September 11.  She told her story exclusively to the Executive Post, and Defend America – an electronic newsletter published by the U.S. Department of Defense.

 

Her story is extraordinary because she decided to join the Army at age 44.  “I felt very proud to be working with our veterans at the time of the events of September 11,” commented Terry.  “Their stories, courage and pride in serving their country in their generation’s time of crisis inspired me to investigate the possibility of joining the reserves.”  

Initially, Captain Perez ANC served with the 67th Combat Support Hospital (CSH) in Tikrit, Iraq, during Operation Iraqi Freedom II.  She makes us proud of her courage in the field and awed by her talents as the ultimate strategist. 

Terry is now stationed at Ft. Lewis in Washington State, having just returned from Baghdad and Baqouba, Iraq. She is with the 3-2 SBCT (Third Brigade, Second Infantry Division, Stryker Brigade Combat Team).

Today, at age 50, she hopes to be discharged by the summer of 2008; a full six years after her heroic journey began. She will then resume blogging, writing, editing and her position as print-guide BOD member.  

And no doubt, a book of her experiences is in the works. 

http://www.defendamerica.mil/CallAction/CalltoAction.html

 

Cecelia

Conclusion

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Our Recommended Book List

A List of Important New Releases in Health Economics, Medical Practice Management and Finance

Staff Writers

Currently recommended book list:

Financial Planning for Physicians and Advisors

Financial Planning Handbook for Physicians and Advisors

http://www.jbpub.com/catalog/9780763733421 

The Business of Medical Practice [Advanced Profit Maximization Techniques for Savvy Doctors]

Advanced Profit Maximization Techniques for Savvy Doctors  

 

 

http://www.springerpub.com/prod.aspx?prod_id=23759 

Risk Management and Insurance for Physicians and Advisors

Insurance and Risk Management Strategies for Physicians and Advisors  

 

 

http://www.jbpub.com/catalog/9780763733421 

Dictionary of Health Insurance and Managed Care

Dictionary of Health Insurance And Managed Care  

 

 

http://www.springerpub.com/prod.aspx?prod_id=49944 

Dictionary of Health Economics and Finance

Dictionary of Health Economics And Finance 

http://www.springerpub.com/prod.aspx?prod_id=02549 

Dictionary of Health Information Technology and Security

Dictionary of Health Information Technology and Security  

 

 

http://www.springerpub.com/prod.aspx?prod_id=49952

And, be sure to review this link for the complete list of all recommended books on related topics of healthcare administration import: www.amazon.com/s/ref=nb_ss_gw/103-2940163-7675863?url=search-alias%3Dstripbooks&field-keywords=david+marcinko&x=11&y=21

Note: Recommendation does not imply endorsement; but add these to your library.

Feel free to write and post a book review, too! 

This HIPAA Mess

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Medical R&D Efforts to Slow?

[By Staff Writers]Prescription Bottle

An Institute of Medicine sponsored survey from 1,527 epidemiology practitioners published in a November 2007 issue of the Journal of the American Medical Association [JAMA], reported that variability in HIPAA interpretation has slowed scientific research by making it more costly and time consuming to the point that some academic institutional  review boards are closing down R&D efforts. 

Assessment

Have you experienced this happening at your medical institution, and what is being done about this HIPAA mess?

Conclusion

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The “Medical Executive-Post” – Well-Known On the National Podium  

[By Staff Writers]stk178242rke

All our print guide, textbook authors and blog editors are well-regarded, witty and insightful speakers targeting informed healthcare administrators, CXOs, physicians, nurse-executives, leaders and related audiences. 

Contact us for more details about having them speak at your next medical conference, financial services meeting, management seminar or corporate retreat: MarcinkoAdvisors@msn.com or [phone: 770.448.0769]

Speakers will be chosen for specific events based on topic areas or proximity, and the Medical Executive-Post staff will arrange logistical details, payment and honoraria; etc. 

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If you represent a medical society, financial institution or are a member of the media or press corps and want to be included on our topic release list; please phone [770.448.0769], fax [775.361.8831] or e-mail us at MarcinkoAdvisors@msn.com  Be sure to include “press list” or other “topic designation” in your subject line.

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA – Editor and Publisher-in-Chief – is available for speaking engagements. Contact him: MarcinkoAdvisors@msn.com Formal CV: dem-formal-cv

About Dr. David Edward Marcinko; MBA [Publisher-in-Chief]

Dr. David E. Marcinko brings to the Executive Post over 20 years of senior–executive level leadership, strategy and advisory experience in the clinical, economics, financial management and health administration technology publishing industry. As founder and CEO of iMBA, a consulting firm targeting physician clients thru the monetization of publishers’ digital assets, Dr. Marcinko has designed and established numerous content licensing strategy and executing deals on behalf of primary and secondary publishers with aggregators, syndicators, redistributors and specialty vendors within the integrated medical information ecosystem.

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About: Ex Education Leadership Philosophy Dr. Marcinko

Business Sketch: Business Sketch DEM

Interview: Arkansas Medical News Interviews Dr. Marcinko

Listen: http://www.audioeducator.com/speakers/dr-david-edward-marcinko

Read Interview: https://healthcarefinancials.wordpress.com/2007/12/01/dr-david-e-marcinko/

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)* 8

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Advertise with Us?

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Reach the Executive Decision-Makers!

By Dr. David Edward Marcinko MBA FACFAS CMP™ [Editor-in-Chief]

By Prof. Hope Rachel Hetico RN MHA CPHQ CMP™ [Managng Editor]

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If you want the opportunity to reach a personalized weekly audience of health care industry insiders, innovators and watchers, the Medical Executive-Post and its educational forums may be right for you?

We are discussed, read and viewed by medical students, physicians, dentists, podiatrists, optometrists and industry analysts; as well as health care administrators, office managers, CXOs, investors, Wall Street insiders and nurse-executives from many health systems in the country. Advertise with us and you’ll put your brand in front of a smart & tightly focused demographic; one at the forefront of our emerging healthcare marketplace of collaboratively informed and professional “movers and shakers.”

Why Advertise with Us?

America‘s medical professionals, practice management consultants and physician focused financial advisors are gravitating to the Internet for informational needs on the healthcare industrial complex. And, since no media currently satisfies their unique personal needs as busy and overburdened professionals, our fundamental mission will be to serve as the interactive business, economic, educational and personal social communication forum for medical professions and related industry participants.

We feature tips, tools, essays, interview, blog comments and other innovative thought-leadership ideas and resources In this day and age of over-saturated information and promotion, our timely and useful web site presents a distinctive opportunity for marketers to make a meaningful connection with busy doctors and al their consulting advisors.  And, clearly, there’s a need for a personal, fast-paced, relevant, protean and practical business resource for all medical professionals.  

For example, according to a 2012 Physicians’ Financial News survey of 650 doctors:

· 86% go online “every day or week” for business information

· 85% are “interested” in a new business web site for themselves

· 70% are “worried” about their medical business. 

According to recent studies from two leading health care research companies Manhattan Research and PERQ/HCI

· 86% of physicians want news and professional links on a web portal

· 80% “always or sometimes” notice online ads

· 78% use the Internet for professional purposes

· 76% want product and treatment updates delivered by e-detailing

· 64% get e-newsletters

· 60 want blogs from “key opinion leaders.”

· 53% spend more than 15 minutes during an Internet visit.

What the Marketing Experts Say

Most marketing experts agree that correct ad placement is important for building exposure for your brand, product or web site. Placing your targeted link in a prominent location on the Medical Executive Post sidebar is therefore vital.

A limited number of spots are available so act quickly to reserve your place, for TODAY AND TOMORROW! 

And, our Medical Executive Post syndicated news feeds go out almost daily to a large audience of senior healthcare administrators and physician-executive readers … and we are growing!

So, catch the eye of some of the smartest people in the health care industry including observers, investors, big pharma, IT executives, CEOs, CFOs, pundits and financial managers – all at the top health care systems, clinics, ASCs, hospitals and physician group practices in the country. And, advertise on the Medical Executive-Post. 

Of course, we are also happy to work with you to create a specialized content section or other innovative promotional package emphasizing your brand and targeting a specific health sector, too.

For more advertising, media and press info: https://healthcarefinancials.wordpress.com/2007/11/11/media-mentions-2/

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Legal Disclaimer:By using the Medical Executive-Post web site, services and discussion groups, you signify acceptance of our Privacy olicy and Terms of Use(r) Agreement. We do not endorse any company/group/website or individual, we perform no background checks or due perform diligence on anyone listing a job or responding to a job posting, we are not liable for any misuse of our services or misrepresentation by our users. You also agree to hold the Medical Executive Post, and iMBA, Inc and its officers or representatives harmless.

FURTHERMORE, WE ARE NOT LIABLE FOR ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF INFORMATION) ARISING OUT OF THE USE OF OR INABILITY TO USE THE MATERIALS, EVEN IF WE HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

If you do not agree to this policy, please do not use our site or services. Your continued use of this site, services and discussion groups following the posting of changes to these terms will mean that you accept those changes. We reserve the right to remove any posting(s) at any time and for any reason. You may not solicit, email or contact Post members without their permission.

Finally the ME-P reserves the right to change the information on this website without notice. We make no representations about the accuracy or completeness of the information on this website or that material available from this site is free of viruses.

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CMS and the Economic S.G.R for 2008-15?

CMS to Docs … Payments to Drop!

[By Staff Writers]

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According to Modern Physician, November 1, 2007, Medicare payments to physicians in 2008 will drop nearly 10 percent under a final rule issued by CMS, which estimates it will pay approximately $58.9 billion to 900,000 physicians and other health care professionals next year. The sustainable growth rate formula, which is tied to the health of the economy and is used to calculate physician payments under the Medicare program, is the force driving the projected cut.

Assessment

Since it has been estimated that payments will drop by more than 40 percent by 2015, unless the SGR is replaced, do you think Congress will adopted interim measures to stop payment reductions?

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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