MtoM #112 - Family Physicians Start Direct Primary Care Practice

This is the White Coat Investor Podcast, Milestones to Millionaire Celebrating stories of success along the journey to financial freedom.

This is Milestones to Millionaire podcast number 112. Family physicians start Direct Primary Care Practice at some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. All right, today we're going to do two things. We've been listening to you. I know it's weird that people would actually take your feedback and use it, but we appreciate your feedback. Feedback's an interesting thing though, right? I mean, all of you have asked for feedback from your superiors during your training, you know, and, you know, maybe an attending gave you a few tips and it didn't feel good maybe to hear them at the time, but you knew it was. It was helpful advice and you implemented and became better because of it. Well, imagine if you had 2,500 or 3,000 attendings all giving you advice. You know, some of it's contradictory, some of it's useful, some of it's not as useful. But after reading through suggestions for improvement from 2,000 plus people, you don't necessarily feel all that good about yourself. It's just the sheer volume of it. Every individual tip's super helpful when you read it all at once. Bad idea. It turns out you should definitely read it slowly in multiple sessions. But we got lots of great advice for how to improve the podcast. We'll be implementing lots of those things over time this year, and so we appreciate that feedback. It's a good reminder to me of just how important the podcast is in White Coat Investor land. There are a lot of you listening to the podcast, and it's a big part of your experience with a White Coat investor. I always consider myself a blogger More than a podcaster podcast, just something we do on the side. But the truth is the podcast is reaching more of you than the blog. Don't forget about the blog. There's 3,000 blog posts sitting on the website answering every question you could possibly think of as far as the finances of white coat investors goes. So be sure to check that out. If you have a question, you're not finding an answer, go there, search, you'll find it. It's amazing what you can learn on the website, so don't forget about that resource. But today we're going to do an interview. It's a great interview. It's a repeat guest on the show with another milestone. And then I'm going to talk for a few minutes about, you know, kind of a little bit of a back to basics approach. I think we'll start today talking about some disability insurance issues. So stay tuned after the interview. Don't shut off your podcast as soon as it's over. We're going to talk about disability insurance afterward. But let's bring our guest on. Our guest today on the Milestones to Millionaire podcast is Katie. Welcome back to the podcast, Katie.

Thank you.

Katie is a family physician who is also our guest on milestones podcast number 48, which she came on early in 2022 and talked about paying off student loans. But today we're talking about a different milestone. Katie, tell us what you've done.

Well, in the time since we paid off our student debt, I remember a question that you asked me was, what are you going to do next? And at that point, I didn't know, I knew was going to go part time. And then after that, once we realized we didn't have as many financial obligations, my husband and I realized a couple months after that that we didn't want to work in the system anymore. And so then we started exploring what that would mean. And we took the next year to develop a plan to open our own private practice. And we saved money and we couldn't have done it if we'd had all that debt hanging over our heads. And, and we were able to open the doors in September of 2022.

That's pretty exciting. So tell us about the transition. How'd it work?

Well, I think there's so much to be learned here, and part of it is being on top of your finances and getting to that point where you don't need to make a high income all the time. And that was part of the transition for us, was realizing that if we opened our own practice, there was Gonna be a period of time where we were gonna make little to no money while we were building things, and we had to have the financial flexibility to be able to handle that. And so we just sat down and looked at what our expenditures were and cut those back for a full year and saved as much as we possibly could. We're six months into this and just now paying ourselves. And I worked for about four or five months before I joined, and so we were able to keep our health insurance and keep some income. But it's. That has been a big transition for us is accepting the lower income for a short term.

So let me sketch this out. It sounds like you decided we're gonna open a direct primary care practice. We're gonna send one at a time to do it, and then one person will go and then the next person will join them. That allows us to keep the health insurance, keep some income coming in. We're gonna save up this big war chest of money for six months before we get started. But eventually we both hope to be in that practice. That's pretty much the plan, right?

That was the plan.

So how big was the war chest? How much were you guys able to save up?

I'd say we saved up about 100,000.

Okay, so you saved up about 100,000 and then you decided he was going to practice first, is that right?

That's correct.

So he started the direct primary care practice. What month did you say? August. September.

September of 2022.

Okay, so September 2022, he walks in there, hangs out the shingle. Come on, patients. And what happened?

Well, I mean, we were both faculty physicians, so we didn't have enormous practices of our own. We taught mostly and so he got some of his patients to follow him. But mostly it's been a slow build and, you know, to cover overhead, we didn't take a paycheck for a while there and we've been working on finding side gigs that can also pay the bills. And so that's been a journey as well, looking at what you can do when you're opted out of Medicare and what options are available for you.

Okay, so what, what? I mean, I'm sure the academic practice was not thrilled that some of his patients were following him to the new practice. Was there some sort of a workaround he had to do there so that he didn't end up with some weird non compete problem or something?

Yeah, so we had, both of us had non compete, but ours was only restrictive if we joined another practice. If we opened our own practice, we were Released from our non compete. We had a pretty strict non solicit and so we couldn't really talk about it. But we live in a small town, so people talked about it for us. And they generally assume that about 5 to 10% of patients will leave a fee for service practice and join a doctor at their direct primary care practice. We found that to be true. So most of our patients stayed behind at our last practice. I doubt they even noticed.

Yeah. Okay, so how many patients a day was he seeing that first month?

One, maybe two.

Wow. So what did you spend the rest of the day doing? Was he going around talking to other people to market? I mean, what was he doing?

He was going door to door to small businesses and especially kind of the other parts of the health care system that aren't the doctors, you know, that aren't the physicians. So you've got your chiropractors, you have dentists. We reached out to them. We were reaching out to farmers, sent letters to all the farmers in our community. People that maybe had folks coming in the door looking for doctors or people that might have high deductible health insurance that would be a really good fit for a direct primary care practice.

Yeah, so, I mean, specialists, when they open a practice, they go to the primary doctors, they go to the ers and try to get referrals. You can't really do that when you're doing primary care. You got to go directly to the patient. So that's. That's pretty cool. Okay, so what point did you say, all right, you know, the boat's close enough to the dock now I can leave my practice and join him?

Well, I mean, we got. One of the things that you can do when you're opted out of Medicare is you can do these veterans exams through VES and it pays. Okay. So we started having some money coming in the door that Ryan was doing. So once that happened and once we reached about 50 to 60 patients, I realized we were building enough I could put in my notice because I had. I had to put in a long notice. And we also. I wanted to join him really badly because he's delivering such high quality primary care and patients love it. And we're both so tired of the grind of the number of patients you have to see nowadays in a typical feed for service practice. We just decided we would tighten our belts a little bit more and get me here earlier than we'd initially planned.

Now, you were there on faculty at an academic hospital. I'm sure you had a number of discussions in these Months after your husband had left and you were still there with your trainees. Tell us about some of those discussions. What were those like when you told them what you were doing?

You know, this has been such an interesting journey because I think we all get told, like especially in primary care, that when you graduate, you're going to be an employed physician. And this is just how it is. And so to be able to talk with residents, to say, you know, there is another option. And although some people can go into this option straight out of residency, not everybody can. And if you have a high amount of student loan debt, you may not be able to take a leap like this right away. But my discussions with, with residents have been about how can you pay off your debt quickly. Don't buy the huge house, don't buy the fancy car. Keep as much flexibility as possible. So if you don't love your job that you take, you suddenly will have opportunities to open your own practice if you want to, because you can take that financial risk. And so those were kind of the discussions I had with people. And I would love to see another direct primary care doctor in our town. I think there's space for it. And so I have been talking to different colleagues about what we're doing and just saying, you know, it's possible. Think about this. This is really exciting.

You're the only one in town right now.

Only one doing our model. Yep.

Yeah. So let's talk about the specifics a little bit. Before or when you were both practicing at the academic center, approximately what were you making together? And now what are you guys able to take out of the practice in a given month?

Well, with two full time family physicians, I think we maxed out one year at 400, but there were other years with maternity leaves and me going part time and some years we didn't make that. And then now I think we are going to make about 100,000 total between the two of us right now. But we don't know what each month will bring. The more patients sign up, the more our income will go up. And so right now it's low. But within the direct primary care community, when we've talked, this is temporary. And as long as you see continued growth, which we do, it will continue to go up as long as we can keep our overhead low.

So. So this year you might only make $100,000.

It's very possible we might only make $100,000 this year.

And how about the war chest? Is it gone yet? Do you burn through it?

It is not gone. No, it's not gone. We sold some things. I sold my car and I bought a 17 year old Honda Element with, with cash. So I already owned my other car with cash. We bought it a couple years ago, so we were able to get money from that. So we've just been cutting everywhere we can. And I'll tell you, we have seen no drop in our overall happiness. Our kids are happier, we spend more time with our friends, we spend more time doing things in the community because we're not going anywhere. And that has been the most surprising part about it, is that we're used to spending all this money. Now we don't and we're happier.

It's interesting, but you expect a higher income, it sounds like down the road. Do you expect you'll end up making more than you were making in academics eventually?

I think that's something we get to decide and that's the joy of this model is you get to figure out, well, how many patients do we need to see to make the income that we need to make? I don't know. I don't know that we're going to make more than we made in our busiest years. But I tell you, those busy years when we were making all that money, I don't even remember them. The children were really little, we were working all the time, nights, weekends, OB call for my husband, inpatient work for me, it was so busy. I don't know that we ever want to be that busy again. And I think we'll be content to make less money and not be running around like crazy, if that makes sense.

Yeah. Now I know what direct primary care is, but there may be some people out there who don't know what it is. Can you give us a 20 second explanation of what direct primary care is?

Absolutely. I've gotten some practice doing this. So with direct primary care, we operate outside of insurance and that allows us to spend more time with our patients and really get to the bottom of what their goals are and then actually help them achieve those goals. We make our money through a membership model and so patients pay a monthly fee to see us. Members are. Then they gain access to our laboratory services so they can get discounted laboratory services and then we dispense some medications on site in our state and so we can dispense medications at cost, which can save people money.

Awesome. Well, Katie, congratulations on your success. This is exciting to be able to make such changes in your life because you have your financial ducks in a row. So I think that's a great lesson. To other White coat investors, you can create the life you want. There may be some financial sacrifice involved, and you obviously need to run the numbers out in advance to make sure it's going to work out. But you guys have done that, and so it's a great example. So congratulations to you on your success, and thank you. Thanks so much for coming on the podcast and sharing it with us.

Yeah, thank you. I'm just so grateful that we stumbled on this path so many years ago and were able to pay down our debt, not take on any new debt. And now we have 20 years of career ahead of us, and we're driving the train, and I think we're probably going to see more of that in the future, because that's the only way you have control of your career is if you own it.

Yeah, for sure. Control is definitely key to career longevity. No doubt about it. Awesome. Well, thank you so much.

Yeah, thanks.

Okay, Great interview. I enjoyed that. It's always fun to see you guys and your successes. I love hearing about your successes. I mean, I like hearing about your challenges, too, but I love it when White Coat investors are able to take control of their lives, take control of your practices and to find that success you're looking for. And it's amazing when you have this foundation of financial literacy, what becomes possible in designing your ideal life and implementing it and getting what you really want in life? I think there's a lot of lessons there, not only in the methodical way in which they made their career transition, but also just in the lessons they learned of what was really important to them in their lives. And even if they don't make what they were making before, they're perfectly happy, you know, because they've got their finances, their financial ducks in a row. They're going to be fine, and they're doing what they want to do. They've ensured career longevity. And so I think it's pretty awesome what they're doing. All right, let's talk for a few minutes about disability insurance. And, you know, there's a lot of you out there that don't have disability insurance. That's a problem. Now, there's a few people that don't need disability insurance. If you're not sure if that's you, here's the easy test. What is your plan if you get disabled tomorrow, financially speaking? What's the plan? How do you keep food on the table? How do you keep a roof over your head? How do you provide for your family? How do you save for retirement if you've Got an answer for that? That doesn't require disability insurance, then sure, you don't need disability insurance. For example, some people, you know, let's say there's an orthopedist married to a plastic surgeon, and they're like, you know what, if one of us gets disabled, we're just going to live on the other one's income. We make plenty of money, and that's a perfectly reasonable disability plan. Maybe somebody else has a very wealthy parent who's like, you know, if I get disabled, my mom's going to take care of me. Great, you've got a plan. Other people, you're financially independent. I no longer have disability insurance. We canceled it, saved the premiums. We don't need it. If I became disabled, we've got enough money, we could live the rest of our lives. So this isn't something you have to keep forever. You only keep it until financial independence. But for the vast majority of practicing doctors, this is probably your most important insurance policy. Some statistics are as high as one out of seven doctors will use their disability insurance policy at some point during their career. It might be that they only use it for a few months. You know, most disabilities aren't permanent, but there are plenty of permanent disabilities. And if you don't have it, your other options are not great. Maybe there's still some job you can do, but it probably doesn't pay nearly as much as medicine. Maybe you're disabled enough that you qualify for Social Security disability, right? Maybe you've got a partner that can go to work and provide for the family, you know, but generally your financial life changes dramatically. And the goal for most people is that their financial life is about the same whether they're disabled or not disabled. And so that usually requires a pretty significantly sized disability insurance policy. Probably typical for most attendings is a benefit of something like 10,000 to $20,000 a month, usually kicks in after three months of being disabled. So you live on your emergency fund for a few months, and then the disability payments start coming in. How much do you need? Well, it depends on how much you spend. You know, disability insurance benefits from a private individual disability insurance policy are generally tax free, so you don't have to replace the money that you're paying toward taxes now, not payroll taxes, not income taxes, but you do need to replace all your living expenses. And plus, since most of these policies only pay to age 65 or so, you also need to replace what you're saving for retirement, or at least enough for retirement that you could also continue your lifestyle after age 65. So if you're spending $10,000 a month, maybe you need a policy that you know pays $12,000 or $13,000 a month. If you're spending $20,000 a month, you might want to look into trying to get a policy that'll pay you as much as $30,000 a month. And that's expensive. You get sticker shock when you go out and buy disability insurance because it's expensive stuff. A good policy, even if you buy it when you're young and healthy, typically costs 2 to 6% of the income that you're protecting. So if you're buying a $10,000 monthly benefit, that's going to cost you ready for this, $200 to $600 a month. That's just what it costs. And if you're older or you got some sort of medical problem, assuming you can still qualify to get disability insurance is going to cost a little bit more. You're much better off buying this early. You're probably better off even though you're paying more years of premiums, the premiums are lower, aside from the fact that you need the coverage most early in your career. So the time to buy this is when you have an income, right? So as an intern, when you come out of medical school, it's time to get something in place. You probably can't afford as much as you need while you're still in training. And so when you come out of training, you need to buy more, either a separate policy or exercise a future purchase option rider that came with the policy. There's also short term disability out there. You generally don't need that. If you have an emergency fund of three months that covers short term disability. Now, you might think it's a really good deal. Maybe you've got one of those policies that'll pay if you go on maternity leave or something. And maybe you want that sort of thing. Look at the benefits. But short term disability is not a financial catastrophe. The catastrophe is being disabled for decades. That's the catastrophe you're trying to insure against. So that's mainly where your focus ought to be. I would much rather see you buy a little bit more of a base benefit on your long term policy than spend money on a short term policy. Now, of course, that assumes you've got your financial ducks in a row, that you've got an emergency fund of some kind, some sort of resources to cover that first 90 days, and maybe by the time you actually start getting payments, might be closer to 120 days, and you don't want to be putting all your living expenses on credit cards for that time period. All right, so own occupation, specialty specific coverage is what you're looking for. You probably want an inflation rider on there. You definitely need a partial disability rider on there. If you're in training, you probably need a future purchase option rider, but you don't need any of the gimmicky riders, the retirement riders, the student loan riders, the catastrophic disability riders. Just buy a bigger base policy instead of buying that sort of stuff. If you are in the position where you've got some dangerous hobbies, maybe you climb rocks and go scuba diving like I do. And those activities are often excluded from your disability policy, meaning if you get disabled doing them, they're not going to cover you. So best to get these policies in place before you pick up dangerous hobbies or after you haven't been doing them for a year because you got really busy as an intern or something like that. Medical problems can also give you some exclusions is what usually happens. You know, if you've got a back issue that's excluded from what they will pay for. If you get disabled due to a back issue, it's not going to pay. So you definitely want to get these in place before you have those issues. If you do have those issues, talk to your agent about it and do the best you can. You know, you might have an exclusion, but chances are good you'd be disabled from something else instead of that problem. So it may still be worth buying the policy. So how do you buy this? Well, the easiest way is to go to an experienced independent insurance agent. And the best ones out there that we know of are on our recommended list. If you go to whitecoatinvestor.com, recommended tab. Second thing down is insurance agents. And these folks, this is all they do. They sell disability insurance policies all day long. They can sell them from any of the big five or six companies and they know the ins and outs of these policies and they can help you get the one you need because it's specialty, gender, state and medical problem specific. Like for me, if I was going to buy a new policy as an emergency doc in Utah, as a male, I'd probably end up with a principal policy today. But that's not the case for somebody that's a gastroenterologist, a female living in Arizona, it could be a totally different company's policy that makes more sense for you. So you really do need to buy from an independent agent rather than an agent that only sells from one of the companies, they're going to get paid. Well to sell this to you, they get a big commission. It's multiple thousands of dollars commission that they're being paid for this. And so use them, get advice, have them show you multiple policies. Have them educate you on how these policies work. You only have to get this education once. Most people only buy disability insurance once, maybe twice. But you want to know what you're buying because it's a big purchase, it's not cheap. So if you don't have disability insurance in place, please get disability insurance in place. Yes, there are doctors that are living on these policies. It happens all the time. Don't kid yourself that this can't happen to you. You're not invincible. All right, enough about disability insurance. I think this podcast has gone long enough. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. All right, if you want to come on the podcast, go to whitecoatinvestor.commilestones and you can apply to be on the podcast. There we will celebrate whatever financial milestone you have accomplished. We'll celebrate that with you, and we'll use it to inspire others to do the same. In the meantime, keep your head up, shoulders back. You've got this. We're here to help. We'll see you next time on the podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.