The Inside Job: Hidden Aspects of Physician Compensation

The most obvious components of physician compensation: Base salary, numerous financial bonus opportunities: sign-on, retention, quality of care, production, ancillary income, benefits, and retirement packages, usually get the most attention of candidates when considering new opportunities. In today’s posting, we will ignore each those components and focus solely on the most often overlooked area in which physicians get ahead financially: COST OF LIVING.

An area’s Cost of Living (COL) will have a major impact in how much disposable income you have available, how large your nest egg will be upon retirement, and how long you will have to work to achieve your financial goals.

Based on my experience, almost 80% of all physicians seek opportunities in metropolitan areas across the nation.  While this may be a great lifestyle choice for all the amenities and services available, it comes with a price in the form of higher than average COL.  If living in, or near, a city is the route you will embark upon, it may behoove you to cast a wider net.  The metro areas with the highest COL are in the Northeast: New York City, Boston, Philadelphia, and Washington DC, and the West Coast: San Francisco, San Diego, Los Angeles, Seattle and Portland. Chicago is also a COL offender.  There are many great cities with lower COL spread throughout the Midwest, South and Southeast: Atlanta, Houston, Indianapolis, St. Louis, and Mobile, to name a few.

Let’s take a simple example of an Internal Medicine physician making MGMA median income in Philadelphia vs. Indianapolis by utilizing the  Cost of Living Calculator supplied by Money Magazine.  The results show that to enjoy the same lifestyle for the $200,000 you earn in Indianapolis, you will have to earn $261,000 in Philadelphia.  Some COL highlights between the two locations include 44% higher utilities, 71% higher housing costs, and 32% higher grocery costs in Philadelphia. Unfortunately $261,000 is over 75%’tile MGMA compensation and not likely to be achieved (for an Internist, where competition is stiff) in most metropolitan areas, even the lower COL locations.

On the flip side, that same $200,000 earned in Philadelphia only requires to be $152,000 in Indianapolis, less than 20%’tile MGMA and easily achievable throughout the country.

In comparing the two, it is easy to conclude that making $200,000 in Indianapolis will provide much more financial security than making that same $200,000 in Philadelphia.  If you simply put half the “extra” Indianapolis money in sound investments, you will be able to enjoy beaches and golf courses while your colleagues continue to work into their golden years.

Saving $24,000/year for 20 years at an extremely modest 2.3% return will produce a total of $609,000 at the end of year 20; a savvy financial planner will likely produce much better results.  And, this still leaves a nice chunk of disposable income that would otherwise be eaten up with general daily expenses living in higher COL cities.

Use the calculator; compare the COL in the area’s in which you are considering opportunities. If that is not enough to convince you of strongly considering an area’s COL during your job search, sit down with your financial adviser and get their opinion on the subject.  COL simply has too great of an impact on your bottom line to be ignored.