The "cost" of additional training

[shikimate]

With GIM transitioning towards 5 years instead of 4, and FM towards 3 years instead of 2, and with many residents doing fellowship after residency, I've talked to many regarding these changes. While there are many perspectives to this issue, one "economic" issue of opportunity cost seems to not be well understood by medical students and residents alike. So I thought I'd explore that issue here a bit.

I am not necessarily advocating against doing more training or fellowship or what not. Sometimes it's necessary to do additional training to practice where, and what you wish. But in my opinion, there is a "tremendous" financial cost to doing additional training early in your career, so like a big decision in life like buying a house, it warrants more considerations from the economic perspective. Let me break it down as follows:

1) First one must understand there is no billing difference between an "expert" and just your "average" doctor in the same specialty. The only difference is the type and location of work you might be able to do. For example in you wish to practice at UHN in downtown Toronto, it's expected you have additional expertise, research output etc.

2) Let's assume that 1 year of full, unrestricted , independent practice as a royal college specialist gives you 400K of gross income which you put into your professional corporation. Let's assume you pay 20% of that for corp tax, fees, and other cost of doing business. This leaves you with 320K net.

3) Let's assume that for the same year, you can do a fellowship, which pays you a salary of 85K, and you are able to do some locum work/moonlighting, which increases your income to 130K. You are not incorporated so you pay full income tax on that amount. Let's assume 30% of that goes for income tax, various cost associated with work etc, so your net is 91K.

4) The difference between 320K and 91K is 229K.

5) Keeping in mind this is your first year after finishing residency. Let's assume you will be practicing for the next 30 years and then retire. Let's suppose you can invest that 229K in a moderate risk portfolio yielding 5% a year, compounding for the next 30 years. In 30 years, it will become 989K. 

6) The caveat is that this 989K is within your corp, so when you take it out you have to pay income or dividend taxes. Let's look at what happens if you use a less tax efficient way.

7) Let's suppose the 400K from paragraph (2) is taken out as personal income, but you can still write off a some as work related expenses. Let's assume that's 20K, so your gross income is 380K before personal income tax. The average income tax rate on that amount is about 40%, which leaves you 228K after tax, compare with 320K in paragraph (2).

8) 228K minus 91K (from paragraph 3) = 137K. Using the same calculation as paragraph (5), in 30 years it becomes 592K.

9) In conclusion, the "opportunity cost" in this simulated scenario varies beween half a million to a million "retirement" dollars. Depending on your financial viewpoint, this can be considered a "tremendous" cost.

[Bambi]

Excellent and valid analysis! 

[Lilirose]

@shikimate, this is very interesting, thanks for the thorough analysis! 

I am wondering what are the chances that these added years will be implemented? For FM, with he actual shortage, wouldn't this be even more problematic? 

 

[zxcccxz]

CC here. Quick question as I'm unfamiliar with how all this works.

If put your income into a corp and pay 20% corp tax - then remove money from that later, do you pay full income tax on that amount? Did you not then get double taxed? Or is the reasoning that you get keep a larger post-tax amount initially, which can then be invested and result in more total money at the end (retirement) due to compounded interest?

[bearded frog]

3 hours ago, shikimate said:

9) In conclusion, the "opportunity cost" in this simulated scenario varies beween half a million to a million "retirement" dollars. Depending on your financial viewpoint, this can be considered a "tremendous" cost.

I have no issues with your math or the conclusion of the "cost", but you don't consider the (potential) long term benefit of a fellowship after residency. You are potentially a better candidate for higher-paying positions, and having more choice in your working situation (ie. can we define financially the benefit of working for UHN in downtown Toronto as compared to a "lesser desired" location?). As someone who personally very carefully considered a non-Royal College fellowship after residency, and who wanted to live/work in a "desirable" urban centre, doing extra training, although it came with opportunity costs, as you say, could potentially accelerate your career advancement by years in terms of positions with higher pay, "prestige" (although that didn't matter to me), and work-life balance.

Obviously this only applies to optional training that would set you apart in the job market... not to mandatory increases in residency training for all comers such as IM/FM, and now mandatory 4 years of pediatrics prior to Royal College subspecializing.

[insomnias]

1 hour ago, bearded frog said:

I have no issues with your math or the conclusion of the "cost", but you don't consider the (potential) long term benefit of a fellowship after residency. You are potentially a better candidate for higher-paying positions, and having more choice in your working situation (ie. can we define financially the benefit of working for UHN in downtown Toronto as compared to a "lesser desired" location?). As someone who personally very carefully considered a non-Royal College fellowship after residency, and who wanted to live/work in a "desirable" urban centre, doing extra training, although it came with opportunity costs, as you say, could potentially accelerate your career advancement by years in terms of positions with higher pay, "prestige" (although that didn't matter to me), and work-life balance.

Obviously this only applies to optional training that would set you apart in the job market... not to mandatory increases in residency training for all comers such as IM/FM, and now mandatory 4 years of pediatrics prior to Royal College subspecializing.

Isn't the general trend that you'll bill more as a community attending than academic attending? This, of course, completely ignores the benefits of having protected research/teaching time and residents to do your paperwork/etc.

[dooogs]

Side note when are they planning to add another year to family med 

[MDee2B]

13 minutes ago, dooogs said:

Side note when are they planning to add another year to family med 

At the earliest 2027 it seems.

https://www.cfpc.ca/CFPC/media/Resources/Education/AFM-OTP-Report.pdf

[shikimate]

To answer one of the questions above regarding taxes, the theoretical benefit is that professional corporation is taxed at a lower rate than personal income tax. Although you do pay personal income tax when you "pay yourself" out of the corp (or dividend tax, depending on how your accountant plans it), you can take it out at a later date, say when you are retired, or not working for some reason, hence your tax rate is low. One assumption is that you do not need the money immediately and can afford to let it wait within the corporation while it's invested. 

Let's use some numbers. I gross 400K, but only need 100K after tax to live and pay bills. If I take that 400K as personal income all at once, I will pay ~45% average tax, which means my after tax income is 220K. Remember I only need 100K after tax to live, so I have 120K extra to invest.

Now compare with example I originally posted, whereby I gross 400K, pay 80K corp tax/expenses, and have 320K left. I need 100K after tax to live, which means I will pay myself a salary of 150K, get taxed at about 30%, and have about 100K after tax. 320K minus 150K = 170K. Compare with 120K, I now have 50K more to invest inside the corporation for when I retire. 

As you can see, the theoretical benefit relies on the fact that you can control when you pay yourself, hence you can plan "tax deferral". For someone who needs the money immediately, or someone who routinely spends all their income without any leftover for savings, this will not be of benefit. 

*The above scenario is very simplified and ignores many nuances, for illustration purpose only.

[shikimate]

To address the concerns by another poster above, there are many benefits to doing fellowship. For some specialties with tight job market such as neurosurgery and orthopedics, it is almost necessary. Certainly having a prestigious fellowship can land you a coveted position which offer various perks such as academic time off, extra-mural income, and certain lucrative procedures (eg certain retinal procedures). 

On the other hand, a PGY4/5 resident who's uncertain regarding their future can resort to fellowships as a way of procrastination, without realizing the cost of such procrastination. They might apply to a few fellowships, go to interviews, feign "interest", publish a case report or two, and eventually force themselves to start a "real" job afterwards. Sometimes the job has limited application of the skills they learned in fellowship, not to mention some skills have been forgotten during the fellowship.

[rmorelan]

On 7/20/2022 at 12:41 PM, zxcccxz said:

CC here. Quick question as I'm unfamiliar with how all this works.

If put your income into a corp and pay 20% corp tax - then remove money from that later, do you pay full income tax on that amount? Did you not then get double taxed? Or is the reasoning that you get keep a larger post-tax amount initially, which can then be invested and result in more total money at the end (retirement) due to compounded interest?

sort of - you do get double taxed yes, but you also get a tax credit equal to the corporate tax you paid when brings you back to base line of the personal rate in the worst case. The logic in doing this at all is when the tax is applied. Tax deferral is very powerful - if you can effectively take 200K in income and pay it out over 2 years vs 1 you have dramatically less tax to pay. That is basically what you are doing - earning money now but paying tax on it later in retirement reducing overall tax. 

 

[rmorelan]

18 hours ago, shikimate said:

To address the concerns by another poster above, there are many benefits to doing fellowship. For some specialties with tight job market such as neurosurgery and orthopedics, it is almost necessary. Certainly having a prestigious fellowship can land you a coveted position which offer various perks such as academic time off, extra-mural income, and certain lucrative procedures (eg certain retinal procedures). 

On the other hand, a PGY4/5 resident who's uncertain regarding their future can resort to fellowships as a way of procrastination, without realizing the cost of such procrastination. They might apply to a few fellowships, go to interviews, feign "interest", publish a case report or two, and eventually force themselves to start a "real" job afterwards. Sometimes the job has limited application of the skills they learned in fellowship, not to mention some skills have been forgotten during the fellowship.

Yeah the biggest reason for doing fellowships is simply to get the job you want ideally where you want it. 

The opportunity cost is very real - but the limitations of not doing it for many (blocked from various practises or hospitals) can quickly lead to it being compulsory once any kind of extended training is offered - it is more feature creep in some situations but we are stuck with one very awkward long term issue in medicine. The volume of "stuff" you need to know goes up every year but the training time in residency stays the same. You either solve that but further dividing up a field into smaller pieces (like IR now is going to be a separate branch than diagnostic radiology for instance), accept you start off your practise knowing you still have a lot to learn (which is true to some extent regardless), or dump it all into fellowships which are in many ways just shorthand for extending residency. Its painful no matter how you deal with it. 

 

[shikimate]

You brought up some good points RM. I was just reading this article, and it brought up some contradictory points actually. On the one hand, they want to increase physician supply, especially FM. On the other hand, this Dr. James Dickinson boasts how other countries train FM for 3-5 years instead of 2. They also mention how medical schools need to pump out FM, but doesn't mention residency funding is done by provinces, not medical schools. Overall this is an amateur, intern level article.

This exposes the "opportunity cost" of medical training that these news outlets do not focus on. Imagine if to become a teacher, you need Doctor of Education, which means 4 year undergrad, 4 year teacher's college, 5 year practicum, maybe a "fellowship" in teaching. Would many people pursue teacher's school? In the current climate, there are many alternatives for smart, overachieving undergrads. DDS comes to mind, it does not require a residency for general practice, and the earning potential is no less than many medical specialties.

https://www.cbc.ca/news/canada/london/aspiring-family-doctor-moving-to-u-s-1.6527255

I once met a doctor who graduated from Ohio State U in 3 years. He said back then the state had a shortage of doctors, so they decided to have special cohorts that would do classes in summer and graduate in 3 years. This would make more sense. For people who want to "lock" into traditional FM, have a special route of 2 year undergrad + 3 year med school + 3 year residency. This way they get through 8 years of school in 6, and receive an additional year of residency, boosting their clinical ability. The overall length is 8, which is still shorter than the traditional 4+4+2, making it attractive for applicants. Limitations can be put onto these students in that they cannot do +1 training after and cannot apply to specialist residencies. 

[LoquaciousLoquat]

1 hour ago, shikimate said:

 

I once met a doctor who graduated from Ohio State U in 3 years. He said back then the state had a shortage of doctors, so they decided to have special cohorts that would do classes in summer and graduate in 3 years. This would make more sense. For people who want to "lock" into traditional FM, have a special route of 2 year undergrad + 3 year med school + 3 year residency. This way they get through 8 years of school in 6, and receive an additional year of residency, boosting their clinical ability. The overall length is 8, which is still shorter than the traditional 4+4+2, making it attractive for applicants. Limitations can be put onto these students in that they cannot do +1 training after and cannot apply to specialist residencies. 

I agree with this. I made a point earlier about how family medicine training should be split into two streams: one just for primary care, and the other for ER / hospitalist / OB. Currently, not only is the length of training an issue, but we are also fundamentally training graduates for two entirely different practice settings (outpatient community clinic vs. inpatient / hospital-based) in one residency.

A primary-care focused stream (perhaps with an accelerated track with the trade-off of not being able to do +1's or further specialization) would make a lot of sense.

 

[ChemPetE]

I promote the 3 year UME curriculum of University of Calgary and McMaster for this purpose. There are lot of inter-school comparisons and other pros/cons/family location, etc and everyone has their own take for sure, but the opportunity cost of a 3 year as opposed to 4 year medical school is nothing to sneeze at. That is one further year extra of full staff billing, without removing the ability for subspecialty training such as fellowship, etc.

There was one new medical student I spoke with a few months back trying to decide between a 3 year program in their home city and a 4 year program in a very high cost of living city that they would not have family supports. The opportunity cost ignoring time value of money over the course of UME training was around 200k, let alone the extra year of staff income. Taking into account interest and time value of money of this front-loaded debt made it a very expensive decision, but they were not persuaded. Not my decision, but an often ignored aspect of deciding (if one has the luxury) of where to train for the MD portion.

[Edict]

Or we could just raise the salaries of residents and fellows. We're all in a rush to finish training, but that's really only because of the financial cost. We should have a more graded system, imagine if fellows were paid 150-200k a year. 

I have to say though, there are so many variables involved, that you can't really simply do a calculation and have it apply to most and of course each person's life is so individualized. Some people don't need the money, others need to be in a certain location, some desperately need the money as soon as possible. It's just so hard to generalize. Plus, no one can really predict how things will play out, a dollar today is worth more than an IOU for 20 years from now. 

[realMD]

Interesting topic. Like many, i did complete subspecialty training followed by fellowship year.

 

i will say that in the past 1-2 years, not everyone had a job lined up where you start working full-time amounts. Most people who started work right away had a slow ramp-up over months to even build up to a full time practice. 
 

Fellowship year was a less bumpy ramp up to the independent practice. Yeah you got paid pretty cheap salary, funded or unfunded usually sub-$100. However depending on your ‘fellowship’ you may get a number of other opportunities to supplement income either via locuming on your down-time or actually bill during your fellowship year.

i for one had a fellowship salary 50-70k but worked enough to bill 300k the fellowship year.

 

I do however recommend one choose fellowship based on what additional monetizing skills you will obtain - if your goal is to boost your income.

eg, for surgical specialties this means asking if the additional fellowship provides you with skills to access new billing codes with better fee rate. For medical specialties, similarly does it provide you with better billing codes (eg. Diagnostic tests, procedural skills etc). 
 

bottomline is, if you dont have a job that is full-time lined up, fellowship can be a flexible transitioning year

[HounsfieldUnit]

Hi all;

In diagnostic radiology (my specialty) a year of fellowship training is pretty much required to get a job.  Especially an academic job.  Even if you don't have a fellowship, and wish to work in the community, and even though (currently) there are myriad jobs (academic and community) available, a CV which contains a fellowship is much more favourable than one without.